1. INSOLVENCY AND BANKRUPTCY CODE, 2016 SERIES 1 of 6
INTRODUCTION TO THE CODE
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NEW DELHI
March 9, 2017

2. ABBREVIATIONS
AA – Adjudicating Authority
Act – Companies Act, 2013
CIRP – Corporate Insolvency Resolution Process
Code – Insolvency and Bankruptcy Code, 2016

3. QUESTION 1 What is the scope of the provisions of the Code? ANSWER
The Code covers the insolvency, liquidation, voluntary liquidation or bankruptcy of ‘specified persons’. [Ref. Section 2 of the Code]
The procedure for Insolvency Resolution and Liquidation for corporate persons is covered under Part II of the Code.
The procedure for Insolvency Resolution and Bankruptcy for individuals and partnership firms is covered under Part III of the Code.
The Code comprises 255 sections divided into the following 5 parts;
Part I : Preliminary
Part II : Insolvency Resolution and Liquidation for Corporate Persons [Matters relating to insolvency and liquidation of corporate persons where the minimum amount of default is 1 lakh or such other amount as specified by the Central Government which shall not be more than 1 crore rupees.]
Part III: Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms
Part IV: Regulation of Insolvency Professionals, Agencies and Information Utilities
Part V : Miscellaneous

4. QUESTION 2 Which persons are governed by the Code? ANSWER
The Code applies to the following:
companies incorporated under the Act or the previous company law;
companies governed by any special Act, except to the extent the provisions of the Code are inconsistent with such special Act (such as Banking Regulation Act, 1949);
Limited Liability Partnership [Ref. Section 2(n) of the Limited Liability Partnership Act, 2008];
Any body incorporated as the Central Government may specify; and
Partnerships and individuals.
Note:
The definition of a corporate person specifically excludes Financial Service Providers.
‘Financial Service Providers’ means a person engaged in the business of providing financial services in terms of authorization issued or registration granted by a financial sector regulator.

5. QUESTION 3 What is the territorial jurisdiction of the Code? ANSWER
The Code extends to the whole of India except Part III [Insolvency Resolution and Bankruptcy for individuals and partnership firms] which does not apply to the State of Jammu and Kashmir.

6. QUESTION 4 What are the different modes of Winding Up/Dissolution?
ANSWER
The expression ‘winding up’ and ‘dissolution’ carry different meanings. There are provisions for winding up/dissolution under the Companies Act, the Insolvency and Bankruptcy Code and other specific statutes such as the Banking Regulation Act, 1949 (which apply to banking companies and co-operative banks as specified in Part V of the Banking Regulation Act, 1949).
The following are the different modes of winding up/dissolution:
In case of a default by corporate debtor
Winding up by Tribunal
Summary procedure for liquidation
Winding up of unregistered companies and power to wind up foreign companies
Dissolution of any transferor company
Dissolution of the Company by the Registrar

7. QUESTION 4 In case of a default by corporate debtor,
- the financial creditor,
- the operational creditor, or
- the corporate applicant
may initiate CIRP under chapter II of The Insolvency and Bankruptcy Code, 2016.
If the resolution plan is not in compliance with the Code, or
Where the AA does not receive the resolution plan within the prescribed time, or
Where the resolution plan is approved by AA and thereafter corporate debtor fails to comply with the resolution plan,
the Adjudicating Authority may pass an order for liquidation under chapter III of the Code.

8. QUESTION 4
Circumstances in which company may be wound up by Tribunal (Section 271 of the Act as amended by Code) following petition by specified category of persons.
Special resolution by the Company resolving that Company may be wound up by the Tribunal;
Company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality;
Tribunal, based on application filed by Registrar or any other person authorized by Central Government, is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the Company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the Company be wound up;
Default by the Company in filing its financial statements or annual returns for immediately preceding five consecutive financial years;
Tribunal is of the opinion that it is just and equitable that the company should be wound up.
Note:
Tribunal reserves power to dismiss a Winding up petition made under relevant Section.

9. QUESTION 4
Summary procedure for liquidation [Section of the Act]
Central Government may order the Company to be wound up where the Company belongs to such class as may be prescribed and the book value of the assets do not exceed 1 crore rupees.
Winding up of unregistered companies and power to wind up foreign companies [Sections 375 and 376 of the Act] which are owned directly or indirectly to the extent of at least 50% by citizen(s) of India [Ref. Section 379].
Provisions applicable to unregistered companies shall also apply to foreign companies.
Such unregistered company shall not be wound up voluntarily.
May be wound up if (i) unregistered company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs; (ii) is unable to pay its debts; (iii) if the Tribunal is of opinion that it is just and equitable that the unregistered company should be wound up.

10. QUESTION 4
Dissolution, without winding up, of any transferor company in the event of reconstruction of the company or companies involving merger or the amalgamation of any two or more companies – Section 232(3)(d) of the Act.
Dissolution of the Company by the Registrar where the Registrar believes that the Company has failed to commence business within 1 year of its incorporation, or the Company has not carried out any business and/or operation for a period of two immediately preceding financial years and has not applied within this period for the status of a dormant company – Section 248 of the Act.
Note:
Financial Service Providers shall not be governed by the Code. The Act and /or relevant special laws shall govern the Financial Service Providers, until precise provisions are in place.
The definition of a ‘corporate person’ under the Code specifically excludes Financial Service Providers.

11. QUESTION 5 When can CIRP be initiated? ANSWER
A CIRP may be initiated by a financial creditor (itself or jointly and in respect of a financial debt owed to any financial creditor), operational creditor, or corporate applicant, in the event of a default committed by a corporate debtor.
Note:
Default means non-payment of debt when whole or any part or installment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be.
For the purposes of the Code and for application of CIPR, minimum amount of default is one lakh rupees. The Central Government may by notification specify the minimum amount of default of a higher value which shall not be more than one crore rupees.

12. QUESTION 6 Who may initiate CIRP? ANSWER
A financial creditor (itself or jointly and in respect of a financial debt owed to any financial creditor);
an operational creditor (after delivery of demand notice); or
the corporate applicant itself
may initiate a CIRP.

13. QUESTION 7
Which persons are not entitled to make application for initiation of CIRP?
ANSWER
A corporate debtor undergoing a CIRP;
A corporate debtor who has completed CIRP 12 months preceding the date of making the application;
A corporate debtor or financial creditor who has violated any of the terms of the approved resolution plan 12 months before the date of making the application;
A corporate debtor in respect of whom a liquidation order has been made.
The Code does not prescribe a timeline for making an application for initiation of CIRP.
Note:
A question may arise whether a corporate debtor undergoing a CIRP is restricted from making an application for initiation of CIRP against another corporate debtor. Please note that the explanation to Section 11 which states that for the purposes of this section a corporate debtor includes a corporate applicant in respect of such corporate debtor. In light of the definition of corporate applicant under Section 5 (5) of the Code, it would seem that there is no restriction.

14. QUESTION 8
Who is the AA for Part II Insolvency Resolution and Liquidation for corporate persons of the Code?
ANSWER
The National Company Law Tribunal constituted under the Companies Act, 2013.

15. Thank You
(voice over by)
Alak Desai,
Associate