Principles and Process of CIRP (Corporate Insolvency Resolution Process)
The Insolvency and Bankruptcy Code, of 2016 provides creditors with a recovery process known as the Corporate Insolvency Resolution Process (CIRP) (IBC). An insolvent corporate entity may be dissolved by a CIRP process initiated by creditors or the corporate entity itself. Laws connected to bankruptcy and reorganization of corporate entities, individuals, and partnership companies were amended and combined under the Insolvency and Bankruptcy Code, 2016, so that the interests of all stakeholders may be balanced.
Who can initiate a Corporate Insolvency Resolution Process?
Corporate creditors, operational creditors, or even the corporate debtor itself may approach the National Company Law Tribunal (NCLT), the Adjudicating Authority for Corporate Insolvency Resolution, to hand over an application for initiating CIRP against a defaulter who has gone bankrupt or committed some other act of default. IBC provisions define a financial creditor “as someone to whom a financial debt is owed.” Subsequently, financial debt, in terms of real estate, has been defined as: “any amount that is raised under a real estate project from an allottee is deemed to be an amount which has the commercial effect of a borrowing.” Since homebuyers are now considered “financial creditors”.
Initiation of CIRP by a Financial Creditor
Initiation of CIRP takes place under Section 7 by financial creditors. To initiate CIRP against a corporate debtor, at least 10% of the total number of allottees of the project must file a joint application.
Creditors must apply, pay a fee, and supply the following information:
“A person or entity authorized to act as a repository of legal information relating to any debt/claim, as submitted by a financial or operational creditor and verified and authenticated by the other parties to the debt/claims, like National E-Governance Services Limited” records of the debt default or the default record. Creditors’ names and contact details for an interim settlement professional. Information is required by India’s Insolvency and Bankruptcy Board (IBBI).
The NCLT must employ an information utility or other evidence presented by a financial creditor to substantiate a default within 14 days of receiving an application. If not, the Tribunal will explain why in writing.
The Tribunal may approve the professional if the default is established, the application is satisfied, and the proposed professional has no existing disciplinary proceedings. The Tribunal may accept a mediator. The Adjudicating Authority will reject an application after giving the applicant seven days to fix any of the following three components. NCLT will notify creditors and corporate debtors of application approval, and the resolution procedure will commence on acceptance.
Interim Resolution Professional and Moratorium
When a corporate debtor enters a resolution, the Adjudicating Authority (NCLT) appoints an Interim Resolution Professional (IRP). The IRP will serve until the Resolution Professional is chosen and will be helped by debtor staff. CIRP proceedings against the corporate debtor will be disclosed publicly upon appointment and will contain the corporate debtor’s name and address, the IRP’s name, and a schedule for completion.
Appointment and Duties of the Resolution Professional
Seven days following its formation, COC must decide whether to designate IRP as a resolution professional or to replace IRP with another resolution professional by a majority vote of at least six-six percent of monetary creditors. The Adjudicating Authority should be informed of the committee’s decision. The Resolution Professional is tasked with safeguarding and preserving the corporate debtor’s assets, including the viability of the company’s ongoing operations. The professional must convene and attend all COC meetings, as well as use his or her rights for the benefit of the corporate debtor in quasi-judicial, judicial, or arbitration processes.
Submission of the Resolution Plan
The resolution professional must review each qualifying applicant’s resolution plan to guarantee the corporate debtor’s obligations are satisfied and bankruptcy expenditures are reimbursed. Before being executed, the concept needs creditor approval. To pass, 66% of creditors must agree. Resolution expert gives strategy to Adjudicating Authority. Creditors must approve CIRP in full within 180 days. A 90-day extension is conceivable. After approval by the NCLT, resolution plans are legally binding on the corporate debtor, its members, employees, guarantors, creditors, and other stakeholders. If no application is accepted in time, the Adjudicating Authority must impose liquidation. Creditors appoint liquidators to divide debtors’ assets.
Rights and Remedies to Home Buyers under IBC
Under Section 5 (8) (f), a homebuyer’s payment under a real estate project would be regarded as financial debt, and therefore, the homebuyer would be considered to be a “financial creditor.” However, this was already held in the Nikhil Mehta & Sons (HUF) & Ors. vs. AMR Infrastructures Ltd case According to Section 3 (11) of the IBC, investors who received “guaranteed returns” from real estate businesses are considered financial creditors since the money owing to them constitutes “debt” as defined by the IBC. Financial creditors were consequently seen as homebuyers who were promised a return on their investment.
The homebuyers are included in the definition of financial creditors, and therefore have the same rights as financial creditors, such as the right to participate in the committee of creditors, the right to participate and vote in the meeting, and the ability to participate in asset distribution. As a result, RPs and home allottees lack the technical experience and knowledge necessary to manage the affairs of the corporate debtor and evaluate the business’s viability during its moratorium period by financial creditors like banks and FIs. The RP is responsible for ensuring that the firm continues to exist once the CIRP has been implemented. A real estate infrastructure business’s flats/apartments need to be finished to keep the company running.
The Hon’ble Supreme Court held that no violation of Articles 14 and 19(1) (g) or 300-A of the Indian Constitution is committed by the Code Amendment Act. I&B Code has precedence over RERA in the event of a disagreement, and RERA must be construed in harmony with the Code as revised by the Amendment Act. Due to the concurrent nature of the remedies available to allottees of flats and apartments, such individuals can use the Consumer Protection Act, RERA, as well as the I&B Code to their advantage. Allottees of flats/apartments were always included in Section 5(8) (f) of the Code as a residuary provision. The Amendment Act incorporated the explanation and the deeming fiction simply to explain the legal situation.
Fast-track Corporate Insolvency Resolution Process
When opposed to the typical 180-day procedure under the IBC for conventional CIRP proceedings, this method of achieving corporate bankruptcy may be completed in as little as 90 days. The Adjudicating Authority may grant the resolution professional a request to extend the fast-track CIRP beyond the first 90 days. The maximum allowed additional time is 45 days. All other procedures will mirror those of the CIRP’s first 180 days.