CIRP UNDER IBC : A CRITICAL ANALYSIS

ABSTRACT

In 2016, the Indian legislature passed the Insolvency and Bankruptcy Code (IBC),
established a legislative structure to address issues pertaining to bankruptcy and
insolvency-related concerns. Aiding various entities, including businesses,
individuals, and partnership firms, was the main motivation for the introduction of the
legal code. To address a number of issues that remained in India's bankruptcy
landscape and to achieve a number of financial and legal goals, the IBC was
established. To modernize and combine the existing rules regulating bankruptcy and
company reorganization, as well as those governing partnerships and individuals,
the IBC was established.

INTRODUCTION

CIRP, a noteworthy legal structure, was implemented in India by the Insolvency and
Bankruptcy Code, 2016 (IBC).
A distressed business organization or individual's bankruptcy and insolvency can be
handled swiftly and effectively with the assistance of the CIRP. Additionally, it
promotes finance availability, entrepreneurship, and taking into account the concerns
of each and every party involved in order to ensure that the organization's assets are
valued at their best level in the market.

IBC’s CORPORATE INSOLVENCY RESOLUTION PROCESS

The law established the CIRP as a way of resolving corporate failure matters.

The phases of the CIRP are described in Sections 6 through 32A of Part II of the
Code of 2016.

The following CIRP stages can be used to categorize Part II:

1. CIRP initiation (Section 6-10) addresses CIRP initiation under the IBC.
2. The IBC's Moratorium (Sections 13–14) forbids outside meddling, which
facilitates a seamless settlement process.
3. Section 21 permits the group of Creditors to be composed of monetary Creditors.
4. Sections 16–25 provide the appointment of a Resolution Professional to manage
day-to-day activities within the CIRP.
5. Resolution Plan (Section 25-31A) focuses on developing and approving the
Resolution Plan.
CIRP has the following phases:

CIRP Initiation

Sections 6–10 of the law address the start of the CIRPThe company debtor,
monetary creditors, or operational lenders may initiate CIRP if the corporate debtor
defaults of at least one crore rupees. To begin the CIRP, a completed application
must be sent to the Deciding Body (NCLT). After NCLT approves the application,
CIRP will begin.

By obedience to section 4, a corporate debtor must fail on at least Rs. 1 crore in

order to start CIRP.

1. Financial Creditor Initiation: Section 7 addresses the start of CIRP by financial

creditors.

According to this, one or more financial creditors may apply to NCLT to begin the
CIRP against a co-debtor.Additionally, it specifies that the allottees may submit an
application under section 7 in the event of an investment in property, as long as not
less than one hundred beneficiaries or 10% of the total allottees of the project of real
estate, whichever is smaller, file an application against the debtor company.

When applying to the NCLT, financial creditors shall give the following documents:

a. Evidence of default by a corporation borrower.

b Names of The resolution and Interim Settlement Experts.
c. Any further details specified by the board.

2. Operational Creditor Initiation:Sections 8 and 9 of the law deal with operational

creditors initiating CIRP. If the company borrower defaults, an operational creditor
may, in line with Section 8, submit a 10-day claim letter seeking the repayment of
unpaid operational debt.
.
According to Section 9, the operational lender may petition to NCLT to initiate CIRP if
the debtor company does not pay them within 10 days of the demand letter expiring.

Furthermore, the operating creditor has to put forward the following papers before
NCLT in addition to their application being submitted:

a.the copy of the demand letter.

b. An affidavit stating that the corporate data has not provided any notification
regarding the dispute over the overdue operating debt.
c. A paper copy containing financial institution's certificate attesting to its absence of
any often past-due operational debt and monitoring the operational creator's
accounts.
d. Any more documentation attesting to the nonpayment of personal debt.
e. Any further details that could be recommended.
f. The dispute resolution specialist's identify who will act as an interim settlement
specialist

3. Corporate debtor initiation: Section 10 of the law addresses corporate debtor

initiation of CIRP. In accordance with this clause,a company debtor may apply to
initiate CIRP before NCLT.

Along with, application submitted to NCLT, the corporate data shell provides the
following documents:

a. Details about its books of accounts and any further papers that could be required.
b.Identifying the resolution specialist, who will hold the position of provisional
resolution specialist.
c. a resolution endorsed by the company's shareholders or by not less than
three-quarters of the members in the corporate debtor.

A MORATORIUM

This is the second CIRP stage. A moratorium will be imposed, a public notification
for the start of CIRP will be ordered, and an interim settlement expert would be
selected once the adjudicating body approves an application under Sections 7, 9,
and 10.

During the CIRP, the moratorium is intended to protect the business debtor's assets.

The deciding body may impose limitation for among following reasons, according to
fourteenth section of the law;

a. To forbid the institution of a suit or the continuation of an existing litigation against

the company debtor.
b. to prohibit the corporate debtor's property from being sold, alienated, or otherwise
disposed of.

Public Declaration

When CIRP is announced to the public, it must include the following information:

a. The legal title and place of residence of the company debtor.

b. regulatory body's acronym that has registered or integrated the company's data.
c. The deadline for submitting claims, so cease
d. Details about the specialist in interim relief.
e. Repercussions for making deceptive and fraudulent statements.
f. the corporate bankruptcy resolution process's closure date, which normally occurs
180 days following the acceptance of petition

Interim Resolution Professional

Usually, 180 days after the date of application admission is when the CIRP is closed.
The law's Section 16 deals with the deciding authority's nomination of an Interim
Settlement Professional.

Within fourteen days of a petition being accepted under Sections 7, 9, or 10, the
deciding authority must appoint an interim settlement specialist for the purposes of
CIRP. If the applicant does not currently face any disciplinary actions, the deciding
authority is going to appoint the person whose identity appears in the submitted
application.

When an operating creditor makes an application under section 9 without naming an

interim settlement professional, the deciding authority will take into account the
Board's recommendation of a professional in insolvency who could work as an
interim settlement specialist. During 10 days, the Board must give the profile for an
insolvent specialist.

Creditors' Committee

The Board of Creditors, which is composed of monetary creditors, is one of the most
important stages of CIRP. According to section 21 of the law, the interim settlement
expert must compile each claim and then constitute the group of creditors composed
of all monetary creditors, excluding connected parties. The group of creditors must
be composed of those persons to do any necessary activities if the debtor's company
has no financial creditors.

RESOLUTION PROFESSIONAL

The person selected by the creditors' committee to manage CIRP's day-to-day

activities is known as the resolution professional. Section 22 of the law states that
the group of creditors must meet for the first time within a week of its formation
along with select a resolution professional by either buying a overwhelming number
of no fewer than 66% of the shares with voting rights from the financial creditors or
designating an interim resolution expert as a resolution expert.
If the group of creditors chooses to nominate a professional for interim resolution as
the resolution professional, the adjudicating body, the debtor company, and the
expert charge of handling interim settlement ought to be notified of the decision.

The group of creditors must apply to the deciding authority to designate a proposed
resolution expert after replacing the interim settlement specialist. The adjudicating
body must confirm the identity of the board-recommended resolution expert before
appointing such a person

According to Section 27 of the law, the group of creditors may resolve to change the
settlement expert if they feel that it is necessary, provided that they have 66% of the
shares with voting rights.

The settlement expert control of administering the entire process and monitoring the
company debtor's conduct during the CIRP

The following obligations of a conflict resolution specialist are set forth in Section 25
of the law:

a.All of the property of the company debtor must be protected and preserved by the
settlement specialist.
b. The settlement specialist will seize all of the company debtor's properties and
valuables.
c. The resolution specialist will act as the corporate debtor's representative in court
and extrajudicial procedures.
d. Revise the claims list.
e. Call and attend all of the creditors' group meetings.
f. Prepare the informational memo..
g. Send out invitations to candidates for prospectus resolution.
h. Present each resolution proposal to the creditors' committee.
i. Any measures that the board may designate.

One of the settlement expert's most crucial responsibilities will be to draft an

information memorandum.It includes all the data required to create a settlement
strategy.

Resolution Plan Submission

Section 30 of the law addresses the submission of an action plan. In compliance
with this clause,the petitioner might have to present a resolution plan and a
declaration confirming their eligibility according to the provisions of section 29A.

The expert in resolution must analyze every proposed plan that is given to him and
confirm that it covers the debt of the operating creditors in a way determined by the
committee, together with the procedure's costs for resolving insolvency.

The resolution plan will not clash with any existing implemented legislative laws and
will also address the company debtor's control over affairs.

OTHER PROCEDURE

When the group of creditors accepted a plan for resolution, if someone is unhappy
with the order, they can appeal to the NCLAT on the basis that the approved plan
violates any laws, that a resolution professional's use of their authority was materially
irregular, that the settlement plan did not provide for operating creditors' obligations
in the manner specified, or that the costs of the insolvency settlement procedure
were higher than what Sections 31 and 33 allow for an appeal against the liquidation
judgment on the grounds of fraud or significant irregularity during the liquidation
order. Repayment in advance of other commitments, etc., is not permitted under
these rules.

For the CIRP and liquidation procedures,.the NCLAT may serve as the highest body
to appeal. Any appeal to the NCLAT must be submitted within 30 days of the NCLT
admission date; the NCLAT may only extend the deadline for filing an appeal to the
tribunal once, for a period of 15 days, if there are good grounds.

A one-time 15-day extension is permitted for valid reasons, however appeals

against NCLAT rulings must be submitted to the highest and senior court in India
under forty five days following their order's issuing. No judiciary has the authority to
evaluate any complaint or procedure brought under the law, according to Section 63
of the IBC legislation.

Two key values are determined by the CIRP: the liquidation value and the fair value.
Unlike the fair value, which is only the estimated predicted value of the assets, the
value of liquidation is the expected realizable worth of the assets owned by the
company debtor if the firm's obligations were to be dissolved on the day the
bankruptcy procedure began.
Regulation 2(hb) and Regulation 2(k) of the Insolvency and Bankruptcy Board of
India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016
define fair value and liquidation values, respectively.The company's balance
statement will show a sizable amount of land, buildings, and plant and machinery if it
is asset-heavy. Tangible assets' fair value and liquidation value.

Resolution Professional should be extremely clear when assigning valuers the task
of evaluating physical assets as to whether he wants the assets' fair value or only
their liquidation value determined. Resolution Professional may also ask the valuer
to determine the non-operating assets' fair value.

According to Chapter IV Part II of the legislation, a corporate debtor who satisfies the
conditions for a fast-track corporate insolvency procedure (Fast Track CIRP) must
have assets, an income level below the federal government's threshold, a class of
creditors, or both.

The code states that companies that meet the requirements for Fast Track CIRP
must be unlisted, have financial statements from the prior fiscal year that don't
exceed one crore, be startups as defined by a government notification released on
May 23, 2017, by the Ministry of Commerce and Industry of the Government of India,
or be small businesses as defined by Section 2(85) of the Companies Act of 2013

The FTIR PCP (Fast Track Insolvency Board of India) Regulations, 2017 govern the
Fast Track CIRP, which has a 45-day one-time extension and must be definitively
resolved within 90 days of the date of admission.

CRITICISM AND CHALLENGES

1. Operational difficulties: Close coordination between a number of parties, such

as creditors, resolution experts, and the company's management, is necessary for
the successful execution of CIRP. Differences or an absence of cooperation between
the parties may hinder the settlement process.

2. Infrastructure Emphasis: The resolution process lacked a robust infrastructure,

which originally caused problems for the Indian insolvency ecosystem. The deciding
authority and bankruptcy experts' skills were put to the test by the unexpected
volume of cases.

3. In order to avoid defaulting promoters from reclaiming control of the firm after the
resolution, promoters are not allowed to bid for their own assets; However,
opponents contend that this might discourage natural promoters from taking part in
the process of resolution.
4..As an alternative, the company goes into liquidation if the plan for resolution is not
accepted within the specified time frame. Critics contend that while liquidation would
not always be as beneficial as a workable solution, this strategy may not always be
in the best interests of all parties.

5. Difficulties in Implementation: Effective implementation of CIRP is essential to

its success, necessitating precise asset appraisal, timeline adherence, and creditor
participation. Delays or irregularities in the procedure might have an impact on the
result.

CONCLUSION

In summary, the CBRP in India is a major reform that aims in resolving company
bankruptcy issues in an open and prompt approach. Although, framework has many
benefits, it also has drawbacks and complaints, primarily related to operational
difficulties, infrastructure preparedness, and potentially unforeseen outcomes. The
framework's continued development and the lessons learned through its
implementation will determine its efficacy and influence on the Indian business
environment.