Introduction to Corporate Insolvency Resolution Process (CIRP)
INTRODUCTION:
The Insolvency and Backruptcy Code, 2016 was introduced to
improve the relationship between Creditors and Debtors. The IB Code, 2016 was
first passed by Lok Sabha on 05th May, 2016 and by Rajya Sabha on 11th
May, 2016. Further, the President of India, gave its assent on IB Code, 2016 in
the month of December, 2016. However, on 01st June, 2016, Hon’ble
National Company Law Tribunal (NCLT) and its appellate Tribunal was set up by
the Government under the Companies Act, 2013 to adjudicate the matters of
Insolvency of Corporates and Limited Liability Partnerships. Further,
resolution of disputes of individuals and Partnership Firms comes under the
jurisdiction of Debt Recovery Tribunal commonly known as DRT.
NEED FOR INTRODUCTION OF INSOLVENCY
AND BANKRUPTCY CODE, 2016
Now, the question which arises in our mind is, what is the
need to introduce Insolvency and Bankruptcy Code, 2016 and set up separate
bench for resolution of financial disputes when courts are already in place? So
let’s throw some light on the practical facts. Whenever any individual or a
company sets up its business or expands its business, they apply for loan from
banks. In consideration of loan, they mortgage certain assets in favour of the
banks so as to give assurance of repayment of loan. In certain cases, after the
disbursal of loan, the debtors defaults in the repayment of loan. After various
defaults in repayment of loan, the banks declare the loan as Non- Performing
Asset (NPA). Once the loan account of
the debtor is categorised as NPA, the banks undertakes various measures for
recovery of loans including filing applications in various recovery suits,
petitions in courts, selling off of the mortgaged property. But, the recovery
suits and filing applications before civil courts is a tiring, cumbersome and
time consuming process. The Civil courts or other courts are overburdened with
various other civil matters therefore, the resolution of recovery suits takes
longer time to resolve. Thus, the value of loan given erodes over time.
Thus, the Financial Creditor can take resort of the Hon’ble
National Company Law Tribunal (NCLT) and its appellate body for getting the
timely resolution of their financial dispute. Therefore, the Hon’ble NCLT comes
into picture and provides faster recovery of the loans granted.
FOUR PILLARS OF THE INSOLVENCY AND
BANKRUPTCY CODE, 2016
The Insolvency and Bankruptcy Code, 2016 (“Referred to as the IBC, 2016) runs efficiently with the help of four of its important pillars. In the absence of any one of these, makes the IBC, 2016 handicap to run efficiently. The four pillars are enumerated below:
1. The Insolvency and Bankruptcy Board of India (IBBI)
The Central Government has setup a
supreme body for taking care of the financial disputes along with timely and efficient
resolution of the same known as Insolvency and Bankruptcy Board of India (“The Board”) abbreviated as IBBI. The
Board is a body corporate having perpetual succession and a common seal with
the power, subject to the provisions of this Code, to acquire, hold and dispose
off property, both moveable and immoveable, and to contract, and shall by the
said name, sue or be sued. The head office of the Board shall be at such place
in the National Capital Region, as the Central Government may, by notification
specify. The Board may establish offices at other places in India. The Board is
required to perform certain functions and is vested with certain powers by the
Central Government, some of which are enumerated below:
· Register the insolvency professional
agencies, insolvency professionals and information utilities and renew,
withdraw, suspend or cancel such registration.
· Specify the minimum eligibility
requirements for registration of insolvency professional agencies, insolvency
professionals and information utilities.
· Levy fees and other charges, for
carrying out the purpose of this Code, including fees for registration and
renewal of insolvency professional agencies, insolvency professionals and
information utilities.
· Carry out inspections and
investigations on insolvency professional agencies, insolvency professionals
and information utilities and pass such orders as may be required for
compliance of the provisions of this Code, and the regulations made thereunder.
· Monitor the performance of insolvency
professional agencies, insolvency professionals and information utilities and
pass any directions as may be required for compliance of the provisions of this
Code and the regulations issued hereunder.
· Issue necessary guidelines to the
insolvency professional agencies, insolvency professionals and information
utilities.
· Promotes transparency and best
practices in its governance.
· Specify mechanism for redressal of
grievances against insolvency professionals, insolvency professional agencies
and information utilities and pass orders relating to complaints filed against
the aforesaid for compliance of the provisions of this Code and the regulations
issued thereunder.
2. Insolvency Professional Agency (IPA)
Insolvency Professionals Agencies are
registered under Section 201 with the Insolvency and Bankruptcy Board of India
(“The Board”). Insolvency Professional Agencies (IPA) will develop professional
standards, code of ethics and be the first level regulator for insolvency
Professional Members. As of now, Three Insolvency Professional agencies are
operational, namely-
a) Indian Institute of Insolvency
Professionals of ICAI
b) ICSI Institute of Insolvency
Professionals
c) Insolvency Professionals Agency of
Institute of Cost Accountants of India
The functions performed by the
Insolvency Professional Agencies are enumerated below:
a) Grant membership to persons who
fulfil all requirements set out in its bye-laws on payment of membership fees.
b) Lay down standards of professional
conduct for its members.
c) Monitor the performance of its
members.
d) Safeguard the rights, privileges and
interests of insolvency professionals who are its members.
e) Suspend or cancel the membership of
insolvency professionals who are its members on the grounds set out in its
bye-laws.
f) Redress the grievances of consumers
against insolvency professionals who are its members; and
g) Publish information about its
functions, list of its members, performance of its members and such other
information as may be specified by regulations.
3. Insolvency Professionals (IP)
Insolvency Professionals are the
professionals who are registered with the Board and enrolled with the
Insolvency Professional Agency. Insolvency Professionals have to adhere to the
guidelines issued by the Board as well as their Insolvency Professional Agencies
on which they are enrolled. Every Insolvency Professional shall after obtaining
the membership of any insolvency professional agency, register themselves with
the Board within such time, in such manner and on payment of such fees, as may
be specified by the regulations. The Board may specify the categories of professionals
or persons possessing such qualification and experience in the field of
Finance, Law, Management, Insolvency or such other field, as it deems fit.
Functions of Insolvency Professionals:
Where any insolvency resolution,
fresh start, liquidation or bankruptcy process has been initiated, it shall be
the function of an insolvency professional to take such actions as may be
necessary, in the following matters namely-
a) A fresh start order process under
Chapter II of Part III.
b) Individual Insolvency Resolution
Process under Chapter III of Part III
c) Corporate Insolvency Resolution
Process under Chapter II of Part II
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pre-packaged Insolvency Resolution Process under Chapter- III A of Part-II
d) Individual Bankruptcy Process under
Chapter IV of Part III: and
e) Liquidation of a Corporate Debtor
firm under Chapter III of Part-II.
Eligibility Criteria for Insolvency Professionals
An individual is eligible to become
an Insolvency Professional, if he/she fulfils the Eligibility Criteria, which
is as follows:
a) Is an Indian citizen and has attained
the age of 18 Years
b) Is of sound mind and a fit person.
c) Is solvent and has not been declared
as an insolvent.
d) Possess the required qualification
and experience as specified by the IBBI.
e) Has not been convicted by any
competent court/ law, for an offence punishable with imprisonment for a term
exceeding six months, or for an offence involving moral turpitude, and a period
of five years has not elapsed from the date of expiry of the sentence.
Qualification for becoming an Insolvency Professional
Before getting themselves registered
with the Insolvency Professional Agency, an Insolvency Professional must
possess certain qualifications so as make him eligible. The qualifications required for becoming an
insolvency professional are enumerated below:
a) They are either required to clear the
National Insolvency Examination, or
b) Clear the Limited Insolvency
Examination in which case the application should have 15 years of experience in
management, after receiving a Bachelor’s Degree from a University established
or recognised by Law, or
c) Has passed the Limited Insolvency
Examination and has 10 years of experience as-
· A Chartered Accountant and is a
member of the Institute of Chartered Accountants of India, or
· A Company secretary and is a member
of the Institute of Company Secretaries of India, or
· A Cost Accountant and is a members of
the Institute of Cost Accountants of India, or
· An Advocate enrolled with a Bar
Council.
After fulfilling any of the above
criteria, the individual can practise as an Insolvency Professional.
4. Information Utility (IU)
Information Utility is a professional
organisation which is registered under Section 210 of the Insolvency and
Bankruptcy Code, 2016 whose function is to gather, assemble, accumulate,
validate and disseminate financial information from companies and creditors to
facilitate insolvency, liquidation and bankruptcy. A person can rely on the
information stored in the Information Utility before investing. This ensures
that a person’s investment is secured.
In the contemporary state of affairs,
the financial information about non-corporate borrowers is available only from
the income-tax department and this is not publicly accessible under the Right
to Information Act, 2005. But the Information Utilities which are established
under the IBC helps in overcoming this deficiency.
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