Posted on: November 9, 2020 Posted by: admin Comments: 0

Author : Harsh Vashistha, Student at Manipal University Jaipur.

Co-Author : Animesh Sharma, Student at Manipal University Jaipur.


Corporate insolvency resolution process (CIRP) is a recovery mechanism through which the creditors[1] can recover their debts in case a corporate entity becomes insolvent. The foremost concern of an insolvency and bankruptcy regime is to stay viable businesses operating. An ideal regime should restrain premature liquidation of sustainable businesses and will be able to turn around businesses full of a short-lived economic strain in order that investment of creditors. The insolvency and bankruptcy code provides a corporate insolvency resolution process through which a company in financial distress can exit the business smoothly. Before the enactment of this code there were many laws that were overlapping this process. The aim of this research paper is to analyze the corporate insolvency resolution process and to write in brief about stages involved in it. The main findings that were found during this research work was that the CIRP process was well tackled those prominent issues i.e. default in repayment to banks, financial institutions and other individuals by the company and default in payment of dues to suppliers, employees etc. This process also helps in reducing job cuts. This paper also includes how an application is filed by a financial, operational creditor and corporate applicant.

Keywords :  Insolvency, Bankruptcy, Corporate Resolution Bankruptcy process, Adjudicating Authority.


The Insolvency and bankruptcy code enacted on 28 May 2016. Previously there was no method for resolving insolvency resolution and if any company suffers from insolvency the company would have to liquidate itself as there was no other method to repay the debt to creditors and because of that the directors, staff, stakeholders suffer economic loss as there was no method to revamp the company other than liquidation. Prior to the insolvency and bankruptcy code being passed, India didn’t have any law dealing with all aspects related to a company in financial distress. The improvement in the status of creditors, by the Contract Act or any special laws like Recovery of Debts due to Banks and Financial Institutions Act, 1993 and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, but these acts failed to give required output. The Sick Industrial Companies (Special Provisions) Act, 1985 and the provisions related to winding up given in Companies Act, 1956/Companies Act, 2013 also failed to help lenders and neither helped lender in revamping of firms. The Presidential Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920 were almost a century old and due to this frustrated the lenders.

Before 2016 there was no proper procedure for the creditors to get there payment of loan and debt and the creditors suffered from huge loss as there was no procedure they do that. The creditors couldn’t raise their dispute as there was no committee of creditors. The Bankruptcy Law Reform Committee constituted by ministry of finance in an attempt to reform the insolvency law under the chairmanship of Mr. T.K. Viswanathan. objectives behind the passing of Insolvency and Bankruptcy code, 2016 are:

  • To institute an Insolvency and Bankruptcy Board of India as a watchdog for law relating to insolvency and bankruptcy.
  • To set specified time period for implementation of the law for a timely settlement of insolvency (i.e. 180 days).
  • To promote entrepreneurship
  • To improve handling of conflicts between creditors and debtors.
  • To improve ease of doing business, and make possible more investment which may result in higher economic growth and development

The Insolvency & Bankruptcy Code stands to be one of the most direly needed legislation in the wake of the increasing corporate culture in India The Insolvency and Bankruptcy Code, 2016 (“IBC” or “the Code”) has revolutionized the Insolvency regime in India, by bringing about structural changes in the legal structure for insolvency resolution in India[2] .The code makes both, individual and corporate insolvency process comprehensive yet simpler. The Code has a very vast scope and is applicable to the entire range starting from a farmer to a billionaire businessman, from start- ups to well establish gigantic corporate hubs .However, it is essentially vital that the working mechanism of the code is understood at least by all the stakeholders, be it a farmer or a businessman, in order to ensure a smooth functioning of the same. The code more or less derive its essence from a popular saying by Dave Ramsey, “There are no shortcuts when it comes to coming out of a debt.” Hence the debt recovery process under the code is made very comprehensive, detailed and yet easy to understand in order to avoid all possible procedural loopholes.


Corporate insolvency resolution is a process by which financial/operational creditors or corporate applicant can analyze whether the business of debtor should stop and if possible be revived. In this process Operational, Financial, and Debtor itself can file an application against the defaulter with the help of Adjudicating Authority. If any company Defaults in the payment of Creditors than National Company Law Tribunal[3] (NCLT) initiates Corporate Insolvency Resolution Process against the Company. The liquidation process will began and assets of the debtor will be calculated by the liquidator and will be creditors. Through insolvency resolution process relief is provided to the lender by giving them an effective mechanism to deal with the stressful situation of the corporate debtor. CIRP is initiated through an application by the stakeholders to the NCLT determining whether the person who has defaulted is capable of repayment or not. For the initiation of CIRP, the first pre-requisite for the applicant is to show whether the creditor is Financial or Operational.

Who is authorized to file an application under Insolvency and Bankruptcy Code?

Under the provisions of IBC, 2016 creditors a) Financial, b) Operational creditor and c) Corporate Applicant (Corporate Debtor) are authorized to file an application under IBC, 2016.

Financial creditor has been defined under section 5 (7) as “any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to”. In in the case of Anil Mahindroo & Anr v. Earth Organics Infrastructure[4] it was held “that the money so given by home buyer against the deliberation for the time good utility of money and for all grounds, they fall within the meaning of being considered as ‘Financial Creditor’ as defined under Section 5 (7) of the IBC Code, 2016”.

Operational Creditor has been defined under Section 5(20) creditor as “any person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred”.

Corporate Applicant is person assigned by corporate debtor itself to file an Application

CIRP by Financial Creditor – A financial creditor may by its own, or together with other financial creditors can file an application for initiation of CIRP to an adjudicating authority on the occurrence of default of payment; The main criteria for triggering the process are that the minimum default should be of Rs. 1, 00,000..A financial creditor has to prepare an application in such form along with such fees as may be prescribed. Presently, it should be filed in FORM -1 of Insolvency and Bankruptcy (Application to Adjudicating Authority, rules, 2016) and a DD amount of Rs. 25000/- in favor of Ministry of Corporate Affairs. The NCLT shall within 14 after obtaining application from the financial creditor, on the basis of record from information utility or other evidences presented determine if there is a prima facie case of default of payment or not,

  1. a) If the adjudicating authority is convince that the application is finalized, no disciplinary proceeding is unsettled against the applicant and the default has really occurred, admit such application, or
  2. b) If the adjudicating authority ascertains that either the application is defective, disciplinary proceedings are unsettled against the applicant or there is not dispute existing prima facie, it may: a) reject the application, prior to which it shall give reasons for doing so, or b) give a notice period of 7 days to the applicant to amend the loopholes in application.

Time Limit for Completion of Insolvency Proceedings

The entire CIRP has to be concluded within 180 days from date of admitting the application. Maximum extension not exceeding 90 days can be permitted provided a resolution has been passed by the Committee of creditors at its meeting by 75 % of its voting power as instructed to Resolution Professional may ask for an extension, and additionally, the NCLT should be satisfied that the CIRP cannot be finalized within 180 days.


The operational creditor has the power to initiate insolvency resolution process when any corporate debtor fails to repay the debt of any goods and services given by the creditor

The two steps for filling an application:

  1. Issue Demand Notice to Corporate Debtor (Section. 8)
  2. Filing Application before NCLT (Section. 9)

An operational can go to Adjudicating authority (by filing an application) against a comapny debtors where the required amount to be given as default is one lakh rupees [section 4]. The default limit has been raised to 1 crore rupees through notification dated 24.03.2020[5].

  1. Issue a Demand Notice to the Corporate Debtor – In case of a non-payment, the Operational Creditor may issue a demand notice of unsettled operational debtor duplicate of an invoice requiring operational creditor to pay the amount.

The NCLAT in “M/s Krystal Integrated Services Pvt. Ltd. v. M/s Indiaontime Express Pvt. Ltd”[6]. Ruled that the non-appearance of demand notice provided to the corporate debtor, the operational creditor cannot seek to receive admissibility of his application for CIRP under section 9 of the Code. Thus, section 8 of the Code is the first step for filing an application for CIRP by an operational creditor.

Thereafter under section 9(1) “the expiry of 10 days from the  date of delivery of the demand notice, if the operational creditor doesn’t get the amount defaulted or if he get a notice of dispute under section 8(2) of the Code, the creditor is now entitled to file an application under Section 9(1) before the Adjudicating Authority (AA) which is the National Company Law Tribunal (NCLT)”. The Insolvency and Bankruptcy (Application to Adjudicating authority) Rules, 2016, maintains the operational creditor to commence the CIRP in Form 5. Along with Form 5 there must be a copy of Form 3 and a certificate from the bank in which it is maintained that there is no receipt of payment due to the corporate debtor.

  1. Filing of Application before NCLT (Section. 9) – Following the completion of the period of 10 days from the date of dispatch of the notice demanding payment, in absence of payment or dispute notice, the operational creditor can initiate the CIRP by filing an application before the NCLT. Then the operational creditor may along with the application provide invoice copy, affidavit, accounts certificate, information utility records or any other proof. The NCLT may in the period of fourteen days shall either admit or reject the application according to the proof given by operational creditor.

INTITIATION OF CIRP BY CORPORATE APPLICANT- Section 10 states “when a corporate debtor has did a default, a corporate applicant thereof can file an application for commencement of CIRP with the NCLT”.  Under section 10 of IBC “the special resolution passed by stakeholders of the company debtor or the resolution passed by at least three-fourth of the total number of partners of the company debtor are needed before NCLT”.

Only when the minimum amount of the non-payment is one lakh rupees the application can be filed by the operational creditor. The default limit has been increased to 1 crore rupees through notification dated 24.03.2020[7]. The corporate applicant shall provide details regarding his books, details related of RP along with application. The NCLT shall within the period of fourteen days shall either admit or reject the application according to the proof given by operational creditor. Rejection occurs in case of incomplete application or pending disciplinary proceeding. CIRP proceedings will initiate when the application is accepted by adjudicating authority (NCLT).

  1. MORATORIUM- It is defined under section 14 IBC code. According to black’s law dictionary “Suspension of all or of certain legal remedies against debtors, sometimes authorized by law during financial distress. A period of permissive or obligatory delay; specifically, a period during which an obligor has a legal right to delay meeting an obligation”.

The NCLT on the date of initiation of insolvency process, must declare an order of moratorium for the prohibition of certain activities which includes Actions of foreclosing, recovering or enforcing any security interest created by the CD with respect to its property or  An owner or lessor recovering any property recovering any property which is occupied by or in the possession of the CD. The moratorium shall subsists till the CIRP proceedings are completed.

  1. PUBLICATION OF NOTICE- The Public Announcement of Notice under Section 15 of IBC, 2106 code “that the Resolution Professional will issue a notice in newspapers to call for submission of claims against the Company Debtor by a predetermined, within a period of time”. The notice includes Name & residence of Corporate Debtor under CIRP, the last date to Submit Claims, Information of Interim Resolution Professional and Penalties for misleading claims.
  2. PROCESSING OF CLAIM-The resolution professional afterwards gathering the claims will crosscheck from the books of the company Debtor. These claims are crosschecked with the records accessible with the Information Utility and other relevant documents like financial statements as evidence of debt and it the duty of resolution professional to verify it.
  3. INFORMATION MAMORANDUM- After verification of claims, under section 29 “a Memorandum containing all the information of the Corporate Debtor regarding his assets and liabilities will be prepared by the RP as specified by the Board for formulating a resolution plan”. The RP will comply with all the provisions of law for the time being in force and will not share any relevant information with third party and protect the intellectual property of corporate debtor.
  4. MEETING OF COMMITTEE OF CREDITORS- Under section 24 after the verification, “a Memorandum containing all the information of the Corporate Debtor regarding his Assets and Liabilities will be prepared by the RP. This Memorandum will be sent out to all the Financial Creditors of the Corporate Debtor, whose claims have been accepted. All the meetings shall be headed by the RP”. The members shall meet either in person or through electronic means. The creditors will have a vote according to the vote power given to him on the financial debt owed.
  5. CALLING FOR RESOLUTION PLAN- Section 5(26) of IBC, 2016 says that “Resolution plan” means a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II. The calling of resolution plan will be done through newspaper by RP. The resolution professional will verify the resolution plan submitted by resolution applicant and if he approves then he will present it in front of committee of creditors as per section 30.
  6. ACCEPTANCE AND REJECTION OF RESOLUTION PLAN-The Committee of creditors may accept or reject such resolution plan via voting where the decision will be that which is approved by a 66% majority. The adjudicating authority if satisfied will the resolution plan passed by the committee of creditors then they will approve the resolution plan which will be binding on corporate debtors and it employees, members, creditors and other people involved in that plan. If the plan will be approved then moratorium will cease to effect. If adjudicating authority is not satisfies with the plan then it will be rejected.
  7. EXTENTION IF ANY-If the resolution plan is not accepted by COC under 180 days then resolution professional can take extension of 90 days then adjudicating authority by giving valid reasons.
  8. LIQUIDATION-If resolution plan is not approved by adjudicating authority within the period of 270 days then or the plan is rejected by adjudicating authority the last resort is to liquidate the company asset and to repay the debt to creditors.

The insolvency and bankruptcy code 2016 was a revolutionary piece of legislation which made CIRP process very easy. Earlier there was no proper insolvency process mechanism for companies who were on the edge of bankruptcy and this process was dealt within many different acts which ultimately made this process very complex.


[1] INSOLVENCY AND BANKRUPTCY CODE, 2016 Section 3(10) – Definitions

[2] ”Chatterjee, Sreyan, Shaikh, Gausia and Zaveri, Bhargavi, (2017), Watching India’s Insolvency Reforms: A

New Dataset of Insolvency Cases”, Working Papers, eSocialSciences.

[3] Under Section 5(1) of the Code

[4] NCLAT New Delhi, Company Appeal (AT) (Insolvency) No. 74/2017. Decision date02.08.2017

[5] Notification No. S.O. 1205(E) dated 24.03.2020,

[6] “M/s Krystal Integrated Services Pvt. Ltd. Vs. M/s Indiaontime Express Private Limited” CA (AT) (Ins.)

No. 194 of 2019.

[7] Notification No. S.O. 1205(E) dated 24.03.2020,

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