CIRP Assignments For Insolvency Professionals Restricted to 10 Assignments with effect from 22nd July, 2021

Insolvency Professionals will not be in a position to accept more than ten CIRP assignments as the Insolvency and Bankruptcy Board of India (Board) has added a clarification under clause 22 of the Code of Conduct for Insolvency Professionals attached as Schedule I to the IBBI (Insolvency Professionals) Regulations, 2016. This amendment has been notified on 22nd July, 2021 with immediate effect. The clarification also seeks to restrict the large assignments to three within the overall assignment limit of ten at any point of time. Large assignments mean where admitted claims exceed Rs. 1000 crores. The clarification reads as under:

Clarification: An insolvency professional may, at any point of time, not have more than ten assignments as resolution professional in corporate insolvency resolution process, of which not more than three shall have admitted claims exceeding one thousand crore rupees each.

Let us understand the impact of this newly added clarification:

  1. The amendment is effective from 22nd July, 2021. It is not clear whether this would apply to existing assignments in hand or the limit in number of assignments is to be applied for future assignments. For example, if the Insolvency Professional is already handling 12 assignments, would he be required to reduce it to 10 assignments? Logically, that does not seem to be the intent. The application of the clarification should be prospective and it should not affect the existing number of assignments. In other words, if an insolvency professional is already handling CIRP assignments exceeding the limit, he should be able to continue to handle them but he will not be in a position to accept any more CIRP assignment unless the number of CIRP assignments is reduced below the limit. The sub-limit applicable for large assignments would also apply in a similar way. However, a clarification from the Board is desirable.
  2. The clarification uses the expression “assignments as resolution professional” causing confusion as to whether this would include assignments as interim resolution professional. Also what happens if the insolvency professional continues to perform his duties as a resolution professional in his capacity as interim resolution professional where resolution professional is not appointed by the committee of creditors. Looking at the intent of the clarification and conjunct reading with the definition of resolution professional [S. 5(27)], which includes interim resolution professional, it can be concluded that assignments being handled as interim resolution professional would also be covered within the overall limit of ten assignments and sub-limit of three large assignments.
  3. The restriction applies only to CIRP assignments. This means assignments being handled by an insolvency professional as a liquidator or resolution professional under pre-packaged insolvency resolution process under Part II or resolution professional or bankruptcy trustee under Part III will not be counted for the purposes of limit of 10 assignments and sub-limit of 3 large assignments. The use of the words “ten assignments as resolution professional in corporate insolvency resolution process” is quite clear and leaves no room for ambiguity. The use of the expression “ten assignments as resolution professional in corporate insolvency resolution process” seems to be intentional. It, however, defies logic and reasoning as burden of handling liquidation cases is as cumbersome as that of CIRP assignments. The idea behind restricting assignments is to ensure effective handling considering clause 22 which provides that an insolvency professional must refrain from accepting too many assignments, if he is unlikely to be able to devote adequate time to each of his assignments.The expression “assignment” used in clause 22 is not restricted to CIRP assignments alone. It includes, in its ambit, all assignments accepted by an insolvency professional. Be that as it may, the language employed in clarification is clear and unambiguous to restrict CIRP assignments only. 
  4. Large CIRP assignments have been restricted to maximum of three within overall limit of ten assignments. Large assignments mean the assignments where admitted claims exceed Rs. 1000 crores. There seems to be some practical difficulty in implementing this. The amount of admitted claim is fluid and dynamic in CIRP assignments. At a given point of time, the admitted claims may be less than Rs. 1000 crores but may swell beyond this limit after a while. For example, an insolvency professional has accepted 10 assignments out of which 3 assignments are having admitted claims of more than Rs 1000 crores. This seems to be in compliance of clarification. What would happen if in two more cases, the value of admitted claims exceed Rs 1000 crores at a given point of time? Would the insolvency professional be considered in non-compliance of the Code of Conduct? Is he expected to shun two such large assignments? Whether he would be permitted by Adjudicating Authority to resign and leave the assignments mid-way? There is no clarity on these aspects at this point of time. However, it is suggested that insolvency professional must take appropriate steps to remain within the limits set in the clarification.

Conclusion : Welcome Step but Board needs to Clarify the Clarification!

This amendment was expected and this would ensure fair and equitable distribution of assignments besides ensuring that assignments are handled effectively by the insolvency professionals. However, some aspects, as noted above, require clarifications and the Board is expected to issue clarification clarifying the clarification!

Disclaimer: The views expressed here are for academic purposes alone and should not be deemed as legal or professional advise on the subject. If relied upon, Ashish Makhija, Author and/or Tranzission does not take any responsibility for any liability or non-compliance.

@Ashish Makhija:

Disclaimer: The views expressed here are views based on personal interpretation of the author for academic purposes alone and should not be deemed as legal or professional advise on the subject. If relied upon, the author does not take any responsibility for any liability or non-compliance.

NCLAT settles the crucial Issue: Speedy Liquidation Versus Endless Resolution

In a significant ruling in Kridhan Infrastructure Private Limited vs. Venkatesan Sankaranaryan & Another[1], NCLAT has held that timely liquidation is to be preferred over endless resolution. It has also held that unless the liquidation order is shown to contain material irregularity or fraud, liquidation order cannot be set aside using inherent powersin the light of specific provisions under section 61(4) of the Code. It has also categorically ruled that stakeholders’ consultation committee is different from committee of creditors and the decision of stakeholders’ consultation committee is not binding on the liquidator.

Briefly, in this case, upon failure of implementation of the resolution plan by the Resolution Applicant, NCLT directed liquidation of the corporate debtor as proposed by the committee of creditors. The Resolution Applicant aggrieved with this order filed an appeal before NCLAT alleging that it was not provided with an opportunity of being heard and that the order of NCLT ordering liquidation be set aside preferring ‘Resolution’ over ‘Liquidation’. Resolution Applicant undertook to implement the plan.

Here is the lowdown of the issues decided by NCLAT:

Speed is the Essence

NCLAT noted that prime reason behind enactment of IBC is time bound process. It specifically noted that “if an Adjudicating Authority extends the Insolvency Resolution Process beyond the timeline mentioned u/s 12(3) of the code, the same will be in negation of the underlying policy behind the court of ensuring timely resolution of Company Insolvency”.  NCLAT held that a “Timely Liquidation is preferred over endless Resolution process.”. Making it clear that time period mentioned in section 12 is mandatory and cannot be extended. It held that “If time specified by statute is changed, then it will give room for wider complications/implications, in the considered opinion of this Tribunal.”

Specifically noting that Resolution Applicant failed to adhere to the timelines for equity infusion as per the approved plan, NCLAT held that “the speed specified in the Code cannot be diluted as there is likelihood of adversely affecting the interests of both sides. If the same is delayed, maximization of value of assets of the ‘Corporate Debtor’ will weaken the realisation of potential creditors.”

Use of Inherent Power to set aside order of liquidation

On use of inherent powers under Rule 11 to set aside the order of liquidation as prayed by the Resolution Applicant, NCLAT noted that “it is well settled principle in Law that an ‘inherent power’ cannot be resorted to when there are specific provisions in Law to deal with the situations relying on the judgment of Apex Court in ‘Durgesh Sharma’ V. ‘Jayshree’ reported in Air 2009 Supreme Court at page 285. NCLAT refused to invoke jurisdiction under Rule 11 for setting aside order of liquidation.

Eligibility under Section 29A due to later development

NCLAT noted the strong objection of the Liquidator on the ground of huge default by the Resolution Applicant through its subsidiaries outside India. NCLAT held that provisions of Sections 29A(f) and (j) get attracted.

Stakeholders Consultation Committee recommendations are not binding on Liquidator

NCLAT upheld the argument on behalf of the Liquidator that “in so far as the ‘stakeholders’ consultation committee under the Liquidation process, unlike ‘Committee of Creditors’ under ‘Resolution process’ they do not have any power to determine and even their consultation is not binding on the liquidator.”


The judgment is unique as it deviates the beaten path of ‘maximization of value’ which is oft quoted to persuade NCLAT and NCLAT benches. The phrase has become a monologue to justify any attempt to resolve insolvency ignoring the crucial part of preamble which speaks of ‘time bound manner’.  This judgment notes the importance of timelines under the Code and sets an example that no matter what, timely liquidation is preferable over repeated attempts to resolution. This judgment is a trend setter in the era of IBC 2.0 and the NCLT benches are now armed to counter the over used phrase maximization of value.

[1] Company Appeal (AT) (Insolvency) No. 202 of 2020

NCLT Has No Power To Quash Civil Suit or Direct Police To Arrest Any Person Obstructing Liquidator Under IBC : NCLAT

In an unprecedented order, Mumbai Bench of NCLT had passed an order quashing a Civil Suit against the corporate debtor pending with Civil Court, Junior Division, Wada District Palghar, Maharashtra filed by a person claiming user of property auctioned by the liquidator during liquidation process. NCLT also directed Police to arrest the said person for threatening and obstructing Liquidator. 

On appeal[1], the Appellate Tribunal has set aside the order of the NCLT holding that the direction passed by the Adjudicating Authority quashing Civil Suit is not legal. The NCLT had relied upon section 33(5) of the Insolvency and Bankruptcy Code, 2016 to pass such an order and the Appellate Tribunal rightly noted that “even if such bar is there in section 33(5) read with sectiosn 63 and 231, it is not appropriate for the Adjudicating Authority to quash the concerned suit which is filed in the Civil Court. It would be for the Liquidator to move the concerned Civil Court pointing out the provision of IBC or to move the District Court in the hierarchy for quashing of the Suit concerned.”

The Appellate Tribunal also modified the order of arrest by the Police with the direction that “the Police concerned should take suitable action as per law.”


At the first instance, the Adjudicating Authority should not have passed such an unusual order quashing civil suit as it has no power to do so under IBC. Its jurisdiction does not extend to orders passed by civil courts. On the contrary, It should have directed the liquidator to approach the civil court by bringing to its attention relevant provisions of the Code barring jurisdiction of civil courts during liquidation or corporate insolvency resolution process. Based on the outcome, higher courts could have been approached by the liquidator including filing of a writ petition before the High Court. Seemingly, even the liquidator was ill advised.

NCLT should have also refrained from directing arrest of the Appellant as it cannot do so under the Code. Appellate Tribunal remedied the situation by modifying the order of NCLT and directing the Police to take action as may be warranted under law. The over enthusiastic approach adopted by NCLT does not reflect the judicial wisdom expected of NCLT benches, which is critical to success of the Code. Though subtle in nature, the course correction by Appellate Tribunal was desirable.

@Ashish Makhija:

Disclaimer: The views expressed here are views based on personal interpretation of the author for academic purposes alone and should not be deemed as legal or professional advise on the subject. If relied upon, the author does not take any responsibility for any liability or non-compliance.

[1] E.C. John vs.  Jitender Kumar Jain & Ors., Company Appeal (AT) (Ins) No.249 of 2020, dated 1st September, 2020  

Good News! Apex Court Holds Retired Bankers and Receiving Pension Eligible to be Appointed As Resolution Professional in CIRP

Appellate Tribunal’s judgment holding that an Insolvency Professional who was in service and getting pension from a financial creditor was disentitled to be a Resolution professional has been rejected by the Supreme Court. In an order passed by a 3-judge bench on 19th August, 2020, the Supreme Court has categorically held that the approach adopted by NCLAT is not correct “that merely Resolution Professional who remained in the service of SBI and is getting pension, was disentitled to be Resolution professional” .

The Court held that since the order of NCLAT does not reflect correct approach, the same shall not be considered as a precedent. Incidentally, following its own judgment, NCLAT, in another case, also followed it and removed another past banker who was drawing pension.

Appellate Tribunal’s judgment holding that an Insolvency Professional who was in service and getting pension from a financial creditor was disentitled to be a Resolution professional has been rejected by the Supreme Court. In an order passed by a 3-judge bench on 19th August, 2020, the Supreme Court has categorically held that the approach adopted by NCLAT is not correct “that merely Resolution Professional who remained in the service of SBI and is getting pension, was disentitled to be Resolution professional” .

The Court held that since the order of NCLAT does not reflect correct approach, the same shall not be considered as a precedent. Incidentally, following its own judgment, NCLAT, in another case, also followed it and removed another past banker who was drawing pension.

Who Wins – Equitable Consideration or Commercial Wisdom of CoC?


This piece deals with the jurisprudence whether the Adjudicating Authority or the Appellate Authority has the authority to reject a resolution plan approved with requisite majority by the Committee of Creditors (CoC) which is lower than liquidation value in quantitative terms.

Resolution Plan should typically mirror the Insolvency and Bankruptcy Code, 2016 (Code) objectives in maximizing the value. The Code, the way it is derafted, puts all its faith in the Committee of Creditors (CoC) in protecting the commercial interest of stakeholders of the corporate debtor while they determine the feasibility and viability of the rival plans placed before them. Maximization of value probably weighs prominently on the minds of collective wisdom of the CoC while they carry the burden of expectations from other stakeholders. It is a tough job. It is about making a difficult choice keeping everyone’s faith intact while ensuring that maximum recoveries are made for their dues as well while the corporate debtor gets a chance to be rehabilitated.

The job of CoC is hard enough to select the suitable resolution plan amongst the available ones. The hardest part surfaces when a resolution plan lower than the liquidation value is received. No one would want to be in that position for taking a call either to approve or reject such a plan as it affects everyone and allegations are likely to fly thick and fast, if such a plan is approved.

Resolution Plan lower than Liquidation Value

One question that begs answers is whether the CoC can consider and approve a plan which is lower than the liquidation value? On the face of it, such an approval looks incongruous as it would seem as defeating the interest of stakeholders while upsetting the objectives of the Code. Practicalities apart, does the provisions of Code in any way bar the CoC to approve such a plan? The Apex Court had the occasion to examine this aspect in Maharashtra Seamless Limited vs. Padmanabhan Venkatesh & Ors[1] particularly whether the scheme of the Code contemplates that the sum forming part of the resolution plan should match the liquidation value or not. In this case, NCLAT has directed that amount in resolution plan should match the liquidation value and this was challenged before Supreme Court. 

The Supreme Court noted that that “the object behind prescribing such valuation process is to assist the CoC to take decision on a resolution plan properly. Once, a resolution plan is approved by the CoC, the statutory mandate on the Adjudicating Authority under Section 31(1) of the Code is to ascertain that a resolution plan meets the requirement of sub-sections (2) and (4) of Section 30 thereof.” The Court further opined that the Appellate Authority has proceeded on equitable perception rather than commercial wisdom. The Court felt that “the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis.” While recognizing the primacy of commercial wisdom of the CoC, the Apex Court rejected the idea of matching the value of the resolution plan to the liquidation value.

In another judgment[2] rendered on 28th February, 2020, the Apex Court has relied upon the Maharashtra Seamless judgment and set aside the judgment of NCLAT whereby the matter was remitted to NCLT after finding that Section 30(2) of the Insolvency and Bankruptcy Code together with the principle of maximization of assets of the corporate debtor, a resolution plan which is lesser than liquidation value cannot be accepted. The Supreme Court held that since this issue has been decided in Maharashtra Seamless judgment, the Appellate Tribunal cannot reject resolution plans approved by the CoC, which are lower than liquidation value. 


There is no provision in the Code that justifies a view that resolution plans should carry a value higher than liquidation value. A closer look of the provisions tells us that the Resolution Applicant is not aware of the liquidation value as determined by the Registered Valuers though they may have their own assessment of value. In fact, CoC members also do not know the liquidation value unless the resolution plans are placed before them. Liquidation value, at the most, works as a guidance for the CoC; it cannot be considered as a benchmark and resolution plans offering lower value than liquidation value ought not to be rejected on this ground alone. Of course, the resolution plan must pass the test of feasibility, viability and must be implementable besides satisfying the legal provisions. New lessons are being learnt everyday.

[1] Civil Appeal No. 4242 of 2019 decided on 22nd January, 2020.

[2] State Bank of India vs. Accord Life Spec Private Limited, Civil Appeal No. 9036 of 2019.

4 Critical Questions Relating to Avoidance Transactions in Voluntary Liquidation

The law relating to voluntary liquidation has been moved from the Companies Act, 2013 (or erstwhile Companies Act, 1956) to Insolvency and Bankruptcy Code, 2016 (Code or IBC). Voluntary liquidation is the option available to solvent corporate persons having committed no default. The voluntary liquidation, interalia, requires a special resolution of the members of the company and approval of such resolution by the creditors representing two-thirds in value of the debt of the company within seven days of special resolution.

Liquidation Commencement Date 

The Adjudicating Authority is not involved at this stage of voluntary liquidation and with no order of liquidation necessary, the date of passing of special resolution by the members of the company is considered as the liquidation commencement date[1]. The Adjudicating Authority comes into picture after the affairs of the company have been completely wound up when the liquidator is under an obligation to make an application to the Adjudicating Authority for dissolution of the company[2]. The voluntary liquidator may, however, approach the Adjudicating Authority during the liquidation process in case of non-cooperation of personnel of the company or for determination of any question of law or fact.

Applicability of Section 35 to 53 of Liquidation Process

For conducting the voluntary liquidation, no separate process has been provided in the Code. The Code provides for adoption of liquidation process from sections 35 to 53 with such modifications as may be necessary[3]. Equally the provision of cooperation of personnel of the company provided in CIRP process apply to voluntary liquidation process[4]. The liquidation process chapter contains sections from 33 to 53. Section 33 provides for initiation of liquidation of a corporate debtor which has undergone the process of Corporate Insolvency Resolution Process (CIRP). Section 34 provides for appointment of the liquidator and fee to be paid. Logically these two sections have no applicability to the voluntary liquidation process as no order of Adjudicating Authority is required and the fee of voluntary liquidator gets decided by the members appointing the liquidator. But rest of them apply with necessary modifications.

4 Critical Questions Remaining Unanswered relating to Avoidance Transactions

So far so good but applicability of sections 43 to 51 dealing with avoidance transactions leaves following 4 questions unanswered: –

  1. Is it incumbent upon the voluntary liquidator to identify and determine the avoidance transactions and make application to the Adjudicating Authority?  
  2. If yes, what will be the starting point of look back period?
  3. Is it possible to dissolve the company while avoidance applications are pending for adjudication?
  4. What will be the treatment of any recoveries made out of avoidance transactions?

First Question: Is it incumbent upon the voluntary liquidator to identify and determine the avoidance transactions and make application to the Adjudicating Authority?  

Plain reading of section 59(6) with conjunctive reading of avoidance transactions sections from sections 43 to 51 suggests that it is incumbent upon the liquidator appointed for voluntary liquidation to form an opinion and make a determination to identify the transactions under sections 43, 45, 49 and 50 of the Code. The use of the word liquidator in avoidance transaction sections includes the liquidator appointed for voluntary liquidation and hence the liquidator is under a duty to determine the avoidance transactions and file appropriate applications before the Adjudicating Authority. A crucial question relates to payment of fee of forensic auditor, if appointed by the liquidator. Who pays it? Can the liquidator claim it as part of liquidation cost? The answer to this pertinent question depends on negotiated fee of the voluntary liquidator. No separate fee can be charged if the liquidator has not factored it in the negotiated fee. In other words, if negotiated fee provides for separate payment to be made for this effort, then it may be charged, else the voluntary liquidator will have to bear expenses of this effort out of his/her fee.

Second Question: If yes, what will be the starting point of look back period?

This question has no straight answer and it calls for application of interpretation rules. All the relevant sections dealing with avoidance transactions, namely, sections 43, 45, 49 and 50 provide the starting point of look back period as insolvency commencement date. In voluntary liquidation, there is no insolvency commencement date as it is not a consequential step arising out of CIRP process. The voluntary liquidation, as we are aware, is meant for solvent companies with no default and hence there is no question of CIRP process. The look back period for avoidance transactions is as under:

SectionNature of TransactionLook Back Period for non- related party transactionsLook Back Period for related party transactions
43Preferential Transaction1 year prior to insolvency commencement date2 years prior to insolvency commencement date
45Undervalued Transaction1 year prior to insolvency commencement date2 years prior to insolvency commencement date
49Transactions defrauding creditorsNo look back periodNo look back period
50Extortionate Credit Transactions2 years prior to insolvency commencement date2 years prior to insolvency commencement date

In all cases of avoidance transactions, the look back period is to be determined with reference to insolvency commencement date. In CIRP process and possible consequential liquidation of the corporate debtor, there is an insolvency commencement date and it can be the reference point.  But for the purposes of voluntary liquidation, insolvency commencement date is irrelevant as it is not a process arising out of or as a result of CIRP process.

Literal application and construction of these avoidance transaction provisions in the context of voluntary liquidation is leading to absurdity. The literal construction has, thus, to be eschewed and the phrase insolvency commencement date has to be construed in accordance with the context. The text and context must match. Here being a mismatch, the interpretation is necessary. We need to apply golden rule of interpretation. When literal interpretation leads to an irrational result that is unlikely to be the legislature’s intention, a departure can be made from literal meaning. A preferred meaning can be chosen. 

In voluntary liquidation, there is non-existence of insolvency commencement date. There exists only the liquidation commencement date. Hence, insolvency commencement date should be read as liquidation commencement date for the purposes of construing look back period and for determination of avoidance transactions in voluntary liquidation process. This interpretation gets strength from Section 59(6) which makes provisions of sections 35 to 53 of liquidation process applicable to voluntary liquidation with such modifications as may be necessary. Replacement of insolvency commencement date with liquidation commencement date for the purpose of construing look back period for avoidance transactions partakes the character of ‘necessary modification’ being reasonable, judicious and rational . Even the purposive approach of interpretation can be applied. The purpose of determining avoidance transactions is to provide equitable treatment to the creditors as provided in section 53 of the Code. The transactions carried out by the erstwhile management are put under the lens. From the insolvency commencement date, it the insolvency professional who takes control of the management and affairs of the company. Prior to the insolvency commencement date, the company remains under the control of erstwhile management and it is imperative to identify avoidance transactions. Hence the cut-off date for look back period is the insolvency commencement date. In voluntary liquidation, the liquidator assumes control over the company and its assets from the liquidation commencement date. Prior to this date, it is the management of the company which remains in charge of the affairs of the company and the possibility of avoidance transactions cannot be ruled out.  To conclude, in voluntary liquidation, the cut off date for look period would be liquidation commencement date instead of insolvency commencement date.

Base upon the interpretation, the look back period for avoidance transactions under voluntary liquidation should be considered as follows:

SectionNature of TransactionLook Back Period for non- related party transactionsLook Back Period for related party transactions
43Preferential Transaction1 year prior to liquidation commencement date2 years prior to liquidation commencement date
45Undervalued Transaction1 year prior to liquidation commencement date2 years prior to liquidation commencement date
49Transactions defrauding creditorsNo look back periodNo look back period
50Extortionate Credit Transactions2 years prior to liquidation commencement date2 years prior to liquidation commencement date

Third Question – Is it possible to dissolve the company while avoidance application/s is/are pending for adjudication?

In the context of liquidation process, this question is easy to answer. Regulation 44(1) of the Liquidation Regulations reads as under: 

“The liquidator shall liquidate the corporate debtor within a period of one year from the liquidation commencement date, notwithstanding pendency of any application for avoidance of transactions under Chapter III of Part II of the Code, before the Adjudicating Authority or any action thereof.”

Conjunct reading of Regulation 44(1) of the Liquidation Regulations with Form H, where details of pending avoidance application are to be stated, it can be concluded that regardless of pendency of the applications for avoidance transactions, the company can be dissolved by the Adjudicating Authority after completing all other activities under liquidation.

One is persuaded to apply the same rational to voluntary liquidation and arrive at the same conclusion. Before it is done, let us consider Regulation 38(b)(iii) of Voluntary Liquidation Regulations, which reads as under: 

“38 (1) On completion of the liquidation process, the liquidator shall prepare the Final Report consisting of – 


(iii) No litigation is pending against the corporate person or sufficient provision has been made to meet the obligations arising from any pending litigation.”


This Regulation has caused confusion as in the final report, the liquidator has to make an affirmative statement that no litigation is pending. If avoidance application is pending for adjudication, the liquidator cannot make this kind of affirmative statement as pending avoidance application is in the nature of a pending litigation. The Bankruptcy Law Reforms Committee Report, which happens to be the genesis of the Code, dealt with distribution of realization made on account of avoidance transactions. It is useful to reproduce relevant portion of Para 5.5.7:

“The Committee recommends that all transactions up to a certain period of time prior to the application of the IRP (referred to as the “look-back period”) should be scrutinized for any evidence of such transactions by the relevant Insolvency Professional. The relevant period will be specified in regulations. At any time within the resolution period (or during the Liquidation period if the entity is liquidated) the relevant Insolvency Professional is responsible for verifying that reported transactions are valid and central to the running of the business. There should be stricter scrutiny for transactions of fraudulent preference or transfer to related parties, for which the “look back period” should be specified in regulations to be longer.

The Code will give the Liquidator the power to file cases for recovery. Some jurisdictions set such recoveries aside for payment to the secured creditors. Given the extent of equity financing in India, all recoveries from such transactions will become the property of the trust, and will be distributed as described within the waterfall of liabilities.”

The BLRC recommended formation of trust for recoveries made through vulnerable transactions (termed as avoidance transactions in the Code). The BLRC preferred providing discretion power to the Adjudicating Authority to close liquidation case inspite of the fact that application for recovery from the vulnerable transactions is pending. Relevant extract of Para 5.5.10 from BLRC Report is reproduced hereunder: 

“The Liquidator may apply to the Adjudicator to close down the case with estimates of the time to recovery and possible value of recovery from the vulnerable transactions. If the Adjudicator rules in favour of the application, an order to close the Liquidation case will be issued. This will trigger a set of accompanying orders as follows:

1. An order to the relevant registration authority to remove the name of the entity from its register.

2. An order releasing the Liquidator from the case.

3. An order to submit all records related to the case to the Regulator.

If the Adjudicator does not rule in favour of the application, the Liquidation case remains open. The Code permits the Liquidator to apply for the closure again after a reasonable period of time has passed.”

Coupled with the recommendation of the BLRC and the provisions contained in Liquidation Regulations, it can be safely concluded that the principle applicable for liquidation can be applied in voluntary liquidation cases. There is no justification as to why a different treatment should be afforded in case of voluntary liquidation. In so far as Regulation 38(1)(ii) is concerned, the liquidator can mention in Final Report that no litigation is pending except application for avoidance transactions. It is left to the discretion of Adjudicating Authority to decide whether to close the liquidation or to keep it open till the final decision in these applications is made.

Fourth Question: What will be the treatment of any recoveries made out of avoidance transactions?

This aspect has not been dealt in by the Code or the Regulations framed thereunder. However, relying upon the suggestions of the BLRC (relevant extract reproduced hereinabove), it is judicious to distribute the recoveries made in accordance with the distribution waterfall under section 53 of the Code.


The conclusion to each question has been stated hereinabove adopting interpretative approach. It is fair to expect a suitable amendment in the Code and Regulations framed thereunder to set at rest any doubt and interpretative difficulties that are likely to arise amongst the benches of the Tribunal and Appellate forums while dealing with these pertinent questions. 

[1] Section 59(5) read with section 5(17) of the Insolvency and Bankruptcy Code, 2016 

[2] Section 59(7) of the Insolvency and Bankruptcy Code, 2016 

[3] Section 59(6) of the Insolvency and Bankruptcy Code, 2016 

[4] Section 19(3) of the Insolvency and Bankruptcy Code, 2016 

Understanding 2019 IBC Amendments

Insolvency and Bankruptcy Code of India has been the subject of interpretation at various judicial forums from Adjudicating Authority to Appellate Tribunal to Apex Court of India. Last amendment in 2018 brought in home buyers as financial creditors but many questions remained unanswered as most of the homebuyers did not participate in the voting process. New issues relating to distribution to operational creditors in a resolution plan cropped up with the judgment of Appellate Tribunal in Essar Steel in July 2019, which is now under a stay by the Apex Court.  

The IBC Amendment Bill 2019, introduced in Rajya Sabha on 24 July, 2019 was passed by Rajya Sabha on 29thJuly and by Lok Sabha on 1stAugust, 2019. It is awaiting President’s assent and the Central Government’s notification.

Here is the analysis of the 2019 amendments in IBC:

Ascertaining existence of default in 14 days by NCLT

A provision exists in the Code which mandates the Adjudicating Authority (NCLT for Corporate Insolvency) to ascertain the existence of default within 14 days of the receipt of the application from a financial creditor for initiating corporate insolvency resolution process. The use of the word `shall’ in the mandate cannot be overemphasized. However, this wasn’t being put to practice. The reasons could be either too much workload at hand (the application filed is not listed so soon before NCLT after filing) and the Courts reading principle of natural justice in this provision by issuing notice of the application filed to the corporate debtors. Naturally, the process of filing reply and rejoinders took longer than required 14 days. 

The amendment now requires the NCLT to record reasons if the ascertainment of existence of default is not done within 14 days of filing of application. Under the existing provision, it is incumbent upon the NCLT to dispose of the application within 14 days of the receipt of application and not only ascertain the existence of default. It is important to refer to section 64 of the Code which provides for expeditious disposal of the applications by NCLT. It also provides that NCLT should record reasons if the application is not disposed of within the prescribed time frame and that an extension should be sought from the President of NCLT by the Adjudicating Authority giving reasons of delay and the President is empowered to extend it for maximum of 10 days on the basis of reasons recorded. Looking through this prism, the existing provision intended to achieve the same objective that is now sought to be achieved. From a practical perspective, section 64 was rendered nugatory by the judgment of Appellate Tribunal in J.K.Jute Mills Company Limited vs Surendra Trading Company, 1stMay, 2017, wherein by a stroke of pen, the Appellate Tribunal held that the period of 14 days within which NCLT is mandated to admit or eject the application is directory and not mandatory. Unfortunately, this part of judgment wasn’t touched by the Apex Court in an appeal before it.

Being already covered by this judgment of Appellate Tribunal, the proposed amendment is a non-starter from the word go. If not, judiciary will find a way through this. It is flummoxing why a similar amendment has not been brought in section 9 and 10 which also mandate the NCLT to pass an order within 14 days of receipt of application.

Fixing the outer time-limit for completion of Corporate Insolvency Resolution Process

The Code boldly announced that corporate insolvency resolution process shall be completed within 180 days with an extension of maximum of 90 days; in all 270 days. The experience says as on 30thJune, 2019, 445 insolvency processes are going on beyond 270 days out of the total pendency of 1292; a whopping 34%. Time period of 270 days does not look to be practical due to cases going back and forth to Appellate Tribunal and to Supreme Court. 

The amendment now provides that whatever may be the reason of delay including the period consumed in litigation or stay, the overall time period for a corporate insolvency resolution process cannot exceed 330 days under any circumstance. The use of the phrase “shall mandatorily be completed”reflects the urgency and dictate of the Parliament. While granting outer limit of 330 days, the provision has been couched in a language which covers extension and exclusion of period for any reason curtailing the power of the Adjudicating Authority granted to it under the judgment of Appellate Tribunal in Quinn Logistics India P. Ltd. v. Mack Soft Tech Pvt. Ltd.whereby the Adjudicating Authority could exclude certain period from the 270 days for good grounds and unforeseen circumstances. 

There have been spurt in exclusion applications after this judgment and in few cases, the Adjudicating Authority has allowed exclusion of 270 days on the ground of non-cooperation by the personnel of the corporate debtor! The amendment wishes to rein this in but again judiciary may have the last laugh. The big question that arises is whether Quinn Logisticssurvives after this amendment? The amendment nullifies the judicial decision for now, but it remains to be seen – how long. 

In cases where 300 days have already gone by, the amendment provides that they must be completed within 90 days from the date of commencement of the Amendment.

Allottees’ (Homebuyers) Majority Decision Makes Their Voting Share Absolute

The allottees were considered as a ‘class of creditors’ and attained the status of financial creditors by an amendment in 2018 to be represented by an Authorised Representative in a Committee of Creditors (CoC), who used to vote in the CoC on their behalf as per the voting pattern by each allottee. Their voting share were counted on the basis of the debt due to each of them. Experientially, all the allottees never voted and they always fell short of their aggregate voting share. For example, in a CoC, if the voting share of 560 allottees was 66% and assuming only allottees holding 56% voting share voted, the decision was left at the mercy of other financial creditors in the CoC. The amendment takes care of this anomaly and it provides that once the allottees in a class of creditors take a decision by more than 51% vote (correct phrase would have been fifty one percent or more), the Authorised Representative shall cast the vote as if 100% of them have approved it. Here, more than fifty one percent is calculated on the basis of the votes cast and not total votes. Let us understand by way of an illustration:

Voting Share of aggregate of allottees in CoC66%
Voting Percentage of votes cast in favour of an item by allottees56% 
Voting Percentage of votes cast against the item by allottees10%
Voting Percentage of abstention of allottees34%
Overall Voting Share of allottees for the purposes of voting in CoC (prior to amendment)36.96 (56% of 66%)
Overall Voting Share of allottees for the purposes of voting in CoC (after amendment)66%

This is beneficial for the allottees as law now assumes that 100% of the allottees have decided in one way or the other if decision is represented by more than 51% of the votes cast. This makes their voting share in CoC absolute even though the actual voting share may be lesser. Authorised Representative shall, henceforth, vote as a group of ‘class of creditors’ and not as per wish of each allottee.

Anticipated Problem Due to Erroneous Drafting in 2019 Amendment

The problem, however, does not end here. The erroneous drafting is bound to make things complex. Assuming, the votes cast to arrive at a decision do not attain the benchmark of ‘more than fifty one percent’ (Votes cast in favour – 50.80% and against – 49.20%). It is not clear how the Authorised Representative will vote in such a situation. Instead of the phrase, ‘more than fifty one percent’, the use of ‘by majority’would have been appropriate and practical.

Protecting Interest of Operational Creditors and Dissenting Financial Creditors in a Resolution Plan

In order to further protect the interest of the operational creditors, amendment has been made in section 30. Now it is mandatory for a resolution plan to provide for minimum payment to operational creditors, which should be higher of amount that would have been paid to operational creditors under liquidation in accordance with section 53 or amount that would have been paid to operational creditors if the amount under the resolution plan would have been distributed as per order of priority stated in section 53 of the Code. Prior to amendment, it was restricted to the amount that would have been paid to the operational creditors under liquidation.

The change now enhances their chances of being considered for payment on a higher footing. Under liquidation, the amount would have restricted to ‘liquidation value’ but now the order of priority for operational creditors would be considered higher of ‘liquidation value’ and ‘amount under resolution plan’. 

 The dissenting financial creditors are also allowed to be paid the amount not less than the amount payable in accordance with order of priority in section 53 of the Code. The manner of such payment has been left to be specified by the Board. Consequent amendment has been made in regulation making power of the Board in section 240.

Interestingly, this provision will operate retrospectively for all cases where the approval of Adjudicating Authority to a resolution plan is pending, or appeal is pending or time for filing appeal has not lapsed, or where any other legal proceeding is pending against the decision of the Adjudicating Authority in respect of a resolution plan. Retrospective application of these provisions would make the process slow, complicated and may result in unintended consequences. Let us take a case where the application for approval of resolution plan is pending under section 30/31, the resolution plan, which is not in accordance with the amended provisions, will have to be re-drawn and re-approved by the committee of creditors. If the corporate insolvency resolution period is already over (original period allowed plus extension of 90 days plus exclusion), embargo of 330 days in section 12 will apply and it would make it legally impossible to grant more time eventually leading to liquidation of such a corporate debtor.   

 To overcome recent Essar Steel judgment of the Appellate Tribunal which paved way for parity of payment to operational creditors, the amendment now provides that the manner of distribution proposed must take into account the order of priority amongst creditors as laid down in Section 53 and the value of security interest of a secured creditor. The mandatory consideration of ‘value of the security interest of a secured creditor’ seems ambiguous and unnecessary. Section 53 disregards the value of security interest of a secured creditor, which means if the secured creditor relinquishes the security interest, the amount available is distributed proportionately amongst secured creditors regardless of the value of the security interest and ranking of their charge. This amendment is prospective and will not apply retrospectively to plans approved but pending for approval of adjudicating authority or pending in appeal or other legal proceeding. 

Resolution Plan Binding on Government and Government Authorities

An amendment has been made in section 31 providing that the resolution plan once approved shall also be binding of Central Government, State Government, local authority in respect of statutory dues owed to them. This amendment is clarificatory in nature as there was not any doubt in this regard but in some cases, the statutory authorities such as Income Tax etc interpreted it otherwise. By specifically including them here, the amendment paves the way for resolution plan being binding on Government and government authorities.

Decision to Liquidate Can Be Taken at Any Stage

The unamended provision gave ample powers to the committee of creditors to take the decision to liquidate at any stage of corporate insolvency resolution process. But some benches of NCLT ruled otherwise and in few cases passed strictures against committee of creditors if they decided to liquidate at early stages of corporate insolvency resolution process. Fortifying the intent of the Code that commercial decision to resolve or liquidate fall within the exclusive domain of the committee of creditors, the amendment now seeks to clarify that the committee of creditors is free to take decision to liquidate at any stage even before the preparation of information memorandum. This amendment would reduce the financial burden on the members of the committee of creditors as they will not be required to shell out CIRP costs and costs relating to keeping the corporate debtor as a going concern when they foresee no viability in the business of the corporate debtor. The amendment strengthens the decision-making power of the committee of creditors. However, this may not take away the power of Adjudicating Authority or Appellant Tribunal or the Supreme Court to examine whether such a decision has been taken fraudulently.

Retaining Books of Account Post Dissolution of a Corporate Debtor

Uncertainty remains as to how long the Liquidator should maintain the books of account of the corporate debtor under the Insolvency and Bankruptcy Code, 2016. Do they become bona vacantia? For clarity, it may be noted the Liquidation Regulations specify that the liquidator shall preserve specified registers and books of account for a period of eight years from the date of dissolution of the corporate debtor. These can be referred to as ‘books of the liquidator pertaining to liquidation’. The format of the registers and books of account has also been specified in the regulations. The regulations also mandate that the liquidator should complete the books of account of the corporate debtor if they are incomplete on the liquidation commencement date. The reference to books of account here is to ‘books of the corporate debtor prior to liquidator. In this sense, there are ‘books of the corporate debtor’ and books of the liquidator’.

The period of preservation of books of the liquidatorhas been provided in the regulations. But the Code and the regulations are silent on the period for which the books of the corporate debtorare to be preservedby the liquidator. Can they be destroyed upon order of dissolution?

The requirement of maintenance and preservation of books of account of a company is provided in the Companies Act, 2013 in following terms:

Books of Account are to be maintained for period of not less than eight financial years immediately preceding a financial year together with the vouchers relevant to any entry in such books of account. Where an investigation has been ordered in respect of the company, the Central Government may direct that the books of account may be kept for such longer period as it may deem fit (s. 128).

The company shall maintain and preserve at its registered office copies of all documents and information as originally filed for incorporation till its dissolution (s.7).

Interestingly, the Companies Act, 2013 deals with the disposal of books of account upon dissolution as under (s. 347):

  • The books and papers of a company to be dissolvedand those of the Company Liquidator to be disposed of in the manner as directed by the Tribunal.
  • After the expiry of five years from the dissolution of the company, no responsibility shall devolve on the company, the Company Liquidator, or any person to whom the custody of the books and papers has been entrusted, by reason of any book or paper not being forthcoming to any person claiming to be interested therein.
  • The Central Government may, by rules, prevent for such period the destruction of the books and papers of a company which has been wound up and of its Company Liquidator.

Under the Company (Court) Rules, 1959 [Applicable to winding-up governed by provisions of the Companies Act, 1956], the High Court, in its discretion, can pass orders directing disposal of the books and papers of the company and of the Liquidator.

Section 356 of the CA 2013 provides that the dissolution can be declared as void by the Tribunal upon an application being made within two years from the date of dissolution.

Similar provisions find no place in the Code or in the Regulations. The period for preservation for books of liquidator is provided in the Regulations but not for books of the corporate debtor. Section 347 of the Companies Act, 2013 cannot be applied for liquidation under the Code regardless of the fact that the same Tribunal has the authority to deal with winding-up under the Companies Act, 2013 as well as liquidation under the Code. In any case, corporate debtor under the Code is a broader term and also includes limited liability partnership and there is no question of extending the applicability of provisions of the Companies Act, 2013 to a LLP. Winding-up process under the Companies Act, 2013 and liquidation process under the Code are two distinct processes under two different statutes.

Typically, the regulations should be amended to provide for the period of preservation of books of the corporate debtor. Until, this is done, the onus lies on the Tribunal using its power under section 60(5) of the Code to direct the period and the manner of preservation or disposal of the books of account of the corporate debtor upon the order of dissolution.

There may be case of pending investigation and litigation against the corporate debtor. Should the books and records be maintained till the end of investigation or litigation? The answer lies in the question itself. No corporate debtor should, ordinarily, be dissolved if any investigation, litigation or case is pending against it. Dissolving such a corporate debtor would be a huge lapse giving rise to a legal crisis.

@Ashish Makhija:

Disclaimer: The views expressed here are views based on my personal interpretation for academic purposes alone and should not be deemed as legal or professional advise on the subject. If relied upon, the author does not take any responsibility for any liability or non-compliance.




Challenges in Insolvency Resolution Cases Involving Property Buyers

Property Buyers under Insolvency and Bankruptcy Code (IBC) rejoiced when they were expressly considered as financial creditors following the prevailing confusion. Hohfield’s jural matrix  correlates power with duty. Property buyers [I prefer using this term than ‘homebuyers’ because of newly inserted Explanation to section 5(8)] were empowered to have a say in the committee of creditors (CoC). Having attained the position of power, they, however,  must not forget their duty to ensure that corporate insolvency resolution process goes on smoothly. On the contrary, few cases that are in progress shows that they are acting as bullies  like a mob swayed by varied opinions without weighing the options that are in their interest. The side-stepped promoters are enjoying the split  between home owners associations of different projects and even sometimes energizing the rift, and happily watching the hassled insolvency professionals. 

The task of insolvency professionals in real-estate cases under IBC is more of a public relation exercise, in which they are unfortunately not trained, with property owners eating away the precious time at hand  by engaging them through constant phone calls, emails, personal visits with all sorts of threats – veiled and open. The insolvency professionals who were used to their cosy offices are suddenly feeling the heat and pressure of a different kind. The complaints against insolvency professional are flowing thick and fast and the Regulators and Adjudicators are having a hard time.

Not only that, even property buyers are being harassed at the hands of IRP/RP and Authorised Representatives. The process has become cumbersome and unfortunately the Regulator has left it to be sorted out on its own without any deep thinking and research on the subject. Writing english by way of Regulations is easy but when it comes to implementation, the avoidable issues that crop up could have been easily taken care of. We see formation of numerous committees on these subjects with some members using their association on social media platforms for enhancing their own image and reputation. The resultant work is not showing results; rather it has compounded the confusion. Serious change in planning and strategy is called for. Regulator cannot get away by saying that ‘everyone is learning by the day’ at public forums.  Regulating is a serious business.

Let us look at some of the challenges being faced by interim resolution professionals or resolution professionals (IRP/RP) while dealing with property buyers and vice versa and here’s my opinion on resolving some of them:

Challenge # 1 : Replacing IRP

Replacing IRP is a time consuming process in cases involving property buyers. IRP constitutes CoC and convenes its first meeting with usual agenda items of  remuneration and expense approval, and an item for his appointment as RP. Perceptively unhappy with the IRP’s functioning so far, the trend in few cases reveals that property buyers have voted out the appointment of IRP as RP. The democratic vote process is the winner but here begins the difficult part. Who will now be in the saddle as RP? Assuming there are 5 projects in different state of progress, there is a deep split amongst the property buyers. Each project has an association leading its way. Consensus to one name is the most arduous process. Once that is done, begins the task of requesting the RP to convene a meeting. As per regulations, financial creditors holding a minimum of 33% voting share must make a request for convening the meeting of CoC for considering agenda for appointment of another RP. Here begins the ‘free for all’.

First Challenge

In many cases, RP has refused to entertain e-mails from property buyers directly advising them to bring it through the Authorized Representative. This is patently wrong as Authorized Representative is not a ‘be-all’ for property buyers as financial creditors; he is merely a link for taking their ‘will’ on agenda items to CoC meetings by representing them. This does not mean that property owners cannot communicate directly with IRP/RP or entertain their request for calling a CoC meeting. IRP/RP should soften their stand as it is not legally tenable. Law permits property buyers to file claims directly to IRP and sort out problems in verification stage. Hence, communicating directly with IRP/RP is not prohibited.

Second Challenge

This begins at the door of Authorized Representative. The property buyers are informed that any requisition has to come via an e-mail. No physical request with signatures of property buyers will be entertained. Property buyers have to pull all their socks and arrange e-mails from one and all to muster 33%. Once that is done, Authorized Representative claims having not received e-mails. Precious days are wasted in locating e-mails in spam, junk and trash folders. Authorised Representatives need to understand that they are there to serve the interest of property buyers and should make it easy for them by not insisting on communicating only through e-mails. The propogators of ‘ease of doing business’ would do well to look into this aspect or else India’s rank for ‘insolvency matters’ is likely to go down.

Third  Challenge

Once 33% voting share is mustered, Authorised Representative throws a spanner by not showing any urgency in forwarding the request to IRP. If by chance, he receives some emails (not aggregating to 33%) from some property buyers suggesting another name, other than the one recommended by 33% voting share, he insists on sending this agenda item to IRP/RP to be included in CoC requisitioned by 33%. This effectively means there will now be a contest between two insolvency professionals for  being appointed as RP. The Authorised Representatives easily forgets that initially he insisted for 33% voting share for any agenda to be sent to IRP.

Fourth Challenge 

The IRP who receives the forwarded request for CoC meeting springs a surprise by insisting that the resolution forwarded for appointment of an IP as RP must contain the remuneration part also. Another round of discussion takes place over few days ignoring the basic intent behind IBC for making the process as ‘time-bound’. Zero knowledge is understandable but half knowledge is a dangerous phenomenon. It is the prerogative of the financial creditors to propose any agenda item in a requisitioned CoC meeting. IBC does not require that resolution for appointment of RP should contain the remuneration also. It can be decided later on as RP may also not be aware of the volume of work involved at this stage. It is a matter of decision by CoC at any stage not necessarily along with the resolution for appointment of RP. Despite being convinced, IRP takes his own time sulking by the fact that his name was rejected by same group of creditors. Calling a meeting in companies in real estate is a painful process with lack of trained IPs and their misconstrued interpretations. IPs should take legal advise from experts on these issues and proceed on the basis of a legal opinion because everything cannot be written in a law or regulations or rules. The focus should be on being logical, reasonable and fair.

(This is part I of continued series of challenges facing resolution of corporate in real estate sector) 

@Ashish Makhija:

Disclaimer: The views expressed here are views based on my personal interpretation for academic purposes alone and should not be deemed as legal or professional advise on the subject. If relied upon, the author does not take any responsibility for any liability or non-compliance.

NCLT Knocks Out 137 Days from CIRP

NCLT Principal Bench in a recent order of NIIL Infrastructure Private Limited  directed exclusion of 137 days from CIRP period. The Bench was of the opinion that section 12(2) for extension of time as alternative prayer need not be invoked in the case. In this case, Resolution Professional (RP) was appointed by the Bench after a gap of 114 days after the tenure of Interim Resolution Professional (IRP) ended. Though the IRP organised few meetings of the committee of creditors (CoC) but no decision could be arrived at on the appointment of RP. It was only after the intervention of the Bench that CoC resolved to appoint RP. Earlier also 23 days were lost when inadvertently different IRP was appointed than the one proposed by the financial creditor. The Bench, thus, excluded 137 days from the CIRP period relying upon Quinn Logistics India Pvt Ltd judgement of the NCLAT. This order paves way for exclusion of time as an alternative to extension of time where there is delay in appointment of RP.

© Ashish Makhija:

Disclaimer: The views expressed here are views based on my personal interpretation for academic purposes alone and should not be deemed as legal or professional advise on the subject. If relied upon, the author does not take any responsibility for any liability or non-compliance.