INSOLVENCY AND BANKRUPTCY ACT, 2016

INSOLVENCY AND BANKRUPTCY ACT AND ITS IMPACT ON

BANKING SECTOR

Submitted by:

Divya Raunak, B.A. L.L.B (Hons)

Submitted to:

Mr. Vijayant Sinha,

Faculty of Legal Methods and Research Methodology.

This final draft is submitted in the complete fulfilment of the topic Insolvency
and Bankruptcy Act and its impact on the banking sector.

6th of September, 2019.

Chanakya National Law University, Patna

 INSOLVENCY AND BANKRUPTCY ACT, 2016

Table of Contents
ACKNOWLEDGEMENT .............................................................................................................. 4
DECLARATION ............................................................................................................................ 5
1. CHAPTER 1. INTRODUCTION ............................................................................................ 7
1.1 1.1 HISTORY OF IBC ACT. ........................................................................................... 8
2. CHAPTER 2: RESEARCH METHODOLOGY ..................................................................... 9
2.1 Method of Research ......................................................................................................... 9
2.2 Aims and Objectives ...................................................................................................... 10
2.3 Hypothesis: ..................................................................................................................... 10
2.4 Limitation: ...................................................................................................................... 10
2.5 Research Questions: ....................................................................................................... 10
3. CHAPTER:3 –Basic concept of Insolvency and Bankruptcy Law ....................................... 11
3.1 3.1 Non- performing assets ............................................................................................ 11
3.2 3.2 Types of Nonperforming Assets .............................................................................. 12
3.3 The Effects of NPAs ...................................................................................................... 12
3.4 Recovering Losses.......................................................................................................... 13
3.5 Need to bring IBC law. .................................................................................................. 13
3.6 Objectives of the Code ................................................................................................... 13
3.7 Procedure to claim support from IBC law. .................................................................... 14
4. CHAPTER 4: Insolvency and Bankruptcy Board of India. ................................................... 16
4.1 Functions of Insolvency and Bankruptcy Board of India. ............................................. 16
4.2 Insolvency Professionals. ............................................................................................... 17
4.3 Organizational structure of IBBI. ................................................................................... 17
4.4 Other tribunals concerned to insolvency and bankruptcy board of India. ..................... 18
4.4.1 NCLT( National Company Law Tribunal)- ............................................................ 18
4.4.2 NCLAT(( National Company Law Appellate Tribunal)- ....................................... 18
4.4.3 Debt recovery tribunal (DRT)- ............................................................................... 18
4.4.4 Competition commission of India- ......................................................................... 19
5. CHAPTER 5: Important sections of IBC.............................................................................. 20
5.1 Section (29) of IBC act, 2016- ....................................................................................... 21
 INSOLVENCY AND BANKRUPTCY ACT, 2016

5.2 Sec (74) of IBC- ............................................................................................................. 23

5.3 Section 61 of IBC-.......................................................................................................... 25
6. CHAPTER 6: Important cases. ............................................................................................. 27
6.1 Bhushan steel case. ......................................................................................................... 27
6.2 Arcelor mittal India private vs Satish Kumar Gupta and others. ................................... 28
7. CHAPTER 7: Conclusion ..................................................................................................... 31
8. CHAPTER 8: Bibliography .................................................................................................. 32
8.1 Books referred ................................................................................................................ 32
8.2 Websites referred............................................................................................................ 32
 INSOLVENCY AND BANKRUPTCY ACT, 2016

ACKNOWLEDGEMENT

I would like to thank my faculty Mr. Vijayant Sinha, whose assignment of such a relevant topic
made me work towards knowing the subject with a greater interest and enthusiasm and moreover
he guided me throughout the project.

I owe the present accomplishment of my project to my friends, who helped me immensely with
sources of research materials throughout the project and without whom I couldn’t have
completed it in the present way.

I would also like to extend my gratitude to my parents and all those unseen hands who helped me
out at every stage of my project.

THANK YOU!
NAME-DIVYA RAUNAK
ROLL NO- 2119
1ST Semester (ba.llb)
 INSOLVENCY AND BANKRUPTCY ACT, 2016

DECLARATION

I hereby declare that the work reported in the B.A.LL.B (Hons.) Project Report entitled
“INSOLVENCY AND BANKRUPTCY CODE” submitted at CHANAKYA NATIONAL
LAW UNIVERSITY, PATNA is an authentic record of my work carried under the supervision
of Mr. Vijayant Sinha. I have not submitted this work elsewhere for any other degree or diploma.
I am fully responsible for the contents of my project report.

DIVYA RAUNAK
CHANAKYA NATIONAL LAW UNIVERSITY, PATNA
06/09/2019
INSOLVENCY AND BANKRUPTCY ACT, 2016
INSOLVENCY AND BANKRUPTCY ACT, 2016

1. CHAPTER 1. INTRODUCTION

“I spend my life constantly calling in ‘imaginary’ debts that aren’t owed to me

in order to avoid the ‘real’ debts that I owe to others, and so everybody ends up
bankrupt.”
― Craig D. Lounsbrough, Author

The author has put emphasis on the introduction of Insolvency and bankruptcy
code, 2016. This is a major economic reform introduced by the ruling government
in 2016. It solved many problems regarding the non performing assets of the
banks.
It is an act to consolidate and amend the laws relating to reorganisation and
insolvency resolution of corporate persons, partner ships firms and individuals in
a time bound manner for maximisation of value of assets of such person, to
promote entrepreneurship, availability of credit and balance the interests of all the
stakeholders including alteration in the order of priority of payment of
government dues and to establish an Insolvency and Bankruptcy Board of India,
and for other matters connected therewith or incidental thereto.

Since our banking sector is facing the problem of nonperforming assets . They
were and are facing heavy losses. There were imminent needs to bring any such
act which can solve the problems of nonperforming assets in a time bound
manner. 1332 cases solved before the National company law tribunal (NCLT).
4452 cases disposed at the very pre admission stage .Amount of around Rs 2.02
lakh crore were settled. 66 cases resolved after adjudication in a time bound
manner. There was also realisation of creditors of around Rs. 80,000 cr in
resolution cases. Defaulters know that when they will not return the loan amount
in a particular period of time then they will get into insolvency and bankruptcy
code. They will also have to face the provision of section (29) of the IB Act.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

The purpose of this project is to enlist the provisions, tribunal and functionaries of
the IBC. But this act has also many loopholes and there has been suggestion
regarding the very act but still the work has not been accomplished.

1.1 1.1 HISTORY OF IBC ACT1.

The Insolvency and Bankruptcy Code, 2015 was introduced in the Lok Sabha on 21 December
2015 by Finance Minister, Arun Jaitley. The Code was referred to a Joint Committee of
Parliament on 23 December 2015, and recommended by the Committee on 28 April 2016. The
Code was passed by the Lok Sabha on 5 May 2016 and by the Rajya Sabha on 11 May 2016.
The Code received assent from President Pranab Mukherjee on 28 May, and was notified in The
Gazette of India on 28 May 2016.

The Code was passed by parliament in May 2016 and became effective in December 2016. It
aimed to repeal the, among others. Presidency Towns Insolvency Act, 1909 and Sick Industrial
Companies (Special Provisions) Repeal Act, 2003

The first insolvency resolution order under this code was passed by National Company Law
Tribunal (NCLT) in the case of Synergies-Doorway Automotive Ltd on 14 August 2017 and the
second resolution plan was submitted in the case of Prowess International Private Limited. The
plea for insolvency was submitted by company on 23 January 2017. The resolution plan was
submitted to NCLT within a period of 180 days as required by the code, and the approval for the
same was received on 2 August 2017 from the tribunal. The final order was uploaded on 14
August 2017 on the NCLT website.

1
//www.ibbi.gov.in
 INSOLVENCY AND BANKRUPTCY ACT, 2016

2. CHAPTER 2: RESEARCH METHODOLOGY

2.1 Method of Research

The researcher has adopted a purely doctrinal method of research. The researcher has made
extensive use of the library at the Chanakya National Law University and also the internet
sources. The researcher will do doctrinal type of research in which he will go through the
primary as well secondary sources. The researcher through this methodology will be able to get
an exact picture of the problem in question. The doctrinal method helps in doing a comparative
study of the topic. This methodology helps in going through not only the work of one eminent
person but of many other too. This helps in getting the bird’s eye view of the subject.

To satisfy the need of the project, the researcher will go through section by section and clause by
clause of each section in question. Then, the researcher will cross check the commentary of those
provisions. This methodology will be the most effective way in preparing the project.

The researcher will also discuss about various reforms introduced in the banking sectors by the
government and its effectiveness on the Indian economy .researcher will also discuss about
NCLT, function and powers of IBC, throws some light on the controversial section (29) of the
IBC act.

The researcher has also planned to make a chart showing the data how the provisions are
misused by the opposite sex. The state wise data of false cases out of the total cases filed will
show the actual face of the menace.

The researcher has also planned to make an informative ppt which will primarily focus on the
law commission reports and the Supreme Court decisions which will give the rationale behind
the concept of IBC. It will show the change in the cases before the SC with time.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

2.2 Aims and Objectives

The aim of the researcher is:

1. To understand what is Insolvency and Bankruptcy Act.

2. To know about the functioning of Insolvency and Bankruptcy Board.
3. To enlist the provision of tribunals of IBC.
4. To study and suggest some of the amendments to fulfil the loopholes of this act

2.3 Hypothesis:
The researcher has made the following hypothesis:
Shopping for an insolvency forum within the India appears to have become a rather
popular topic of debate in the recent years. The problem of nonperforming assets of the
bank is soaring with a high rate which is fatal for the Indian banking system.
Whether after introduction of Insolvency and bankruptcy code, problems of
nonperforming assets have been solved or the various functionaries of IBC are working
according to their rules and regulations. Effectiveness of IBC on ease of doing business
and solution of twin balance sheet problem.

2.4 Limitation:
The presented research is confined to a time limit of one month and this research contains
doctrinal works, which are limited to library and internet sources and empirical research.

2.5 Research Questions:

1. What is Insolvency and Bankruptcy Act?
2. What is the Insolvency and Bankruptcy Board?
3. How does Insolvency and Bankruptcy Board work?
4. What are the tribunals that are working under IBC law?
 INSOLVENCY AND BANKRUPTCY ACT, 2016

3. CHAPTER:3 –Basic concept of Insolvency and Bankruptcy Law

Insolvency and Bankruptcy code-An Act to consolidate and amend the laws relating to
reorganization and insolvency resolution of corporate persons, partnership firms and
individuals in a time bound manner for maximization of value of assets of such persons, to
promote entrepreneurship, availability of credit and balance the interests of all the
stakeholders including alteration in the order of priority of payment of Government dues and
to establish an Insolvency and Bankruptcy Board of India, and for matters connected
therewith or incidental thereto.

Debtors-A debtor is an entity that owes a debt to another entity. The entity may be an
individual, a firm, a government, a company or other legal person. The counterparty is called
a creditor. When the counterpart of this debt arrangement is a bank, the debtor is more often
referred to as a borrower.

Creditors-A creditor is a person, bank, or other enterprise that has lent money or extended
credit to another party. The party to whom the credit has been granted is the debtor.

3.1 3.1 Non- performing assets

A nonperforming asset (NPA) refers to a classification for loans or advances that are in default or
are in arrears on scheduled payments of principal or interest. In most cases, debt is classified as
nonperforming when loan payments have not been made for a period of 90 days. While 90 days
of nonpayment is the standard, the amount of elapsed time may be shorter or longer depending
on the terms and conditions of each loan.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

3.2 3.2 Types of Nonperforming Assets

Although the most common nonperforming assets are term loans, there are six other ways loans
and advances. Overdraft and cash credit (OD/CC) accounts left out-of-order for more than 90
days

Agricultural advances whose interest or principal installment payments remain overdue for two
crop/harvest seasons for short duration crops or overdue one crop season for long duration crops

Bill overdue for more than 90 days for bills purchased and discounted

Expected payment is overdue for more than 90 days in respect of other accounts

Non-submission of stock statements for 3 consecutive quarters in case of cash-credit facility

No activity in the cash credit, overdraft, EPC, or PCFC account for more than 91 days

Banks are required to classify nonperforming assets in one of three categories according to how
long the asset has been non-performing: sub-standard assets, doubtful assets, and loss assets. A
sub-standard asset is an asset classified as an NPA for less than 12 months. A doubtful asset is an
asset that has been non-performing for more than 12 months. Loss assets are assets with losses
identified by the bank, auditor, or inspector and have not been full written form.

3.3 The Effects of NPAs

Carrying nonperforming assets also referred to as nonperforming loans, on the balance sheet
places three distinct burdens on lenders. The nonpayment of interest or principal reduces cash
flow for the lender, which can disrupt budgets and decrease earnings. Loan loss provisions,
which are set aside to cover potential losses, reduce the capital available to provide subsequent
loans. Once the actual losses from defaulted loans are determined, they are written off against
earnings.2

2
www.prsindia.org/billtrack/insolvency-and-bankruptcy-code-amendment-bill-2019
 INSOLVENCY AND BANKRUPTCY ACT, 2016

3.4 Recovering Losses

Lenders generally have four options to recoup some or all losses resulting from nonperforming
assets. When companies struggle to service debt, lenders take proactive steps to restructure loans
to maintain cash flow and avoid classifying loans as nonperforming. When defaulted loans
are collaterized by borrowers' assets, lenders can take possession of the collateral and sell it to
cover losses.

Lenders can also convert bad loans into equity, which may appreciate to the point of full
recovery of principal lost in the defaulted loan. When bonds are converted to new equity shares,
the value of the original shares is usually eliminated. As a last resort, banks can sell bad debts at
steep discounts to companies that specialize in loan collections. Lenders typically sell defaulted
loans that are unsecured or when methods of recovery are not cost-effective.

3.5 Need to bring IBC law.

Before the enactment of this Code, there were multiple agencies dealing with the matters relating
to debt, defaults, and insolvency which generally lead to delays, complexities and higher costs in
the process of Insolvency resolution.

The ‘Board for Industrial and Financial Reconstruction (BIFR)’, one of the Insolvency
Regulators, has been a phantasm for sick industrial companies. It is expected that the Insolvency
and Bankruptcy Code, 2016 will expedite the cases pending for a long time and resolve them
within 180 days with a further period of 90 days.

3.6 Objectives of the Code

A sound legal framework of bankruptcy law is required for achieving the following objectives:-3

1. To consolidate and amend the laws relating to re-organization and insolvency resolution
of corporate persons, partnership firms, and individuals.

3
www.debt.org/faqs/insolvency
 INSOLVENCY AND BANKRUPTCY ACT, 2016

2. To fix time periods for execution of the law in a time-bound settlement of insolvency (i.e.
180 days).
3. To maximize the value of assets of interested persons.
4. To promote entrepreneurship
5. To increase the availability of credit.
6. To balance all stakeholder’s interest (including alteration). Balance to be done in the
order of priority of payment of Government dues.
7. To establish an Insolvency and Bankruptcy Board of India as a regulatory body for
insolvency and bankruptcy law.
8. To establish higher levels of debt financing across a wide variety of debt instruments.
9. To provide painless revival mechanism for entities.
10. To deal with cross-border insolvency.
11. To resolve India’s bad debt problem by creating a database of defaulters.

3.7 Procedure to claim support from IBC law.

An insolvency plea is given to the authority that adjudicates (in corporate debtor’s case it
is NCLT) by operation or financial creditors or the corporate debtor. The plea can be
accepted or rejected in a maximum time period of fourteen days. In case the plea gets
acceptance then the tribunal will have to quickly appoint an IRP or Insolvency Resolution
Professional for drafting a plan of resolution within a period of 180 days (that can be
extended by ninety days). Following this, the court would initiate the process of resolving
corporate insolvency. For that particular period, the company’s directors shall remain
suspended whereas the promoters shall have no say in the company management. The
Insolvency Resolution Professional can seek help of the management of the company for
handling everyday operations. In case the CIRP is unable to revive the organization, then
the process of liquidation shall be initiated.

Sick Industrial Companies Act, 1985- The Sick Industrial Companies Act (SICA) was a
key piece of legislation dealing with the issue of rampant industrial sickness in India.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

SICA was enacted in India to detect sick or potentially sick companies owning industrial
undertakings, and their revival, if possible, or their closure, if not. This measure was
taken to release investment locked up in sick companies for productive use elsewhere.

Sarfaesi act- The Securitization and Reconstruction of Financial Assets and Enforcement of Securities
Interest Act, 2002 (also known as the SARFAESI Act) is an Indian law. It allows banks and other
financial institution to auction residential or commercial properties (of Defaulter) to recover loans. The
first asset reconstruction company (ARC) of India, ARCIL, was set up under this act.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

4. CHAPTER 4: Insolvency and Bankruptcy Board of India.

The Insolvency and Bankruptcy Board of India (IBBI) is the most important institutional
arrangement for the new insolvency and bankruptcy regime. It was created as the refereeing
institution with multiple tasks including creation of regulations and control of agencies and
professionals involved in the insolvency and bankruptcy business.

The IBBI was established on October 1, 2016 in accordance with the provisions of the ‘Insolvency
and Bankruptcy Code, 2016’. It was constituted as a Technical Committee under the IBBI
regulations 2017.

4.1 Functions of Insolvency and Bankruptcy Board of India.

The IBBI’s primary responsibility is to create and amend laws relating to reorganization as
well as insolvency resolution of corporate persons, partnership firms and individuals in a
time-bound manner.

It must create regulations for insolvency procedures, institutions and professi onals. So far,
the IBBI has produced three sets of regulations. These include – regulations for Insolvency
Professionals, Insolvency Agencies and Model Bye-Laws and Governing Board of
Insolvency Professional Agencies.

The IBBI regulations aim to create a complete framework for the voluntary liquidation of
any corporate person. The term corporate person includes any company incorporated
under the Companies Act and includes limited liability partnership or any other person
4
incorporated with limited liability but does not include any financial service provider.

The regulations specify the procedure for public announcement, receipt and verification of
claims of stakeholders, reports and registers to be maintained and submitted by the

4
www.taxmann.com › BlogSpot › what-is-insolvency-and-bankruptcy.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

liquidator, realization of assets and distribution of proceeds to stakeholders, distribution of

residual assets, and finally dissolution of corporate person. The IBBI has wide powers for
administering the insolvency and bankruptcy regime in the country. These include –
registration of insolvency agencies and professionals, levying fees from them, specifying
the regulations and standards for agencies and professionals, monitoring and carrying out
inspections and investigations on these entities etc.

The IBBI will be assisted by two advisory panels for providing inputs on various issues.

4.2 Insolvency Professionals.

According to the IBBI stipulations, the insolvency professionals should be from advocates,
chartered accountants, company secretaries and cost accountants given they meet the
conditions set by IBBI. Regarding Insolvency Professional Agencies, not -for-profit
companies with a turnover of at least Rs 10 crore can apply for Agency license.

4.3 Organizational structure of IBBI.

The IBBI has a ten-member board including a Chairman. Following is the structure of
the IBBI. 5

 One Chairperson

 Three members from Central Government officers not below the rank of Joint
Secretary or equivalent.

 One nominated member from the RBI.

 Five members nominated by the Central Government; of these, thre e shall be

whole-time members.

5
www.taxmann.com › BlogSpot › what-is-insolvency-and-bankruptcy.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

4.4 Other tribunals concerned to insolvency and bankruptcy board of India.

4.4.1 NCLT( National Company Law Tribunal)-

The National Company Law Tribunal or NCLT is a quasi-judiciary body established in

India, that makes a formal judgment on a disputed matter, relating to the companies
issues in India. It was set up to govern the companies registered in India. It is a successor
to the Company Law Board. The government has appointed 11 benches for NCLT.
Selection of members is done by a selection committee headed by the Secretary of the
Corporate Affairs Ministry (MCA).

4.4.2 NCLAT(( National Company Law Appellate Tribunal)-

National Company Law Appellate Tribunal (NCLAT) was constituted under Section 410 of the
Companies Act, 2013 for hearing appeals against the orders of National Company Law
Tribunal(s) (NCLT), with effect from 1st June, 2016.

NCLAT is also the Appellate Tribunal for hearing appeals against the orders passed by NCLT(s)
under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC), with effect from 1st
December, 2016. NCLAT is also the Appellate Tribunal for hearing appeals against the orders
passed by Insolvency and Bankruptcy Board of India under Section 202 and Section 211 of IBC.

NCLAT is also the Appellate Tribunal to hear and dispose of appeals against any direction issued
or decision made or order passed by the Competition Commission of India (CCI) – as per the
amendment brought to Section 410 of the Companies Act, 2013 by Section 172 of the Finance
Act, 2017, with effect from 26th May, 2017.

4.4.3 Debt recovery tribunal (DRT)-

 INSOLVENCY AND BANKRUPTCY ACT, 2016

Debt Recovery Tribunals were established to facilitate the debt recovery involving banks
and other financial institutions with their customers. DRTs were set up after the passing of
Recovery of Debts due to Banks and Financial Institutions Act (RDBBFI), 19 93. Appeals
against orders passed by DRTs lie before Debts Recovery Appellate Tribunal (DRAT).
DRTs can take cases from banks for disputed loans above Rs 10 Lakh. At present, there are
33 DRTs and 5 DRATs functioning at various parts of the country. In 201 4, the government
has created six new DRTs to speed up loan related dispute settlement.

Compared to the ordinary court procedures, DRTs were able to handle large number of
cases with low delay during the initial phases. Though the DRTs have made impact on
recovery front, several issues related to their performance in the background of rising
volume of NPAs have appeared in later period. Inadequate infrastructure coupled with
insufficient number of DRTs has made them incompetent to handle the rising volume of
disputes.

4.4.4 Competition commission of India-

Competition Commission of India is a statutory body of the Government of India, which is

responsible for enforcing, The Competition Act of 2002, throughout India and to prevent
activities that have an appreciable adverse effect on the competition of India.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

5. CHAPTER 5: Important sections of IBC.

1. This code has replaced old laws- The Presidency Towns Insolvency act 1909,
SRFAESI, 2002, Sick industrial Companies (Special provisions) Act, 1985.
2. The code has created authorities for the redressal of claims of creditors- National
Company Law Tribunal (NCLT) for Companies and LLPs and Debt recovery Tribunal
(DRT) for partnership firms and individuals. NCLT and DRT have been referred
as Adjudicating Authority in the code.
3. The code has established the Insolvency and Bankruptcy Board of India as a regulator
for the Governance of insolvency and bankruptcy laws. It is the function of board to
register and regulate the insolvency professionals and information utilities and possess
the power of renewing, withdrawing and cancelling such registrations.
4. Under the code, information utilities have been established to function as a database to
collect college and disseminate the financial information. As an example, Banks and
other lenders can check the database to confirm whether the person has defaulted on
previous loans.
5. For companies, the code has mandated three unique processes for initiation of
insolvency resolution process by financial creditors, operational creditor and corporate
applicant. You can refer to Section 7, 8 and 9 of the code for detailed processes. In a
very broad sense, the process begins with the filing of application by the financial
creditor or operational creditor on default of debt or interest payment. The adjudicating
authority will admit or reject the application basis its merit. This is followed by the
appointment of Insolvency Professional (IP) by adjudicating authority who will take
over the running of company. From the date of appointment of IP , power of board of
directors will be suspended and vested in the IP. Adjudicating authority will declare
Moratorium period during which no action can be taken against the company or the
Assets of the company. During this time, a resolution plan would have to be prepared
and approved by the committee of creditors. If 75% of the creditors approve the
resolution plan, it shall be binding on the corporate debtor(the one who has defaulted)
 INSOLVENCY AND BANKRUPTCY ACT, 2016

and its employees and other stakeholders. In case, adjudicating authority does not
receive a resolution plan or the maximum period permitted for completion of this
process i.e. 180 or 90 days has been expired, the authority shall pass an order to
liquidate the company.
6. The code has defined an order of priority for distribution of assets-
 Insolvency and liquidation related costs
 Secured creditors; workmen dues up to 24 months, to be ranked equally.
 Wages and any unpaid dues owed to employees other than workmen for the period of
12 months preceding the liquidation commencement date.
 Financial dates owed to unsecured creditors
 Amount due to Centre Central Government and state government; debt owed to
secured creditors for any amount unpaid following the enforcement of security interest,
to be ranked equally
 Any remaining that's and dues
 Preference shareholders
One of the differentiating provisions in IBC, 2016 from the previous insolvency laws lies in the
fact that it provides time-bound mechanism for coming up with the resolution plan. The process
is mandated to be completed within 180 days from the date of admission of application to initiate
such process. In any circumstance, this is extendable by not more than 90 days.

5.1 Section (29) of IBC act, 2016-

The Insolvency and Bankruptcy Code (IBC), as it stood before the amendments, allowed
any person to submit a resolution plan in respect of a company undergoing the corporate
insolvency resolution process (CIRP). In this regard, concerns were raised that persons
who had contributed to the defaults of a company were able to regain or gain control of
such a company. In order to cure this defect, Section 29A was introduced to ensure that
persons who were responsible for the default of a company or certain undesirable persons
did not acquire or regain control of a company by participating in the resolution process.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

In the words of Justice Nariman in the judgment of ArcelorMittal India Private Limited
versus Satish Kumar Gupta & Ors. (Essar’s judgment), “Section 29A(c) is a see-through
provision, great care must be taken to ensure that persons who are in charge of the
corporate debtor do not come back in some other form to regain control of the company
without first paying off its debts.”

For a clear understanding of Section 29A, the Section 29A can be broken into two parts
viz. (i) person or any other person acting jointly or in concert with such person who are
disqualified under Section 29A (a) to (i) and (ii) having a ‘connected persons’ not eligible
under Section 29A (a) to (i) which in turn makes a person ineligible. The first part of
Section 29A essentially enumerates the list of persons who became ineligible to submit a
resolution plan. It is pertinent to note if a person is acting jointly or in concert with such
person who is disqualified under Section 29A (a) to (i), then such person also stands
disqualified from submitting a resolution plan.
Coming to the second part viz ‘connected persons’, the ineligibility is not restricted to
person mentioned in Section 29A (a) to (i), but engulfs to a ‘connected persons’. The
expression ‘connected persons’ appearing in Section 29A has been explained in
Explanation I – principally promoters of, or in the management or control of persons
listed in Section 29A (a) to (i).
The concept of lifting of corporate veil, in certain circumstances, seeks to lift the curtain
of a company in order to look for those who are in control of its operation. Over the
years, in various precedents, courts have laid down general scenarios in which the
doctrine of corporate veil can be applied. These have been discussed in some depth in the
Essar judgment and the SC has observed thus: “?where a statute itself lifts the corporate
veil, or where protection of public interest is of paramount importance, or where a
company has been formed to evade obligations imposed by the law, the court will
disregard the corporate veil. Further, this principle is applied even to group companies.
In the Essar judgment, while analyzing Section 29A and in particular the opening lines of
Section 29A, the SC observed that Section 29A was “typical of instances of a ‘see though
provision’ so that one is able to arrive at persons who are actually in ‘control’ whether
jointly or in concert, with other persons.” It further observed that keeping in mind the
 INSOLVENCY AND BANKRUPTCY ACT, 2016

purpose and context of Section 29A, it would require to lift the corporate veil in order to
discover who are real individuals or entities who have set up the corporate vehicle for
purpose of submitting the resolution plan.
The SC, while ruling on the eligibility of the resolution plans submitted by ArcelorMittal
India Private Limited (AIMPL) and Numetal Limited (Numetal) qua Section 29A,
pierced the corporate veil of the respective entities and concluded that the resolution
plans submitted by AIMPL and Numetal were not eligible under Section 29A.
In the context of the Section 29A, the expression “management” relates to the de jure (i.e.
in law) management of the corporate debtor. In the Essar judgment, “management’’ is
stated to “ordinarily vest in a Board of Directors, and would include, in accord with the
definitions of ‘manager’; ‘managing director’ and ‘officer’ in Sections 2(53), 2(54) and
2(59) respectively of the Companies Act, 2013, the persons mentioned therein”. It can be
inferred that in the context of management of a corporate debtor (for the purpose of
Section 29A), the same would only include persons such as manager, managing director
and officer of a company.

5.2 Sec (74) of IBC-

Section 74 of the Insolvency and Bankruptcy Code (IBC) was recently invoked against a
6
company for its failure to comply with the approved resolution plan.

Its provisions are as follows:

Section 74 lays down the provisions to penalize officials of corporate debtors, creditors
and bidders if and when they violate a resolution plan as approved by the adjudicating
authority.

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 Officials of the corporate debtor who violate the norms can be imprisoned for a
maximum term of five years and a penalty of up to Rs 300,000.
 Officials of creditors who violate the norms can be jailed for a maximum of five
years and a penalty of up to Rs 1 crore.
 Officials of bidders, who violate the norms can similarly be imprisoned for a
maximum tenure of five years and a penalty of up to Rs 1 crore.
 This provision is required to protect the Code from being taken lightly, and ensure
that a resolution happens as planned.

It was in news because:

 The Liberty House, an international metals and industrial group, had made a successful
resolution plan for a defaulted company, Amtek Auto, earlier this year.
 The terms of the resolution plan were also approved by the adjudicating authority
(NCLT).
 However, Liberty House failed to pay the banks according to the terms of the resolution
plan.
 Liberty House alleges that there were serious issues in the information and valuation
reports shared with it prior to the bidding process.
 Hence, the lenders to Amtek Auto have moved the Chandigarh bench of the NCLT to
invoke Section 74 against the Liberty House Group.

 Once the Section is invoked by the Committee of Creditors, it is up to the NCLT to

decide on the course of action with respect to the corporate debtor.
 The NCLT can then either decide to allow the resolution professional of the corporate
debtor to invite fresh bids, or penalize the erring bidder with jail and fine as per Section
74.
 In case there are no fresh bidders, the NCLT can also allow liquidation of such corporate
debtors.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

5.3 Section 61 of IBC-

It talks about Appeals and Appellate authority. Its provisions are as follows:

 Notwithstanding anything to the contrary contained under the Companies Act

2013, any person aggrieved by the order of the Adjudicating Authority under this
part may prefer an appeal to the National Company Law Appellate Tribunal.
 2) Every appeal under sub-section (1) shall be filed within thirty days before the National
Company Law Appellate Tribunal:

 Provided that the National Company Law Appellate Tribunal may allow an appeal to
be filed after the expiry of the said period of thirty days if it is satisfied that there was
sufficient cause for not filing the appeal but such period shall not exceed fifteen days.7

 (3) An appeal against an order approving a resolution plan under section 31 may be
filed on the following grounds, namely:—

(i) the approved resolution plan is in contravention of the provisions of any

law for the time being in force;

(ii) there has been material irregularity in exercise of the powers by the
resolution professional during the corporate insolvency resolution period;
(iii) the debts owed to operational creditors of the corporate debtor have not been
provided for in the resolution plan in the manner specified by the Board;
(iv) the insolvency resolution process costs have not been provided
for repayment in priority to all other debts or recovery
(v) the resolution plan does not comply with any other criteria specified by
the Board.

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6. CHAPTER 6: Important cases.

6.1 Bhushan steel case.8

The case was that Tata steel acquired 73% stake in the bankrupt firm Bhushan steel for
about 35,000 crore rupees. This was the first major resolution of a bankruptcy case under
the new insolvency and bankruptcy act. Bhushan Steel was one among the 12 major
accounts referred to the “National Company Law Tribunal” (NCLT) at the behest of the
RBI last year. These accounts were the biggest the Non-Performing Assets (NPA’s) that
was plaguing various banks. Tata Steel recently acquired 73% stake in the bankrupt firm
Bhushan Steel for about Rs. 35,000 crore. This was through a bankruptcy case under
IBC, and hence this becomes the 1stmajor resolution under the act. The proceeds from the
acquisition will be used to settle about two-third of the Rs. 56,000 crores that Bhushan
Steel owes banks.

 While the Bhushan resolution is just 1 case that managed more than about 67% recovery,
it is nevertheless an encouraging sign for banks. Notably, before the launch of IBC, if
assets get stressed, banks were typically able to recover just about 25% of their dues.
More significantly between 2014-2017 bad loan recovery rates of public sector banks was
just 11%, and about 2.4 lakh crores were simply written off. More than 1 lakh crore is
expected to be recovered in the near future through other cases referred by the RBI to the
NCLT. If the banks do indeed recover funds of this scale, it would reduce the burden on
the government, as pressures for bank recapitalization will ease. Additionally, speedy
resolution would also free valuable assets that can be employed for economic production.
 IBC legislation has subsumed a plethora of laws that confused creditors and has
streamlined the way to deal with troubled assets. But issues such as the proposed
eligibility criteria for bidders have left it bogged down and suppressed its capacity to help
out creditors efficiently. The Insolvency Law Committee has vouched for relaxation of
‘bidder eligibility criteria’ in order to enhance participation, which needs to be

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considered. Also, strict time limit for resolution as mandated by IBC merits review in
order to balance the objectives of speedy resolution and maximizing asset recovery.

6.2 Arcelor mittal India private vs Satish Kumar Gupta and others9.
The SC held ineligible the two bidders of Essar Steel India Limited (‘ESIL’), i.e. Arcelor
Mittal India Private Limited (‘AMIPL’) and Numetal Limited (‘Numetal’) under Section
29A of the Insolvency and Bankruptcy Code, 2016 (‘Code’). The SC however,
exercising its power under article 142 of the Constitution of India, allowed both to
submit fresh bids provided they clear their existing dues with respect to other companies
within two weeks failing which the assets of ESIL will go into liquidation. The SC also
comprehensively interpreted Section 29A(c) of the Code in this matter.
The SC deciding the issue of eligibility of resolution applicants held that:
 For both AMIPL and Numetal, the SC lifted corporate veil to ascertain the actual
beneficiaries behind the smokescreen created by complex maze of companies and
trusts.
 SC held the amended Section 29A refers to a de facto as opposed to de jure position.
 Section 29A was held to be a see-through provision, to arrive at persons who are
in “control”, whether jointly, or in concert with other persons.
 “Control” under Section 29A(c) was held to denote only positive control, thus, mere
power to block special resolutions of a company cannot amount to control. And,
“control”, contrasted with management, means de facto control of management or
policy decisions that be or are in fact taken. Therefore, control means positive or
proactive control of a ‘Corporate Debtor’.
 “Management” under Section 29A(c) was held to mean de-jure management of a
corporate debtor.

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 Relied on SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 1994,

and previous judgments to conclude that “person acting in concert” are those with
commonality of objective and interest.
 Applying the doctrine of purposive interpretation, SC held that lifting of corporate veil
is apparent from the language of Section 29A. Further, the ineligibility under Section
29A would apply from the date when the Resolution Plan is submitted and not anterior
to it. The date of commencement of corporate insolvency resolution process is only
relevant for the purpose of calculating whether one year has lapsed from the date of
classification of an account as a non-performing asset.
 However, expanding the scope of due diligence under Section 29A of the Code, it was
held that despite the fact relevant time to determine ineligibility under Section 29A(c)
is date of submission of Resolution Plan, antecedent facts, reasonably proximate to this
point of time can always be seen to determine the correct factual position.
 Ineligibility under Section 29A(c) may be removed only by paying off all overdue
amounts with interest of a corporate debtor and by no other means. The SC also noted
that the Code distinguishes between promoters under whose management an account is
a non-performing asset and promoters who are in control of a corporate debtor in which
an antecedent transaction has taken place and in respect of which an order has been
passed by the Adjudicating Authority. The latter ineligibility cannot be cured by paying
off debts of the corporate debtor

Further, the SC on the issue of adherence to the Code and in order to curtail frivolous litigation
held that:
 A statute is designed to be workable and its interpretation should also be designed to
make it so workable.
 Duty of RP is to examine the Resolution Plans submitted to him that they are complete in
all respect and present it before CoC. RP has to present the resolution plans with
his prima facie view and preferably with a due diligence report. RP is not to decide upon
eligibility of the Resolution Plan. Thus, the SC distinguished the power of RP
to examine and confirm from the power of deciding upon a Resolution Plan.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

 Given the statutory framework, it is the CoC which will approve or disapprove the
resolution plans.
 To curtail down frivolous litigations at the behest of a disgruntled Resolution Applicants,
SC clarified that till the stage CoC is either examining a Resolution Plan or inviting fresh
plans, a prospective Resolution Applicant has no vested right to have its/his plan
approved. It has also been held that NCLT does not have the jurisdiction to interfere at
behest of a Resolution Applicant under Section 60(5), before quasi-judicial determination
under Section 31 of the Code. Even a Writ Petition under Article 226 of the Constitution
is not to be entertained. The only reasonable construction of the Code is the balance to be
maintained between timely completion of the corporate insolvency resolution process and
the corporate debtor being put into liquidation.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

7. CHAPTER 7: Conclusion

 It would take India from among relatively weak insolvency regimes to becoming one of
the world's best insolvency regimes.
 The strict timelines for resolution of insolvency and liquidation proceedings would
definitely be an incentive and provide the requisite impetus for economic growth.
 When implemented in letter and spirit, provide a major boost to the India economy,
especially on account of timely resolution and certainty in recovery of loans.
 INSOLVENCY AND BANKRUPTCY ACT, 2016

8. CHAPTER 8: Bibliography

8.1 Books referred

 Ashish Makhija, Analysis of cases for limited insolvency, Taxman Publication, 6th
edition,2016
 Kamal Garg, Insolvency and Bankruptcy code ready reckoner, Bharat Publication,2nd edition,
2019

8.2 Websites referred

 www.prsindia.org/billtrack/insolvency-and-bankruptcy-code-amendment-bill-2019.
 //www.ibbi.gov.in
 www.debt.org › faqs › insolvency
 www.taxmann.com › BlogSpot › what-is-insolvency-and-bankruptcy.
 legalaffairs.gov.in › sectiondivision › gazette-notification
 www.brainyias.com › insolvency-and-bankruptcy-code-the-bhushan-steel
 www.sci.gov.in › 33945_2018_Judgement_04-Oct-2018
 www.insolindia.com › news › supreme-court-sc-arcelor-mittal-india-private.com
 https://issuu.com › bloomsburyindiaprofessional › docs › ebook_insolvency..