E MSOP PROJECT REPORT SUBMITTED TO

E Management Skill Orientation Programme (E-MSOP)

TOPIC:

CAPITAL BUDGETING

SUBMITTED BY:
NAME BHARAT KUMAR BOHRA
REG NO 220875666/05/2010
 DECLARATION BY THE STUDENT
We hereby declare that “CAPITAL BUDGETING” is the result of the
project work carried out by me as fulfilment of (E-MSOP by ICSI-)
We also declare that this project is the outcome of my own efforts and
that it has not been submitted to any other Degree or Diploma or
Certificate.

Date: Oct 11, 2018

ACKNOWLEDGEMENTS

I would like to express our sincere gratitude to The Institute of

Company secretaries of India (ICSI) for providing us an opportunity to
work and submit a Project on “CAPITAL BUDGETING”
.
 INDEX

S.No. Particulars Page No.

1 Introduction 1
2 Types of Capital Budgeting 6
3 Extent, Applicability and Preamble of the 10
Code
4 Authorities under the Code 12
5 Adjudicating Authorities for Corporate 14
Persons
6 Regulation of Insolvency Professionals, 17
Agencies and Information Utilities
7 Major Mechanisms Envisaged Under the 18
Code
8 Corporate Insolvency Resolution Process 20
(CIRP)
9 Liquidation Process for Corporates 45
Introduction
Every organization irrespective of its size and mission can be viewed as
a financial entity management of an organization. Financial
management focuses not only on the improvement of funds but also on
their efficient use with the objective of maximizing the owner’s wealth.
The allocation of funds is therefore an important function of financial
management. The allocation of funds involves the commitment of funds

There are two types of Investment decision:

Capital Budgeting, broadly defined as a decision-making process that

enables managers to evaluate and recognize projects that are valuable to
the company, is usually the dominant mission facing any financial
manager and his/her team. It is the most important task for managers
for the following reasons.

First, the strategic decisions and directions of a company, new products,

new services, and expansion into new markets, are determined by the
company’s capital budgeting.

Second, capital budgeting decisions usually result in relatively long-

lasting effects to the company, and therefore a decrease in flexibility.
Third, serious consequences may arise from poor capital budgeting
decisions.
For example, if a company devoted too much capital to one project, the
company’s capital would be unnecessarily spent on excess production
capacity. On the other hand, if less-than-required capital was invested
by the company, its productivity would suffer by the simple fact that its
equipment, computer hardware and software might not be cuttingedge
to improve production.
These poor capital budgeting decisions may allow rival companies the
opportunity to steal market share by taking advantage of a lower cost
structure or production capabilities matching demand.

Most textbooks classify capital budgeting projects roughly into the

following four categories.

(1) Replacement projects: If a piece of equipment is out-dated or

hinders efficient production, company’s usually tends to avoid
 overanalysing whether to replace the older equipment. This type of
project is usually carried out without detailed analysis.

(2) Expansion projects: These projects expand the volume of the

business product lines, and more uncertainties of sales forecasts should
be considered. Very detailed analyses are usually involved in this
instance.

(3) New products and services: New products and services require
more complex decision-making processes, and careful capital budgeting
decisions are necessary.

(4) Mandatory projects: These types of projects are required by the

government, an insurance company, or some other agency. These
projects are usually related to safety or the environment and are
typically not revenue-generating. Capital budgeting decisions are
typically made to reach the objective at the lowest cost to the company.

What is Capital Budgeting?

Capital budgeting is the process in which a business determines and

evaluates potential large expenses or investments. These expenditures
and investments include projects such as building a new plant or
investing in a long-term venture. Often, a company assesses a
prospective project's lifetime cash inflows and outflows to determine
whether the potential returns generated meet a sufficient target
benchmark, also known as "investment appraisal."

Capital Budgeting is a many-sided activity. It includes searching for new

andmore profitable investment proposals, investigating, engineering
andmarketing considerations to predict the consequences of accepting
theinvestment and making economic analysis to determine the profit
potentialof each investment proposal

However, these provisions were not notified nor was National Company
Law Tribunal (“NCLT”) constituted to exercise powers in relation to sick
industrial companies.
• The Sick Industrial Companies (Special Provisions) Act, 1985 (“SICA”)
was the only central corporate rescue law in force but it applied to
industrial companies only.
• The Recovery of Debt Due to Banks and Financial Institutions Act
(RDDBFI Act) 1993 gave banks and a specified set of financial
institutions greater powers to recover collateral at default.
• The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act (SARFAESI), 2002 envisaged
specialised resolution agencies in the form of Asset Reconstruction
Companies (“ARCs”) to resolve Non-performing Assets (“NPAs”) and
other specified bank loans under distress.
• RBI had Strategic Debt Restructuring Scheme (SDR) and Scheme for
Sustainable Structuring of Stressed Assets (S4A) for structuring of debts
overdue to financial institutions.
Hence, it is evident that the earlier process of dealing with stressed and
bad debts was highly fragmented and scattered over numerous
legislations with varied enforcement and judicial agencies.
Why Code?
Generally, an enactment/a statute/a bill/a regulation which has passed
through several legislative steps needed for it and which has become
law is called an ACT whereas a specific type of action made by
legislature that tries to cover a complete system of laws in a given area is
called a CODE. India now has three pieces of legislation referred to as
Code: Indian Penal Code 1860, The Code of Criminal Procedure (CrPC),
1973 and now Insolvency and Bankruptcy Code, 2016. Another Code by
name of Direct Tax Code is in draft stage since past many years, which if
enacted will simplify direct tax laws in India. It is pertinent to note that
the most supreme Indian Legislation, which is Constitution of India has
neither the word Act or Code nor year affixed to it. Article 393 of the
Constitution which gives the short title to it simply refers to it as the
Constitution of India.
The Insolvency and Bankruptcy Code is referred as Code and not an Act
as it deals with the topic of debt resolution and recovery in India
comprehensively (except for financial service providers) including both
corporate, non-corporate business structures, individuals and to limited
extent even cross border insolvency. It is also comprehensive as it allows
for resolution as well as liquidation processes.
The enactment is also referred to as Code because as per section 238 of
the Code, provisions of the Code override other laws where they are
inconsistent with other laws. Here it is pertinent to note that w.e.f 6th
June, 2018, Section 238A has been introduced and the provisions of the
Limitation Act, 1963 has been specifically made applicable to the
proceedings or appeals before the adjudicating and appellate authorities
under the Code through Section 34 of the IBC (Amendment) Ordinance,
2018 and later through IBC (Second Amendment) Act, 2018. Note that
the period of limitation specified for various kinds of suits under THE
SCHEDULE annexed to the Limitation Act, 1963 varies from 10 days to
thirty years. For instance, suit by a mortgagor to redeem or recover
possession of immovable property mortgaged can be filed anytime
within 30 years of the day when right to redeem or to recover possession
accrues. Similarly, any suit (except a suit before the Supreme Court in
the exercise of its original jurisdiction) by or on behalf of the Central
Government or any State Government, including the Government of the
State of Jammu and Kashmir can be filed within 30 years of the day
when the period of limitation would begin to run under Limitation Act
against a like suit by a private person.
Also note that the period of limitation will not apply on filing of claims
by the creditors but only on proceedings and appeals before
adjudicating and appellate authorities.
The Insolvency and Bankruptcy Code, 2016
Though the Insolvency and Bankruptcy Code, 2016, came into effect
from May 28, 2016, but its sections were first notified on August 5, 2016.
The Code has been first amended by the Insolvency and Bankruptcy
(Amendment) Ordinance, 2017, passed on November 23, 2017, vide
Notification No. DL – N (04)/0007/2013-17 in order to strengthen the
existing insolvency resolution process under the Insolvency and
Bankruptcy Code, 2016.
This Ordinance became an Act on January 18, 2018, after being passed
by both the houses of Parliament and receiving President’s assent. It is
known as the Insolvency and Bankruptcy Code (Amendment) Act, 2018.
It was made applicable from November 23, 2017. The Ordinance had 9
Sections and the final Act had 10 Sections, the 10th Section being
inserted to repeal the Ordinance.
Sections 2, 5, 25, 30, 35 and, 240 of the Code were amended, and new
Sections 29A and 235A were inserted in the Code.
The second amendment is made vide The Insolvency and Bankruptcy
Code (Amendment) Ordinance, 2018, issued by the President on June 6,
2018, vide notification No. DL– N (04)/0007/2003 – 18. This amendment
incorporates the recommendations made by the Insolvency Law
Committee and smoothens out many difficulties faced earlier. The
Ordinance inserted four new sections 12A, 25A, 238A and 240A and
amended a few other sections.
The Insolvency and Bankruptcy (Second Amendment) Bill, 2018 was
introduced in the monsoon session of the parliament on 23rd July, 2018 to
repeal the IBC (Amendment) Ordinance, 2018. It was passed in Lok
Sabha and Rajya Sabha on 31st July and 10th August respectively. It
received the assent of the President on the 17th August, 2018 and thus the
Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 was
promulgated. The IBC (Second amendment) Act, 2018 are in lines with
the ordinance except for few minor incidental changes.
Legislative Framework &Structure of the Code
After all the amendments, the structure of the Code is as follows:
The Code Comprises of 5 parts, 261 sections (255 at the onset + 6sections
added by amendments) and 12 Schedules. (12th schedule added as per
the IBC (Second Amendment) Act, 2018)
Schedules
THE FIRST SCHEDULE - Amendment to the Indian Partnership Act,
1932- Section 245
THE SECOND SCHEDULE - Amendment to the Central Excise Act,
1944- Section 246
THE THIRD SCHEDULE - Amendment to the Income-Tax Act, 1961-
Section 247
THE FOURTH SCHEDULE - Amendment to the Customs Act, 1962-
Section 248
THE FIFTH SCHEDULE - Amendment to the Recovery of Debts Due
to Banks and Financial Institutions Act, 1993-Section 249
THE SIXTH SCHEDULE - Amendment to the Finance Act, 1994-
Section 250
THE SEVENTH SCHEDULE - Amendment to the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002- Section 251
 THE EIGHTH SCHEDULE - Amendment to the Sick Industrial
Companies (Special Provisions) Repeal Act, 2003- Section 252
THE NINTH SCHEDULE - Amendment to the Payment and
Settlement Systems Act, 2007- Section 253 THE TENTH SCHEDULE -
Amendment to the Limited Liability Partnership Act, 2008- Section 254
THE ELEVENTH SCHEDULE - Amendments to the Companies Act,
2013- Section 255
THE TWELFTH SCHEDULE – Acts for the purpose of Section29A(d)
(inserted by the Insolvency and Bankruptcy Code(Second Amendment)
Act, 2018, effective from August 17, 2018.
Rules under the Code
The following four Rules have been notified by the Central Government
under the Code:
• The Insolvency and Bankruptcy Board of India (Salary, Allowances
and other Terms and Conditions of Service of Chairperson and
members) Rules, 2016 on 29th August, 2016;
• The Insolvency and Bankruptcy (Application to
AdjudicatingAuthority) Rules, 2016 on 30th November 2016;
• The Insolvency and Bankruptcy Board of India (Form of Annual
Statement of Accounts) Rules, 2018 on 1st May, 2018;and
• The Insolvency and Bankruptcy Board of India (Annual Report) Rules,
2018 on 1st May, 2018.
Regulations under the Code
The Insolvency and Bankruptcy Board, principle regulator of the Code
has issued following 14 Regulations so far:
1. Insolvency and Bankruptcy Board of India (Model Bye- Laws and
Governing Board of Insolvency Professional Agencies) Regulations, 2016
2. Insolvency and Bankruptcy Board of India (Insolvency Professional
Agencies) Regulations, 2016
3. Insolvency and Bankruptcy Board of India (Insolvency Professionals)
Regulations, 2016
4. Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016
5. Insolvency and Bankruptcy Board of India (Liquidation Process)
Regulations, 2016
6. Insolvency and Bankruptcy Board of India (Engagement of Research
Associates and Consultants) Regulations, 2017
7. Insolvency and Bankruptcy Board of India (Procedure for Governing
Board Meetings) Regulations, 2017
8. Insolvency and Bankruptcy Board of India (Advisory Committee)
Regulations, 2017
9. Insolvency and Bankruptcy Board of India (Information Utilities)
Regulations, 2017
10. Insolvency and Bankruptcy Board of India (Voluntary liquidation
Process) Regulations, 2017
11. Insolvency and Bankruptcy Board of India (Inspection and
Investigation) Regulations, 2017
12. Insolvency and Bankruptcy Board of India (Fast Track Insolvency
Resolution Process for Corporate Persons) Regulations, 2017
13. Insolvency and Bankruptcy Board of India (Employee Services)
Regulations, 2017
14. Insolvency and Bankruptcy Board of India (Grievance and
Complaint Handling) Regulations, 2017
Besides, Draft Rules and Regulations have been issued under the
Insolvency Resolution Process for Individuals and Firms
i. Draft Insolvency and Bankruptcy (Application to Adjudicating
Authority for Insolvency Resolution Process for Individuals and Firms)
Rules, 2017, and
ii. Draft Insolvency and Bankruptcy Board of India (Insolvency
Resolution Process for Individuals and Firms) Regulations, 2017.
iii. IBBI (Mechanism for Issuing Regulations) Regulations, 2018
Extent, Applicability and Preamble of the Code
This Code is applicable to
• Companies and LLPs (termed as Corporate debtor)
• Personal guarantors to corporate debtors
• Partnership Firms and proprietorship firms
• Individuals
• Any other body incorporated under any law for the time being in
force, as the Central Government may by notification specify in this
behalf.
Part II of the Code is Applicable to Companies and LLP where amount
of default is rupees one lakh or more, though central government may
by notification specify a higher amount not exceeding one crores rupees.
Part III of the Code when notified will be applicable to Individual and
Partnership Firms, where amount of default is rupees one thousand or
more.
This Code is applicable to whole of India except Part III which provides
the provisions for Partnership firms and Individuals, is not applicable
for the State of Jammu and Kashmir.
Preamble of the Code
Preamble to the Code, establishes the purpose of the Act which areas
follows: -
(a) To consolidate and amend the laws relating to reorganisation and
insolvency resolution of corporate persons, partnership firms and
individuals.
(b) To fix time periods for execution of the law in a time bound manner.
(c) To maximize the value of assets of interested persons.
(d) To promote entrepreneurship
(e) To increase availability of credit.
(f) To balance the interests of all the stakeholders including alteration in
the order of priority of payment of Government dues.
(g) To establish an Insolvency and Bankruptcy Board of India as a
regulatory body for insolvency and bankruptcy law.
THIS CODE IS NOT APPLICABLE TO FINANCIAL SERVICES
PROVIDERS
Financial Service Providers - U/s 3(17) of the Code Financial Service
Providers means person engaged in the business of providing financial
services in terms of authorisation issued or registration granted by a
financial sector regulator. U/s 3(18) Financial sector regulator includes
the Reserve Bank of India, the Securities and Exchange Board of India,
the Insurance Regulatory and Development Authority of India, the
Pension Fund Regulatory Authority and such other regulatory
authorities as may be notified by the Central Government.
Authorities under the Code

Ecosystem for functioning of the Code

Insolvency and Bankruptcy Code is being administered by Ministry of
Corporate Affairs (MCA). Besides, the Code envisages an institutional
ecosystem comprising
• Insolvency and Bankruptcy Board of India (IBBI/Board) as main
regulator,
• National Company Law Tribunal (NCLT) & Debt Recovery Tribunal
(DRT) as adjudicating authority for Part II and Part III of the Code
respectively,
• National Company Law Appellate Tribunal (NCLAT) and Debt
Recovery Appellate Tribunal (DRAT) as appellate authorities for Part II
and Part III of the Code respectively,
• Information Utilities (IUs) as information depository to store financial
data like borrowings, default and security interests among others of
firms,
• Insolvency Professionals (IPs) as registered and specially qualified
professionals entrusted with job of interim resolution professional,
resolution professional, liquidator or bankruptcy trustee under the code
• Insolvency Professional Agencies (IPAs) which acts as nodal agencies
between IBBI and IPs and registers IPs to perform functions under the
Code and
• Insolvency Professional Entities (IPEs) which are registered
partnership firm or a company with sole objective to provide support
services to insolvency professionals, who are its partners or directors.
Adjudicating Authorities for Corporate Persons

Sections 60-67 of Chapter VI of Part II of the Insolvency and Bankruptcy

Code, 2016 deal with the Adjudicating Authorities for the Corporate
Persons.

The National Company Law Tribunal (NCLT) shall be the adjudicating

authority for the corporate debtor in insolvency resolution or liquidation
or Bankruptcy of the corporate guarantors or personal guarantors of the
corporate debtor. Any proceedings pending against any of the
mentioned parties, in any court or tribunal shall stand transferred to the
Adjudicating Authority dealing with insolvency resolution or
liquidation proceedings of such corporate debtor.

The NCLT shall have jurisdiction to entertain or dispose of any

application or proceeding by or against the corporate debtor or the
corporate person, any claims made by or against the corporate debtor or
corporate person, including claims by or against any of its subsidiaries
situated in India and any question of priorities or any question of law or
facts, arising out of or in relation to the insolvency resolution or
liquidation proceedings of the corporate debtor or corporate person
under this Code.

For the purpose of calculation of period of limitation for any suitor

application by or against the corporate debtor, the period during which
moratorium is in place shall be excluded.

The appeals against the orders of the Adjudicating Authority shall be

filed with the National Company Law Appellate Tribunal(NCLAT)
within 30 days. The NCLAT, if satisfied that there was sufficient cause
for the delay in filing the appeal may allow an appeal after the expiry of
30 days, but such period shall not exceed15 days.

Grounds of appeals against the approval of resolution plan u/s. 31

• the approved resolution plan is in contravention of the provisions of

any law for the time being in force;

• there has been material irregularity in exercise of the powers by the RP

during the corporate insolvency resolution period;
• the debts owed to operational creditors of the corporate debtor have
not been provided for in the resolution plan in the manner specified by
the Board;

• the insolvency resolution process costs have not been provided for
repayment in priority to all other debts; or
• the resolution plan does not comply with any other criteria specified
by the Board.

Appeal against the order for liquidation passed u/s 33 can be filed on
grounds of material irregularity or fraud committed in relation to such a
liquidation order.

A person aggrieved by the order of NCLAT may file an appeal with the
Supreme Court on a question of law, not later than 45 days. A delay of
maximum 15 days may be condoned, if the Supreme Court is satisfied
that there were sufficient grounds for such delay.

Civil courts will not have any jurisdictions in matters over which NCLT
or NCLAT has jurisdictions, as per the Code. Applications are to be
disposed and orders to be passed by the NCLT/ NCLAT within the
period specified by the Code, and in case of failure to do so, reasons for
the same to be recorded and the President of the NCLT or the
Chairperson of the NCLAT may, after considering the reasons so
recorded, extend the period specified in the Act, but not by more than
ten days.

The Adjudicating Authority may impose a penalty of not less than Rs. 1
lakh which may extend to Rs. 1 crore, on a person, who initiates the
insolvency resolution process or liquidation proceedings with any
malicious or fraudulent intent.

If during the CIRP or a liquidation process, it is found that the business

of the corporate debtor has been carried out with intent to defraud the
creditors of the corporate debtor or for any fraudulent purpose, the
NCLT may on RP ’s application, order such persons to make
contributions to the assets of the corporate debtor as it may deem fit.
The NCLT may order the director or the partner of the Corporate debtor,
on application by the RP to make such contribution to the assets of the
corporate debtor if such person had known or ought to have known that
CIRP was inevitable and he did not exercise due diligence in minimising
potential loss to the creditors of the corporate debtor.

If such person is a creditor of the corporate debtor, then the NCLT may
direct that the whole or any part of any debt owed by the corporate
debtor to that person and any interest thereon shall rank in order of
priority of payment under section 53 after all other debts owed by the
corporate debtor.
Regulation of Insolvency Professionals, Agencies and
Information Utilities

Part IV of the Insolvency and Bankruptcy Code deals with the

provisions related to the facilitators in the implementation of the Code.

There are in all 7 Chapters in this part, with sections from 189-223. Of
the 7 chapters, 5 chapters deal with Insolvency and Bankruptcy Board of
India and its Powers and Functions, Insolvency Professional Agencies,
Insolvency Professionals and Information Utilities. These facilitators
form the ecosystem of the Code. Each of these can be briefly described
as:

The Insolvency and Bankruptcy Board of India

It is the Regulator established by the Code. It is headed by Dr.M. S.
Sahoo and is headquartered in Delhi. It was constituted on October 1,
2016. Commonly termed as IBBI, it is empowered to issue regulation on
matters provided u/s 240 of the Code.

Insolvency Professional/ Insolvency Professional Entity

Under various processes of the Code, RP is required to be appointed for
administration of corporate debtor, or, if company is in liquidation then
liquidator. Insolvency Professional Entity is a group of Insolvency
Professionals registered with Board. They are service providers under
the Code. Insolvency Professional shall be member of Insolvency
Professional Agency and shall have requisite qualification and
experience. He shall also pass Limited Insolvency Examination. As on
August 27, 2018, there are 1977 Insolvency Professionals and 80
Insolvency Professional Entities.

Insolvency Professional Agency

An Insolvency Professional Agency is a collective Body of Insolvency
Professionals. It shall be incorporated and registered with Board as per
the provisions of the Code. At present, ICSI, ICAI and ICAI (CMA) had
registered there IPA respectively.

Information Utility
Information Utility is an organization incorporated with a purpose to
store financial information of transaction relating to debt. Data can be
requested during the processes of the Code. At present, National E-
Governance Services Limited is registered as Information Utility under
the Code.

Each of the above facilitators are governed by the sections of the Code
and various rules and regulations issued and amended from time to
time by the Board.
Major Mechanisms Envisaged Under the Code
Insolvency Resolution Mechanisms for Companies

Corporate Insolvency Resolution Process (CIRP)

The provisions relating to the insolvency resolution of the corporate

person are contained in Chapter II of Part II of the Code. The said
chapter read with IBBI (Insolvency Resolution Process for Corporate
Person) Regulation, 2016 and the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016 gives a complete
view of the process and steps involved in the CIRP.

The Initiation: When a corporate debtor commits a default of more than

one lakh rupees, the insolvency resolution process can be initiated by the
Financial Creditor, Operational Creditor or the Corporate debtor itself,
by filing an application in this regard to the Adjudicating Authority i.e.
The National Company Law Tribunal (NCLT) in accordance with rules
20, 21, 22, 23, 24 and 26 of Part III of the National Company Law
Tribunal Rules, 2016.

Application by Financial Creditor

Financial Creditor i.e. person who owes financial debt can file the
application either by itself or jointly with other financial creditors, or any
other person on behalf of the financial creditor, as may be notified by the
Central Government. The application has to be made in Form 1 as
specified in the Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016 and accompanied by the filing fees of Rs 25000. It
has to be accompanied by following documents:

 Record of the default recorded with the information utility or such

other record or evidence of default
 The name of the resolution professional proposed to act as an
interim resolution professional
 Documents claiming debt outstanding
 Proof of occurrence of default and such other information as
maybe necessary.
  Where the applicant is an assignee or transferee of a financial
contract, the application shall be accompanied with a copy of the
assignment or transfer agreement;
 In case the application is made jointly by financial creditors, they
may nominate one amongst them to act on their behalf.

It should be noted herein that the allottee under a real estate project
would be regarded as financial creditor and will be eligible to initiate
CIRP proceedings u/s 7 and to file claim as financial creditor and have
representation and right to vote in Committee of Creditors when
constituted. The expressions, “allottee” and “real estate project” shall
have the meanings respectively assigned to them in the Real Estate
(Regulation and Development) Act, 2016.

Application by Operational Creditors

As per Section 8 & 9 of the Code read with I & B (Application to

Adjudicating Authority) Rules, 2016, an operational creditor can make
an application for initiating the corporate insolvency resolution process
against a corporate debtor in Form 5 with a fee of Rs.2000. However,
atleast 10 days before such application, operational creditor has to
deliver a demand notice in Form 3 and a copy of an invoice attached
with a notice in Form 4 at the registered office of the corporate debtor or
by electronic mail service to a whole-time director or designated partner
or key managerial personnel. A copy of demand notice or invoice
demanding payment should also be filled with the information utilities.
If the debt is not cleared or a dispute is brought to notice within 10 days
of the notice, the operational creditor may file an application before the
Adjudicating Authority to initiate the corporate insolvency resolution
process and send a copy of such application to the corporate debtor.

Application by Corporate Applicant

As per the section 10 of the Code r/w I & B (Application to Adjudicating

Authority) Rules, 2016, a corporate applicant (who can be corporate
debtor, partner/member, manger or person who has control or
supervision over financial affairs of CD) can initiate CIRP by filling an
application to NCLT in Form 6 along with a filing fee of Rs.25,000.
Besides other things, such application should be accompanied by
information relating to its books of account, IRP to be appointed, and a
special resolution passed by the shareholders of the corporate debtor or
the resolution passed by at least three-fourth of the total number of
partners of the corporate debtors approving filing of the application.

However, u/s 11, following person are not entitled to initiate

a CIRP:

 a corporate debtor undergoing a CIRP; or

 a corporate debtor having completed CIRP twelve months
preceding the date of making of the application; or
 a corporate debtor or a financial creditor who has violated any of
the terms of resolution plan which was approved twelve months
before the date of making of an application; or
 a corporate debtor in respect of whom a liquidation order has
been made.

Withdrawal of Application [Section 12A]

The application once made, can be withdrawn by the applicant before it

has been admitted, with the permission of the NCLT. An application for
withdrawal of an application after its admission by the NCLT, may be
submitted to the IRP or the RP, in Form FA, before issue of invitation for
expression of interest, along with a bank guarantee towards estimated
cost incurred for IRP cost and RP costs under the process. The
committee of creditors (CoC) shall consider the application within seven
days of its constitution or seven days of receipt of the application,
whichever is later. If the application is approved by the CoC with 90%
voting share, the resolution professional shall submit the application to
the NCLT, within three days of such approval. The Adjudicating
Authority may, by order, approve the application.

NCLT on Receipt of Application

Once the application for initiation of CIRP is received, the NCLT shall
within 14 days, by an order, either accept the application, if it is
complete in all aspects or reject it. But before rejection of the application,
it shall give a notice to the applicant to rectify the defects in the
application, within seven days from the date of receipt of such notice.
Once the application for insolvency resolution is admitted, NCLT
(Adjudicating Authority) shall declare moratorium, appoint an interim
resolution professional (IRP) within 14 days from the insolvency
commencement date

Insolvency Commencement Date

Normally as per section 5(12) of the Code, “insolvency commencement

date” means the date of admission of an application for initiating
corporate insolvency re solution process by the Adjudicating Authority
under sections 7, 9 or section 10, as the case may be. Besides a proviso
has been inserted by IBC (Second Amendment) Act, 2018 according to
which, where the interim resolution professional is not appointed in the
order admitting application under section7, 9 or section 10, the
insolvency commencement date shall be the date on which such interim
resolution professional is appointed by the Adjudicating Authority.

Moratorium
On the insolvency commencement date, the NCLT by order declare
moratorium for prohibiting –

a) the institution of suits or continuation of pending suits or

proceedings against the corporate debtor including execution of any
judgment, decree or order in any court of law, tribunal, arbitration panel
or other authority;

b) Transferring, encumbering, alienating or disposing of by the

corporate debtor any of its assets or any legal right or beneficial interest
therein;

c) any action to foreclose, recover or enforce any security interest created

by the corporate debtor in respect of its property including any action
under the SARFAESI Act,2002;

d) the recovery of any property by an owner or lessor where such

property is occupied by or in the possession of the corporate debtor.
However, as per the newly substituted subsection (3) of section 14, the
above provisions will not apply to such transactions as may be notified
by the Central Government and to a surety in a contract of guarantee to
a corporate debtor. The supply of essential goods or services i.e.
electricity, water, telecommunication services and information
technology services to the corporate debtor shall not be terminated or
suspended or interrupted during moratorium period. The moratorium
shall have effect from the date of such order till the end of the CIRP.

Appointment of IRP
The interim resolution professional shall be appointed as per the
suggestion of the applicant or by the recommendation of the Board, on
the request from NCLT within 14 days of application for CIRP. On his
appointment, all the powers of the management will rest with the IRP
and he shall strive to keep the business of the corporate debtor as going
concern. He shall be responsible for complying with the requirement
sunder any law for the time being in force on behalf of the corporate
debtor. Interim resolution professional is principally responsible to
constitute a committee of creditors and receive and to collate all the
claims submitted by creditors to him. The term of IRP shall continue till
the appointment of the Resolution Professional (RP).

Public Announcement
The IRP shall cause a public announcement of the initiation of CIRP in
Form A of the Schedule of IBBI (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016and call for the submission of
claim not later than 3 days of his appointment. The cost of such
announcement shall be borne by the Applicant.
Public Announcement shall be published in one English and one
regional language newspaper with wide circulation at the location of the
registered office and principal office, if any, of the corporate debtor and
any other location where in the opinion of the IRP, the corporate debtor
conducts material business operation, along with on the website, if any,
of the corporate debtor and on the website, if any, designated by the
Board for the purpose.
The public announcement should clearly spell the last date for
submission of claim which shall be 14 days from appointment of IRP.
Wherever the corporate debtor has classes of creditors having at least
ten creditors in the class, the IRP shall offer a choice of three eligible
insolvency professionals, in the public announcement to act as the
authorised representative of creditors in each class. Such insolvency
professionals should be eligible to be RP, should neither be relative or
related parties of IRP and should have expressed their consent in Form
AB to act as AR. A creditor in a class may indicate its choice of an
insolvency professional, from amongst the three choices provided by the
interim resolution professional, to act as its authorised representative.
The insolvency professional, who is the choice of the highest number of
creditors in the class, shall be appointed as the authorised representative
of the creditors of the respective class.
Submission of Claims
All Creditors must submit their claims within the time prescribed in
public announcement. The financial creditor scan submit their claims
only by electronic means. The other creditors can submit their claims
either in person or by post or electronic means. The table below briefs
the form and evidences for different types of creditors for submission of
Claims, in case of CIRP.
Collation of Claims
Within 14 days of his appointment, the IRP shall collect the claims of the
creditors. A creditor who fails to submit the proof of claim within the
stipulated time, may submit such proof to the interim resolution
professional or the resolution professional, on or before the ninetieth day
of the insolvency commencement date.
On the receipt of the claims, the IRP shall verify the same within 7 days
of last receipt of claim. IRP/ RP may call for such other evidence or
clarification as he deems fit from a creditor for substantiating the whole
or part of its claim. In case amount claimed by a creditor is not precise
due to any contingency or other reason, IRP/ RP shall make the best
estimate based on the information available. Claim amount can be
revised later when additional information warranting such revision. The
claims denominated in foreign currency shall be valued in Indian
currency at the official exchange rate as on the insolvency
commencement date. The onus and cost of proving the debt due, is on
the creditor.
Once the claims are verified, the IRP shall make a list of Creditors with
all the relevant details. Such list shall be –
(a) available for inspection by the persons who submitted proofs of
claim;
(b)available for inspection by members, partners, directors and
guarantors of the corporate debtor;
(c) displayed on the website, if any, of the corporate debtor;
(d) filed with the Adjudicating Authority; and
(e) presented at the first meeting of the committee

Constitution of Committee of Creditors (CoC)

A Committee of Creditors shall be constituted by the IRP, after the
collation of the claims received and determination of the financial
position of the corporate debtor. The IRP shall file a report certifying
constitution of the committee to the Adjudicating Authority within two
days of the verification of claims. The Committee shall comprise of all
the financial creditors of the corporate debtor, and only they will have
the voting rights (except for such financial creditors who are related
party of corporate debtor), unless all the creditors of the corporate
debtor are operational creditors. In case there are no financial creditors
eligible to form CoC, the CoC shall consist of all operational creditors/
eighteen largest operational creditors by value whichever is less and one
representative each of workmen and employees.
The financial creditors may themselves attend the meetings or prefer to
be represented by authorised representatives. Where a financial debt is
owed to a class of creditors exceeding10 financial creditors, the IRP shall
select the insolvency professional, who is the choice of the highest
number of financial creditors in the class in Form CA received within
time stipulated in public announcement to make claim. The IRP shall
make an application to the Adjudicating Authority along with the list of
all financial creditors, containing the name of insolvency professional so
selected to act as their authorised representative within 2 days of
verification of claims. Adjudicating Authority shall appoint authorised
representative prior to the first meeting of the committee of creditors,
though any delay in appointment of the authorised representative for
any class of creditors shall not affect the validity of any decision taken
by the committee.
Meeting of CoC
Once the committee is formed, the first meeting shall beheld within 7
days of filling of report of constitution of CoC with the NCLT. A
meeting of the committee shall be called by giving not less than five
days’ notice by hand or by post at the address it has provided to the RP,
and in any event, be served on every participant by electronic means.
Participants here includes members of CoC or their authorised
representatives appointed on application by IRP, suspended Board of
Directors or the partners, operational creditors or their representatives if
the amount of their aggregate dues is 10% or more of the debt. The
committee may reduce the notice period from five days to such other
period of not less than twenty-four hours, as it deems fit: Provided that
the committee may reduce the period to such other period of not less
than forty-eight hours if there is any authorised representative. Notice
shall inform the participants of the venue, the time, date of the meeting,
attending option like through video conferencing or through authorised
Representative (AR) and agenda of the meeting. It should be
accompanied with copies of all documents relevant to the matters to be
discussed and the issues to be voted upon at the meeting and details of
electronic voting means. A meeting of the committee shall be quo rate if
members of the committee representing at least 33% of the voting rights
are present either in person or by video conferencing or other audio and
visual means. The IRP/RP shall act as the chairperson of the meeting of
the committee.
Voting at meeting of CoC
Voting is assigned on the basis of share of debt of financial creditor to
the total debt of the corporate debtor. Where rate of interest has not been
agreed to between the parties in case of creditors in a class, the voting
share of such a creditor shall be in proportion to the financial debt that
includes an interest at the rate of eight per cent per annum. A member of
the committee with only operational creditors shall have voting rights in
proportion of the debt due to such creditor or debt represented by such
representative, as the case maybe, to the total debt. Routine decisions of
the CoC, other than those specifically provided for in the Code or
regulations thereof, can be taken by a vote of not less than 51% of voting
share of financial creditors. The RP should circulate the minutes of the
meeting by electronic means to all members of the committee within
forty-eight hours of the conclusion of the meeting and seek a vote of the
members who did not vote at the meeting on the matters listed for
voting, by electronic voting system where the voting shall be kept open
for twenty four hours from the circulation of the minutes. As per section
25A, Authorised representatives shall have the right to participate and
vote in meetings of the CoC on behalf of the financial creditor he
represents in accordance with the prior voting instructions of such
creditors obtained through physical or electronic means. In case several
financial creditors, are represented by him, then he shall cast his vote in
respect of each financial creditor in accordance with instructions
received from each financial creditor, to the extent of his voting share.
The authorised representative shall circulate the agenda to creditors in a
class and announce the voting window at least twenty-four hours before
the window opens for voting instructions and keep the voting window
open for at least twelve hours.
The authorised representative of creditors in a class shall be entitled to
receive fee for every meeting of the committee attended by him as
specified in regulations, varying from 15,000 to 25,000 depending upon
number of creditors in class he represents. Such fee along with out of
pocket expense will form part of Insolvency resolution process cost.

Appointment of Resolution Professional (RP)

A person will be eligible to be appointed as RP for CIRP if he, and all
partners and directors of the insolvency professional entity of which he
is a partner or director, are independent of the corporate debtor. A
person shall be considered independent if:
• is eligible to be appointed as an independent director on the board of
the corporate debtor
• is not a related party of the corporate debtor; or
• is not an employee, proprietor or a partner of a firm of auditors,
secretarial auditors, cost auditors, or of a legal or a consulting firm, that
has or had any transaction with the corporate debtor amounting to 5%
or more of the gross turnover of such firm in the last three financial
years.
RP should be appointed in the first meeting of the CoC. Where the
appointment of RP is delayed, the IRP shall perform the functions of the
resolution professional from the fortieth day of the insolvency
commencement date till a resolution professional is appointed. In the
first meeting of CoC, the committee by a vote of 66% either resolve to
appoint the IRP as the resolution professional (RP) or replace the IRP by
other resolution professional. Where the appointment of resolution
professional is delayed, the interim resolution professional shall perform
the functions of the resolution professional from the fortieth day of the
insolvency commencement date till a resolution professional is
appointed. If IRP is continued as RP, CoC will communicate its decision
to the IRP, the corporate debtor and the Adjudicating Authority. The
CoC can replace the resolution professional at any time during the
insolvency resolution proceedings, by following appropriate procedure.
To replace the IRP/ RP, it shall file an application before the
Adjudicating Authority for the appointment of the proposed RP along
with a written consent from the proposed resolution professional.
Adjudicating Authority after confirmation from IBBI will appoint
proposed RP or in case IBBI does not confirm the name of the proposed
RP within ten days, direct the IRP to continue to function as the RP until
such time as the Board confirms the appointment of the proposed RP.
Where the committee decides to appoint the IRP as RP or replace the IRP
or RP, it shall obtain the written consent of the proposed RP in Form
AA of the Schedule to IBBI (Insolvency Resolution Process for Corporate
Persons), 2018 as introduced by third amendment to the regulation w.e.f.
3rd July, 2018.
Duties of Resolution Professional [Section 25]
The resolution professional shall undertake the following actions:
a. take immediate custody and control of all the assets of the corporate
debtor, including the business records of the corporate debtor;
b. represent and act on behalf of the corporate debtor with third parties,
exercise rights for the benefit of the corporate debtor in judicial, quasi-
judicial or arbitration proceedings;
c. raise interim finances subject to the approval of the committee of
creditors;
d. appoint accountants, legal or other professionals in the manner as
specified by Board;
e. maintain an updated list of claims;
f. convene and attend all meetings of the committee of creditors;
g. prepare the information memorandum;
h. invite prospective resolution applicants, who fulfil such criteria as
may be laid down by him with the approval of committee of creditors,
having regard to the complexity and scale of operations of the business
of the corporate debtor and such other conditions as may be specified by
the Board, to submit a resolution plan or plans (amended under the
Insolvency and Bankruptcy Code (Amendment) Act, 2018);
i. present all resolution plans at the meetings of the committee of
creditors;
j. file application for avoidance of transactions, if any;
k. may with approval of CoC by a vote of 66% per cent of voting share of
the members, sell unencumbered assets of the corporate debtor not
exceeding 10% in value of claims admitted, other than in the ordinary
course of business, if he is of the opinion that such a sale is necessary for
a better realisation of value;
l. Appoint two registered valuers to determine the fair value and the
liquidation value of the corporate debtor within seven days of his
appointment but not later than forty-seventh day from the insolvency
commencement date; and
m. such other actions as may be specified by the Board.
As per the newly inserted Regulation 35A, on or before the 75th day of
the insolvency commencement date, the RP shall form an opinion
whether the corporate debtor has been subjected to any preferential
transaction, undervalued transactions, extortionate credit transaction or
fraudulent transaction as dealt in Section 43, 45, 50 & 66 of the Code. In
case he is convinced that such a transaction has taken place, he shall
make a determination on or before the 115th day of the insolvency
commencement date, under intimation to the Board and apply to the
Adjudicating Authority for appropriate relief on or before the 135th day.
Besides, as per the IBC (Second Amendment) Act, 2018, a proviso to
section 31(4) has been inserted with effect that where the resolution plan
contains a provision for combination as referred to in section 5 of the
Competition Act, 2002, the resolution applicant shall obtain the approval
of the Competition Commission of India under that Act prior to the
approval of such resolution plan by the committee of creditors.
Information Memorandum [Section 29 of the Code r/w Regulation 36
of IBBI (Insolvency Resolution Process of Corporate Person) Regulation,
2016]
The RP shall prepare an information memorandum and submit in
electronic form to each member of the committee within two weeks of
his appointment and to each prospective resolution applicant latest by
the date of invitation of expression of interest after receiving an
undertaking from a member of the committee or a prospective
resolution applicant to the effect that such member or resolution
applicant shall maintain confidentiality of the information and shall not
use such information to cause an undue gain or undue loss.
The information memorandum shall contain the following details of the
corporate debtor-
a) assets and liabilities, with such description, as on the insolvency
commencement date, as are generally necessary for ascertaining their
values;
b) the latest annual financial statements;
c) audited financial statements of the corporate debtor for the last two
financial years and provisional financial statements for the current
financial year made up to a date not earlier than fourteen days from the
date of the application;
d)a list of creditors containing the names of creditors, the amounts
claimed by them, the amount of their claims admitted and the security
interest, if any, in respect of such claims;
e) particulars of a debt due from or to the corporate debtor with respect
to related parties;
f) details of guarantees that have been given in relation to the debts of
the corporate debtor by other persons, specifying which of the
guarantors is a related party;
g) the names and addresses of the members or partners holding at least
one per cent stake in the corporate debtor along with the size of stake;
h)details of all material litigation and an ongoing investigation or
proceeding initiated by Government and statutory authorities;
i)the number of workers and employees and liabilities of the corporate
debtor towards them; and
j)other information, which the resolution professional deems relevant to
the committee.

Resolution Applicant
Section 5(25) of the Code defines Resolution Applicant as a person, who
individually or jointly with any other person, submits a resolution plan
to the resolution professional pursuant to the invitation made u/s
25(2)(h). Section 29A was inserted by the IBC (Amendment) Act, 2018
w.e.f. 23 November, 2017. Consequently, a person shall not be eligible to
submit a resolution plan, if such person, or any other person acting
jointly or in concert with such person—
(a)is an undischarged insolvent;
(b)is a wilful defaulter;
(c)except for financial entity who is not a related party to the corporate
debtor, if such applicant or a corporate in which he is promoter or has
control over management, has an account which has been classified as
NPA for at least one year at time of submission of resolution plan.
However, such prohibition will not apply to a financial entity which has
become related party of the corporate debtor solely on account of
conversion or substitution of debt into equity shares or instruments
convertible into equity shares, prior to the insolvency commencement
date. It will also not apply to a resolution applicant, if such NPA account
was acquired pursuant to a prior resolution plan approved under this
Code for three years from the date of approval of such resolution plan.
(d)has been convicted for any offence punishable with imprisonment for
at least two years under any Act specified under the Twelfth Schedule or
for at least seven years under any law for the time being in force;
(e)is disqualified to act as a director under the Companies Act, 2013;
(f)is prohibited by the SEBI from trading in securities or accessing the
securities markets;
(g)has been a promoter or in the management or control of a corporate
debtor in which a preferential transaction, undervalued transaction,
extortionate credit transaction or fraudulent transaction has taken place;
(h)has executed a guarantee which has been invoked by the creditor of a
corporate debtor under the Code and such guarantee remains unpaid in
full or part;
(i)has any of the ineligibility mentioned in any other country;
(j)has a connected person not eligible under above clauses.
Here the term connected person would mean:
•Any person who is the promoter or in the management or control of
the resolution applicant;
•Any person who shall be the promoter or in management or control of
the business of the corporate debtor during the implementation of the
resolution plan; or
•Holding company, Subsidiary company, Associate Company or a
related party of a person referred to above.
The term 'Person acting in concert' has not been defined under Code.
The definition of the term person acting in concert may however be
borrowed from the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011, which defines Person Acting in Concert as
persons who have the common objective/purpose of acquisition of
shares/ voting rights in/exercising control over a company pursuant to
an agreement or understanding, formal or informal, directly or
indirectly co-operate for acquisition of shares/voting rights in/ exercise
of control of the company.
On a substantive reading of Section 29A it becomes clear that
ineligibility is multi folded as it applies to all of the following:
•where person himself is ineligible;
•where connected person is ineligible;
•where related party is ineligible, and
•where person acting jointly/in concert with any person mentioned
above is ineligible.
To provide some relief from rigorous provisions of section 29 A to
micro, small and medium enterprises (MSMEs), the IBC (Second
Amendment) Act, 2018 inserted a new section 240A. As per this newly
inserted Section 240A, the provisions of clauses (c) and (h) of section 29A
shall not apply to the resolution applicant in respect of CIRP of any
MSMEs. It also provides that the Central Government may in public
interest, by notification may direct that any of the provisions of this
Code shall not apply to MSMEs or apply with such modifications as
maybe specified in notification.
Note to qualify under this exemption, the enterprise must be registered
as an MSME the Micro, Small and Medium Enterprises Development
Act, 2006. As per section 2(e) of the MSMED Act “enterprise” means an
industrial undertaking or a business concern or any other establishment,
by whatever name called, engaged in the manufacture or production of
goods, in any manner, pertaining to any industry specified in the First
Schedule to the Industries (Development and Regulation) Act, 1951 (65
of 1951) or engaged in providing or rendering of any service or services.
Section 2(g), 2(h) and 2(m) refers to section 7(1) for the definition of
medium, micro and small enterprises respectively. Section 7(1) of the
Act which deals with the classification of the enterprise as micro,
medium and small is reproduced below:
7. Classification of enterprises.—
7(1) Notwithstanding anything contained in section 11B of the Industries
(Development and Regulation) Act, 1951 (65 of 1951), the Central
Government may, for the purposes of this Act, by notification and
having regard to the provisions of sub-sections (4) and (5), classify any
class or classes of enterprises, whether proprietorship, Hindu undivided
family, association of persons, co-operative society, partnership firm,
company or undertaking, by whatever name called,—
in the case of the enterprises engaged in the manufacture or production
of goods pertaining to any industry specified in the First Schedule to the
Industries (Development and Regulation) Act, 1951 (65 of 1951), as—
(i)a micro enterprise, where the investment in plant and machinery does
not exceed twenty-five lakh rupees;
(ii)a small enterprise, where the investment in plant and machinery is
more than twenty-five lakh rupees but does not exceed five crore rupees;
or
(iii)a medium enterprise, where the investment in plant and machinery
is more than five crore rupees but does not exceed ten crore rupees;
in the case of the enterprises engaged in providing or rendering of
services, as—
(i)a micro enterprise, where the investment in equipment does not
exceed ten lakh rupees;
(ii)a small enterprise, where the investment in equipment is more than
ten lakh rupees but does not exceed two crore rupees; or
(iii)a medium enterprise, where the investment in equipment is more
than two crore rupees but does not exceed five crore rupees. Explanation
1.—For the removal of doubts, it is hereby clarified that in calculating
the investment in plant and machinery, the cost of pollution control,
research and development, industrial safety devices and such other
items as may be specified, by notification, shall be excluded.
Explanation 2.—It is clarified that the provisions of section 29B of the
Industries (Development and Regulation) Act, 1951 (65 of 1951), shall be
applicable to the enterprises specified in sub-clauses (i) and (ii) of clause
(a) of sub-section (1) of this section.
There is a Bill pending in parliament which proposes to change the
definition of MSME. If approved, the classification will be on the basis of
annual turnover and not on basis of investment in plant machinery or
equipment as presently done. Accordingly, all enterprises irrespective of
being in manufacturing activity or service provider, will be classified as
micro if annual turnover is less than ` 5 Crores, as small if turnover is
between
` 5 and 75 Crores and as Medium enterprise if turnover exceed ` 75 crore
but is less than 150 crores.
Expression of Interest (EoI)
The RP shall publish brief particulars of the invitation for EoI in Form G
of the Schedule at the earliest, not later than 75th day from the
insolvency commencement date, in one English and one regional
language newspaper with wide circulation at the location of the
registered office, principal office and any other location, the corporate
debtor conducts material business operations and on website of
corporate debtor and IBBI. Besides other details of corporate debtor,
Form G must contain leads to the detailed invitation for EoI and last
date for submission of EoI which should be at least 15 days from date of
invitation.
The detailed EoI must specify the criteria specified by CoC and
ineligibility norms for prospective resolution applicants and basic
information about the corporate debtor. A prospective resolution
applicant, who meet the requirements, may submit EoI within the time
specified accompanied by the following:
•an undertaking by the prospective resolution applicant that it meets
the criteria and evidence thereof
•an undertaking that it does not suffer from any ineligibility (u/s 29A)
and evidence thereof
•an undertaking by the prospective resolution applicant that every
information and records provided in expression of interest is true and
correct
•an undertaking of confidentiality and no misuse of information.
On receiving EoI, RP shall conduct due diligence of meeting all
conditions and for purpose may seek any clarification or additional
information or document from the prospective resolution applicant. The
RP shall issue a provisional list of eligible prospective resolution
applicants within 10 days of the last date for submission of expression of
interest to the committee and to all prospective resolution applicants
who submitted the expression of interest. Any objection to inclusion or
exclusion of a prospective resolution applicant may be made with
supporting documents within 5 days from the date of issue of the
provisional list. The RP shall issue the final list of prospective resolution
applicants within 10 days of the last date for receipt of objections, to the
CoC.
Resolution Plan [Section 30, 31 & 32 of the Code r/w Regulation 36B, 37,
38 & 39 of the IBBI (Insolvency Resolution Process of Corporate Person)
Regulation, 2016]
The resolution professional shall issue the information memorandum,
evaluation matrix and a request for resolution plans, within five days of
the date of issue of the provisional list to every prospective resolution
applicant in the provisional list and every prospective resolution
applicant who has contested the decision of the resolution professional
against its non-inclusion in the provisional list. The request for
resolution plan must detail each step in the process, and the manner and
purposes of interaction between the resolution professional and the
prospective resolution applicant, along with corresponding timelines. It
should allow prospective resolution applicants a minimum of thirty
days to submit the resolution plan. RP may modify invitation or
evaluation matrix and also extend time for submission of resolution plan
with prior approval of CoC. Any modification in the request for
resolution plan or the evaluation matrix shall be deemed to be a fresh
issue.
A resolution applicant may submit a resolution plan along with an
affidavit stating that he is eligible under section 29A to the RP.
Resolution plan shall provide for the measures, as may be necessary, for
insolvency resolution of the corporate debtor for maximization of value
of its assets. It must contain the following:
(a)a statement as to how it has dealt with the interests of all
stakeholders, including financial creditors and operational creditors, of
the corporate debtor.
(b)identify specific sources of funds that will be used to pay:
•the insolvency resolution process costs in priority to any other creditor;
A resolution applicant may submit a resolution plan along with an
affidavit stating that he is eligible under section 29A to the RP.
Resolution plan shall provide for the measures, as may be necessary, for
insolvency resolution of the corporate debtor for maximization of value
of its assets. It must contain the following:
(a)a statement as to how it has dealt with the interests of all
stakeholders, including financial creditors and operational creditors, of
the corporate debtor.
(b)identify specific sources of funds that will be used to pay:
•the insolvency resolution process costs in priority to any other creditor
•liquidation value due to operational creditors which is to be made
before the expiry of thirty days after the approval of a resolution plan by
the Adjudicating Authority; and
•liquidation value due to dissenting financial creditors which is to made
before any recoveries are made by the financial creditors who voted in
favour of the resolution plan.
(c)Details like the term of the plan and its implementation schedule,
management and control during the term and means of supervision of
its execution.
A resolution plan shall demonstrate that –
(a)it addresses the cause of default;
(b)it is feasible and viable;
(c)it has provisions for its effective implementation;
(d)it has provisions for approvals required and the timeline for the same;
and
(e)the resolution applicant has the capability to implement the resolution
plan.
RP after inspecting all resolution plans, submit to the committee all
resolution plans which comply with the requirements of the Code, along
with the details of preferential, undervalued, fraudulent and
extortionate credit transactions, if any, and orders of adjudicating
authority in respect thereof.
The committee of creditors shall evaluate the resolution plans received
strictly as per the evaluation matrix to identify the best resolution plan.
It may approve a resolution plan by a vote of not less than 66% of voting
share of the financial creditors, after considering its feasibility and
viability and fulfilment of requirement under the Code and related
regulations. The resolution applicant may attend such meeting where
resolution plan is being considered. The committee may approve any
resolution plan with such modifications as it deems fit. However, it shall
record the reasons for approving or rejecting a resolution plan. The
committee specify the amounts payable from resources under the
resolution plan for liquidation cost, dues to operational creditors and
dissenting financial creditors. RP shall submit the resolution plan as
approved by the committee of creditors to the Adjudicating Authority at
least fifteen days before the expiry of 180 days (or 270 days in case it is
extended) period along with a compliance certificate in Form H of the
Schedule.
If resolution plan approved by the CoC has provisions for its effective
implementation and meets all the requirements of law, Adjudicating
Authority may by order approve the plan. The resolution professional
shall continue to manage the operations of the corporate debtor after the
expiry of the corporate insolvency resolution process period until an
order is passed by the NCLT. Once approved, the resolution plan which
shall be binding on the corporate debtor and its employees, members,
creditors, guarantors and other stakeholders involved in the resolution
plan, after which moratorium will cease and RP shall forward all records
relating to the conduct of the CIRP and the resolution plan to the Board.
The resolution applicant must obtain the necessary approval required
under any law for the time being in force within a period of one year
from the date of approval of the resolution plan.
A person in charge of the management or control of the business and
operations of the corporate debtor after a resolution plan is approved by
the Adjudicating Authority, may make an application to the
Adjudicating Authority for an order seeking the assistance of the local
district administration in implementing the terms of a resolution plan.
Any appeal from an order approving the resolution plan may be made
to NCLAT within 30 days of the order of the NCLT, on the following
grounds, namely: –
•resolution plan is in contravention of the provisions of any law in force;
•there has been material irregularity in exercise of the powers by the RP
during CIRP;
•liquidation cost or the debts owed to operational creditors of the
corporate debtor have not been provided for in the resolution plan in the
manner specified by the Board; or
•the resolution plan does not comply with any other criteria specified by
the Board.
Time Limit for CIRP [Section 12]
The CIRP must be completed within 180 days from the date of
admission of the application. This can be extended by 90 days, by
making an application to the NCLT on approval of the committee by a
vote of 66%, but such extension can only be granted once. The
amended regulation provides model time-line for CIRP on the
assumption that the interim resolution professional is appointed on
the date of commencement of the process and the time available is
hundred and eighty days:
Section / Description of Norm Latest
Regulation Activity Timeline
Section 16(1) Commencement …. T
of CIRP and
appointment of
IRP
Regulation 6(1) Public Within 3 Days T+3
announcement of
inviting claims Appointment
of IRP
Section 15(1)(c) / Submission of For 14 Days T+14
Regulations claims from
6(2)(c) and 12 (1) Appointment of
IRP
Regulation 12(2) Submission of Up to 90th T+90
claims day of
commencement

Regulation 13(1) Verification of Within 7 days T+21

claims from the receipt
received under of the claim
regulation 12(1)

Section / Description of Norm Latest

Regulation Activity Timeline
Regulation 13(2) Verification of Within 7 days T+97
claims from the receipt
received under of the claim
regulation 12(2)
Section 21(6A)(b) Application for Within 2 T+23
/ Regulation 16A appointment of days from
AR verification
Regulation 17(1) Report certifying of claims T+23
constitution of received under
CoC regulation 12(1)
Section 22(1) / 1st meeting of the
Within 7 T+30
Regulation 19(1) CoC days of the
constitution of
the CoC, but
with seven
days’ notice
Section 22(2) Resolution to In the first T+30
appoint RP by the meeting of the
CoC CoC
Section 16(5) Appointment of On approval by ……
RP the AA
Regulation 17(3) IRP performs the If RP is not T+40
functions of RP appointed by
till the RP is 40th day of
appointed. commencement
Regulation 27 Appointment of Within 7 days T+47
valuer of appointment
of RP, but
not later than
40th day of
commencement
Section 12(A) / Submission of Before issue of W
Regulation 30A application EoI
for withdrawal
of application
admitted

Section / Description of Norm Latest

Regulation Activity Timeline
 CoC to dispose Within 7 days of its W+7
of the receipt or 7 days of
application constitution of
CoC, whichever is
later.
Filing Within 3 days of W+10
application of approval by CoC
withdrawal, if
approved by
CoC with 90%
majority voting,
by RP to AA
Regulation RP to form an Within 57 days T+75
35A opinion on of the
preferential and commencement
other
transactions
RP to make a Within 115 days of T+115
determination commencement
on preferential
and other
transactions
RP to file Within 135 days of T+135
applications commencement
to AA for
appropriate
relief
Regulation Submission of Within 2 weeks of T+54
36 (1) IM to CoC appointment of RP,
but
not later than 54th
day of
commencement

Section / Description of Norm Latest

Regulation Activity Timeline
Regulation Publish Form G Within 75 days T+75
36A Invitation of EoI of
commencement
Submission of At least 15 days T+90
EoI from issue of EoI
(Assume 15 days)
Provisional List Within 10 days T+100
of RAs by RP from the last day of
receipt of EoI
Submission of For 5 days from the T+105
objections to date of provisional
provisional list list
Final List of Within 10 days of T+115
RAs by RP the receipt of
objections
Regulation Issue of RFRP, Within 5 days of T+105
36B including the issue of the
Evaluation provisional list
Matrix and IM
Receipt of At least 30 days T+135
Resolution from issue of RFRP
Plans (Assume 30 days)
Regulation Submission of As soon as approved T+165
39(4) CoC approved by the CoC
Resolution Plan
to AA
Section 31(1) Approval of T=180
resolution plan
by AA
Liquidation Process for Corporates

The provisions relating to Liquidation Process are contained

in Chapter III of Part II of the Code. It consists of sections 33-
54. The Insolvency and Bankruptcy Board of India
(Liquidation Process) Regulations, 2016, as amended on
March 27, 2018 are applicable to this part of the Code. The
regulation is divided into 7 chapters containing 46 regulations
and 3 Schedules. The second schedule consists of 7 forms.
Initiation of Liquidation Process
The order of liquidation can be passed by the NCLT, if,
• NCLT before the expiry of the insolvency resolution
process period or the maximum period permitted for
completion of the CIRP or the Fast Track CIRP, does not
receive a resolution plan.
• NCLT rejects the resolution plan for the non-compliance of
the requirements specified by the Code.
• Where the resolution professional, at any time during the
CIRP but before confirmation of resolution plan,
intimates the Adjudicating Authority of the decision of
the CoC approved by at least 66% of voting share to
liquidate the corporate debtor.

Where the resolution plan approved by the NCLT is

contravened by the concerned corporate debtor, any
person other than the corporate debtor, whose interests are
prejudicially affected by such contravention, may make an
application to the Adjudicating Authority for a liquidation
order.
On happening of above circumstances, Adjudicating
Authority shall:
i. pass an order requiring the corporate debtor to be liquidated;
ii. issue a public announcement stating that the corporate
debtor is in liquidation; and
iii. require such order to be sent to the authority with which the
corporate debtor is registered.
When a liquidation order has been passed, no suit or other
legal proceeding shall be instituted by or against the
corporate debtor except where a suit or other legal
proceeding is instituted by the liquidator, on behalf of the
corporate debtor, with the prior approval of the Adjudicating
Authority. However, such provisions shall not apply to legal
proceedings in relation to such transactions as may be
notified by the Central Government in consultation with any
financial sector regulator.
The order for liquidation is deemed to be a notice of discharge
to the officers, employees and workmen of the corporate
debtor, except when the business of the corporate debtor is
continued during the liquidation process by the liquidator.
Liquidator
The resolution professional appointed for the CIRP under
Chapter II, subject to submission of a written consent by the
resolution professional to the Adjudicatory Authority in
specified form, shall act as the liquidator for the purposes of
liquidation unless replaced by the NCLT. All powers of the
board of directors, key managerial personnel and the partners
of the corporate debtor, as the case may be, shall cease to have
effect and shall be vested in the liquidator.
The NCLT may replace the resolution professional, if the
resolution plan submitted by him was rejected for failure to
meet the requirements of the Code or the Board recommends
to do so, or the resolution professional fails to give his written
consent.
Liquidator’s fee which is a part of the liquidation cost,
shall be approved by the CoC, if order of liquidation is
passed on the grounds of non-receipt of resolution plan
within time specified or approval of liquidation by the
 committee of creditors. In all other cases, the liquidator
shall be entitled to a fee as a percentage of the amount
realized net of other liquidation costs, and of the amount
distributed, as under

Amount of Percentage of fee on the amount realized / distributed

Realization
/ in the first in the next in the next Thereafter
Distributio six months six months one year
n (In
rupees)
Amount of Realization (exclusive of liquidation costs)
On the first 5.00 3.75 2.50 1.88
1 crore
On the next 3.75 2.80 1.88 1.41
9 crores
On the next 2.50 1.88 1.25 0.94
40 crores
On the next 1.25 0.94 0.68 0.51
50 crores
On further 0.25 0.19 0.13 0.10
sums
realized
Amount Distributed to Stakeholders
On the first 2.50 1.88 1.25 0.94
1 crore
On the next 1.88 1.40 0.94 0.71
9 crores
On the next 1.25 0.94 0.63 0.47
40 crores
On the next 0.63 0.48 0.34 0.25
50 crores
On further 0.13 0.10 0.06 0.05
sums
distributed

The liquidator shall be entitled to receive half of the fee

payable on realization only after such realized amount is
distributed.
Process of Liquidation
A public announcement in Form B of Schedule II of the
Insolvency and Bankruptcy Board of India (Liquidation
Process) Regulations, 2016, will be made by the liquidator
within 5 days of his appointment, stating that the corporate
debtor is in liquidation.
The public announcement will also invite proof of claims from
the stakeholders of the corporate debtor, within 30 days from
the start of the liquidation process.
Submission of Claims and Proofs thereof
The financial creditors shall submit their proof of claims by
electronic means only. All other stakeholders may submit
the proof of claims in person, by post or by electronic means
in following forms of Schedule II of the IBBI (Liquidation
Process) Regulations, 2016.
Form C: Claims by Operational creditors Form D:
Claims by Financial Creditors
Form E: Claims by Workmen and Employees
Form F: Claims by an authorised representative of Workmen
and Employees
Form G: Claims by other stakeholders
The documentary evidences to be submitted along with the
respective forms to prove the claims are similar to those for
the CIRP process. The liquidator may call for such other
evidence or clarification as he deems fit from a claimant for
substantiating the whole or part of its claim. The existence
of a security interest may be proved by a secured creditor on
the basis of-
a) the records available in an information utility, if any;
b) certificate of registration of charge issued by the
Registrar of Companies; or
c) proof of registration of charge with the Central Registry of
Securitisation Asset Reconstruction and Security
Interest of India.
Where a person seeks to prove a debt in respect of a bill of
exchange, promissory note or other negotiable instrument or
security of a like nature for which the corporate debtor is
liable, such bill of exchange, note, instrument or security,
shall be produced before the liquidator before the claim is
admitted.

Verification of Claims
Liquidator may come across some of the following typical
types of claims which should be dealt as follows:
• Where the amount claimed by a claimant is not precise due
to any contingency or any other reason, the liquidator shall
make the best estimate of the amount of the claim based on
the information available with him.
• The claims denominated in foreign currency shall be
valued in Indian currency at the official exchange rate as on
the liquidation commencement date.

• In the case of rent, interest and such other payments of a

periodical nature, a person may claim only for any amounts
due and unpaid up to the liquidation commencement date.
• Where a stakeholder has proved for a claim, and the debt
has not fallen due before distribution, he is entitled to
distribution of the admitted claim discounted on the basis of
yield of government securities for period between the date of
distribution and date it is to fall due.

• Where there are mutual dealings between the corporate

debtor and another party, the sums due from one party shall
be set off against the sums due from the other to arrive at the
net amount payable to the corporate debtor or to the other
party.
A claimant shall bear the cost of proving its claim. Costs
incurred by the liquidator for verification and determination
of a claim shall form part of liquidation cost. However, in
case of false claim the verification costs can be recovered
from claimant.
The liquidator shall verify the claims submitted within thirty
days from the last date for receipt of claims and may either
admit or reject the claim, in whole or in part. Where the
liquidator rejects a claim, he shall record in writing the
reasons for such rejection. The liquidator shall communicate
his decision of admission or rejection of claims to the creditor
and corporate debtor within seven days of such admission or
rejection of claims.

Stakeholders List
The liquidator shall prepare a list of stakeholders, category-
wise, on the basis of proofs of claims submitted and accepted
and file it with Adjudicating Authority within 45 days from
the last date for receipt of claims, and the filing of the list
shall be announced to the public.

The liquidator may apply to the Adjudicating Authority to

modify an entry in the list of stakeholders filed with the
Adjudicating Authority, when he comes across additional
information warranting such modification, and shall modify
the entry in the manner directed by the Adjudicating
Authority. The list of stakeholders, as modified from time to
time, shall be-
a) available for inspection by the persons who submitted
proofs of claim;
b)available for inspection by members, partners, directors
and guarantors of the corporate debtor;
c) displayed on the website, if any, of the corporate debtor.

A creditor may appeal to the NCLT against the decision of

the liquidator accepting or rejecting the claims within 14
days of the receipt of such decision.

Formation of Liquidation Estate [Section 36]

Liquidator shall form an estate comprising of all the
moveable, immoveable, tangible, intangible assets, rights,
interests of corporate which will be called the liquidation
estate in relation to the corporate debtor. Liquidation Estate
 will also include any assets or their value recovered through
of which a secured creditor has relinquished security
interest and all proceeds of liquidation as and when they
are realised. The liquidator shall hold the liquidation
estate as a fiduciary for the benefit of all the creditors.
However, the following shall not be included in the
liquidation estate assets:
• assets owned by a third party which are in possession of
the corporate debtor;
• assets in security collateral held by financial services
providers and are subject to netting and set-off in multi-
lateral trading or clearing transactions;
• personal assets of any shareholder or partner of a
corporate debtor;
• assets of any Indian or foreign subsidiary of the
corporate debtor;
• any other assets as may be specified by the Board.

Powers and Duties of Liquidator [Section 35]

Liquidator shall have following powers and duties

• to obtain and verify claims of all the creditors;
• to take into his custody or control all the assets,
property, effects and actionable claims of the corporate
debtor;
• to evaluate the assets and property of the corporate debtor
and prepare a report;
• to protect and preserve the assets and properties of the
corporate debtor;
to carry on the business of the corporate debtor for its beneficial
liquidation;
• to sell the immovable and movable property and
actionable claims of the corporate debtor in liquidation by
 public auction or private contract, with power to transfer
such property to any person or body corporate eligible to
be resolution applicant;
• to draw, accept, make and endorse any negotiable
instruments including bill of exchange, hundi or promissory
note in the name and on behalf of the corporate debtor
• to institute or defend any suit, prosecution or other legal
proceedings, civil or criminal, in the name of on behalf of the
corporate debtor;
• to investigate the financial affairs of the corporate debtor to
determine undervalued or preferential transactions;
• to take all such actions, steps, or to sign, execute and verify
any paper, deed, receipt document, application, petition,
affidavit, bond or instrument and for such purpose to use the
common seal, if any, as may be necessary for liquidation,
distribution of assets and in discharge of his duties and
obligations and functions as liquidator;
• to apply to the Adjudicating Authority for such orders or
directions as may be necessary for the liquidation of the
corporate debtor.
• to consult any of the stakeholders entitled to a distribution of
proceeds.
• to access any information systems for the purpose of
admission and proof of claims and identification of the
liquidation estate assets relating to the corporate debtor from
information utility, credit information systems, any agency
of the Central, State or Local Government including any
registration authorities; information systems for financial
and non-financial liabilities; information systems for
securities and assets posted as security interest; any database
maintained by the Board.
• The liquidator shall provide information about corporate
debtor, when required by creditors within 7 days of request.
Reports by Liquidator
The liquidator shall prepare and submit following reports to
 NCLT:
(a) a preliminary report within 75 days of liquidation
commencement date comprising of capital structure,
asset and liabilities of corporate debtor etc. Liquidator
may apply for early liquidation if he feels that assets of
liquidator are not sufficient to meet liquidation costs.
(b) an asset memorandum within seventy-five days from the
liquidation commencement date providing in case of each
asset
• value of the asset;
• intended manner and mode of sale/ realization, and
reasons for the same;
• expected amount of realization;
• value of set of assets or assets in parcels or assets in a
slump sale; and
• any other information that may be relevant for the
sale/ realization of the asset;
(c) progress report within 15 days of every quarter giving
• appointment, tenure of appointment and cessation of
appointment of professionals;
• a statement indicating progress in liquidation;
• details of fee or remuneration;
• developments in any material litigation, by or
against the corporate debtor;
• filing of, and developments in applications for
avoidance of transactions;
• changes, if any, in estimated liquidation costs,
account maintained by the liquidator
• a statement indicating any material change in
expected realization of any property proposed to be
sold, along with the basis for such change
• The Progress Report for the fourth quarter of the
financial year shall enclose audited accounts of the
 liquidator’s receipts and payments for the financial
year.
(d) Asset sale report on sale of asset to be enclosed with the
Progress Reports, containing the realization value, person
to whom sold, cost of realization, manner and mode of
sale, if the value realized is less than the value in the asset
memorandum, the reasons for the same, etc.
(e) minutes of consultation with stakeholders; and
(f) the final report on liquidation as part of the
application for the dissolution of the corporate debtor to
the Adjudicating Authority giving account of the
liquidation, showing how it has been conducted and
how the corporate debtor’s assets have been liquidated. If
the liquidation cost exceeds the estimated liquidation cost
provided in the Preliminary Report, the liquidator shall
explain the reasons for the same.
Special Transactions
Preferential Transaction [Section 43 & 44]
A corporate debtor shall be deemed to have given a preference, if
there is a transfer of property or an interest thereof of the corporate
debtor for the benefit of a creditor or a surety or a guarantor for or
on account of an antecedent financial debt or operational debt or
other liabilities owed by the corporate debtor which has the effect of
putting the recipient in a beneficial position than it would have
been in the event of a distribution of assets being made. Such
transaction should have taken place during the period of one year
preceding the insolvency commencement date and in case recipient
is related party during the period of two years preceding the
insolvency commencement date.
The Adjudicating Authority, may on application of RP
or liquidator, give appropriate order to reverse the
effect of preference so given as far as possible.
Undervalued Transactions [Section 45]
A transaction shall be considered undervalued where the
corporate debtor makes a gift to a person or enters into a
transaction with a person which involves the transfer of
one or more assets, not in ordinary course of business, for
a consideration the value of which is significantly less than
the value of the consideration provided by the corporate
debtor.
Such transaction should have taken place during the
period of one year preceding the insolvency
commencement date and in case recipient is related party
during the period of two years preceding the insolvency
commencement date.
The Adjudicating Authority, may on application of RP or
liquidator, give appropriate order to reverse the effect of
such transaction.
Where an undervalued transaction or preferential
transaction has taken place and the liquidator/ RP has not
reported it, the Adjudicating Authority shall pass an order
restoring the position as it existed before such transactions
and reversing the effects thereof in the manner of avoiding
preferential transaction and undervalued transactions and
require the Board to initiate disciplinary proceedings
against the liquidator/RP.
Extortionate credit transactions [Section 50 r.w. Regulation
11 of IBBI (Liquidation Process) Regulations, 2016)
A transaction shall be considered an extortionate credit
transaction where the terms require the corporate debtor
to make exorbitant payments in respect of the credit
provided or are unconscionable under the principles of
law relating to contracts. Where the corporate debtor
has been a party to an extortionate credit transaction
involving the receipt of financial or operational debt
during the period within two years preceding the
insolvency commencement date, the liquidator/RP may
make an application for avoidance of such transaction to
the Adjudicating Authority. Where the Adjudicating
Authority after examining the application made is
satisfied that the terms of a credit transaction required
exorbitant payments to be made by the corporate debtor,
 it shall, by an order-
a) restore the position as it existed prior to such
transaction;
b) set aside the whole or part of the debt created on
account of the extortionate credit transaction;
c) modify the terms of the transaction;
d) require any person who is, or was, a party to the
transaction to repay any amount received by such
person; or
e) require any security interest that was created as part of
the extortionate credit transaction to be relinquished in
favour of the liquidator or the resolution professional, as
the case may be.
Secured creditor in liquidation proceedings [Section 52]
Secured creditor in the liquidation proceedings may—
a) relinquish its security interest to the liquidation estate and
receive proceeds from the sale of assets by the
liquidator; or
b) realise its security interest in the manner specified in this
section.
Where the secured creditor realises security interest specified
below, he shall inform the liquidator of such security interest
and identify the asset and the price at which he proposes to
realize its secured asset subject to such security interest to be
realised. If the liquidator informs the secured creditor within
21 days of receipt of the intimation, about any person willing
to buy the secured asset before the expiry of 30 days from the
date of intimation, at a price higher than the price intimated
and secured creditor shall sell the asset to such person.
Otherwise, the secured creditor may realize the secured asset
in the manner it deems fit, but at least at the price intimated.
The amount of insolvency resolution process costs, due from
secured creditors who realise their security interests, shall be
deducted from the proceeds of any realisation by such
secured creditors, and they shall transfer such amounts to
the liquidator to be included in the liquidation estate. Where
the proceeds of the realization of the secured assets are not
adequate to repay debts owed to the secured creditor, the
unpaid debts of such secured creditor shall be paid by the
liquidator.

Valuation of Assets [Regulation 35]

The liquidator shall appoint at least two registered valuers to
value the assets who shall independently submit to the
liquidator the estimates of the realizable value of the asset(s)
computed in accordance with internationally accepted
valuation standards. The average of the estimates received
shall be considered the value of the assets.
Realisation of Assets [Regulation 32 & 33]
The liquidator may
a. sell an asset on a standalone basis; or
b. sell
• the assets in a slump sale,
• a set of assets collectively,
• the assets in parcels
c. sell the corporate debtor as going concern.
The liquidator may sell asset in auction or in case of perishable
assets with deteriorating value, in private sale. Provided such
private sale cannot be affected to his related party or that of
corporate debtor or to any professional appointed by him
without approval of NCLT.
Liquidation Proceed and Distribution of Asset [Regulation 41
& 42]
The liquidator shall open a bank account in the name of the
corporate debtor followed by the words ‘in liquidation’, in a
scheduled bank where he shall deposit all moneys, including
cheques and demand drafts received by him as the liquidator.
The liquidator may maintain a cash of one lakh rupees or
such higher amount as may be permitted by the Adjudicating
Authority to meet liquidation costs. All payments out of the
account by the liquidator above five thousand rupees shall
be made by cheques drawn or online banking transactions
against the bank account. The liquidator shall distribute the
proceeds from realization within six months from the receipt
of the amount to the stakeholders. The insolvency resolution
process costs, if any, and the liquidation costs shall be
deducted before such distribution is made. The liquidator
shall not commence distribution before the list of stakeholders
and the asset memorandum has been filed with the
Adjudicating Authority.
Clearly defined distribution priority also referred to as
waterfall mechanism is stated in section 53 of the Code which
is as follows:
1. the insolvency resolution process costs and the
liquidation costs paid in full;
2. the following debts which shall rank equally between and
among the following: -
i. workmen's dues for the period of twenty-four
months preceding the liquidation commencement
date; and
ii. debts owed to a secured creditor in the event such
secured creditor has relinquished security;
3. wages and any unpaid dues owed to employees other
than workmen for the period of twelve months preceding
the liquidation commencement date;
4. financial debts owed to unsecured creditors;
5. the following dues shall rank equally between and
among the following: -
i. any amount due to the Central Government and the
State Government including the amount to be received
on account of the Consolidated Fund
of India and the Consolidated Fund of a State, if any, in
respect of the whole or any part of the period of two years
preceding the liquidation commencement date;
 ii. debts owed to a secured creditor for any amount unpaid
following the enforcement of security interest;

6. any remaining debts and dues;

7. preference shareholders, if any; and
8. equity shareholders or partners, as the case may be.

Dissolution of Corporate Debtor

Where the assets of the corporate debtor have been
completely liquidated, the liquidator shall make an
application to the Adjudicating Authority for the dissolution
of such corporate debtor. The Adjudicating Authority shall
on application filed by the liquidator order that the corporate
debtor shall be dissolved from the date of that order and the
corporate debtor shall be dissolved accordingly. A copy of an
order for dissolution shall within seven days from the date
of such order, be forwarded to the authority with which the
corporate debtor is registered.