Thursday, 7 July 2022

Part 3 of IBC

                                                    Part 3 of IBC

Section 78 of the Insolvency and Bankruptcy Code, 2016, Part III of the Code, 2016 (Secs. 78 to 187) shall apply to matters relating to fresh start, insolvency and bankruptcy of individuals and partnership firms where the amount of the default is not less than one thousand rupees.
     Here, 'default' means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. [Sec. 3(12]. Here, 'bankruptcy' means the state of being bankrupt and according to Section 79(4) 'Bankrupt' means- a debtor who has been adjudged as bankrupt by a bankruptcy order under sec. 126, each of the partners of a firm, where a bankruptcy order under section 126 has been made against a firm; or any person adjudged as an undischarged insolvent. However, the Part III of the Code is not applicable to the limited liability company or limited liability partnership provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one
lakh rupees. Talking about its Legal provision, Part III of IBC provisions will replace Present Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 920. The provisions in the Insolvency Code in respect of insolvency resolution and Bankruptcy for Individuals and partnership firms have been notified and made effective from 1-12-2019 only for personal guarantors of corporate debtors
(not for other individuals and partnership firms).

 These provisions have not been made applicable to other individuals and partnership firms (position as in May, 2021). Provisions of bankruptcy was made applicable to personal guarantors of corporate debtors. Section 2 of Insolvency Code will apply to personal guarantors of corporate guarantors as a category different from individuals. Debt Recovery Tribunal will be adjudicating authority and DRAT will be appellate authority for individuals and firms. The ‘fresh start’ will apply to individuals whose income is below Rs. 5,000 per month and debt amount does not exceed Rs. 35,000. In their case, work of insolvency resolution will be handled mostly by ‘insolvency professional’. Appellate Authority (DRT) will have only supervisory role.
This amount is so meagre that there will be very few individuals who will be eligible and in
fact, for them, even this process is beyond their means.
In case of other individuals and firms, the process is similar to that applicable to corporate
persons.


Adjudicating Authority
In relation to insolvency matters of individuals and firms, the Adjudicating Authority shall be the Debt Recovery Tribunal (DRT) having territorial jurisdiction over the place where the individual debtor actually and voluntarily resides or carries on business
or personally works for gain – section 179(2) of Insolvency Code, 2016. “Adjudicating Authority” means the Debt Recovery Tribunal constituted under sub-section (1) of section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 –
section 79(1) of Insolvency Code, 2016. However, in case of personal guarantors to corporate debtors, NCLT will be ‘adjudicating
authority’ as per section 60 of Insolvency Code.


Powers of Adjudicating Authority (DRT)
The Debt Recovery Tribunal shall have overriding jurisdiction to entertain or dispose of – (a) any suit or proceeding by or against the individual debtor (b) any claim made by or against the individual debtor (c) any question of priorities or any other question whether of law or
facts, arising out of or in relation to insolvency and bankruptcy of the individual debtor or
firm under this Code – section 179(2) of Insolvency Code, 2016.


Appointment of Resolution Professional
A Resolution Professional or (“RP”) is an insolvency professional who is appointed by the creditors of the company collectively. The RP takes over control of the Corporate Debtor from its management and manages its affairs and takes into custody the assets of the CD.
Appointment of RP is done by Committee of Creditors, before its constitution an Interim RP is appointed. The interim RP acts in the same way an RP would and manages the affairs of the CD till the appointment of an RP. As per section 22 of the IBC, 2016 within 7 days of the CoC’s formation it must hold its first meeting and decide whether it would like to appoint the Interim RP as the RP or it can select a new RP. The outcome of the same must be communicated to the RP, the CD and the NCLT.



Examination of application by resolution professional
1. The resolution professional shall examine the application made under section 80 within 10 days of his appointment, and submit a report to the Adjudicating Authority, either recommending acceptance or rejection of the application.
2. The report referred to in sub-section (1) shall contain the details of the
amounts mentioned in the application which in the opinion of the resolution professional
are—
(a) qualifying debts; and
(b) liabilities eligible for discharge under sub-section (3) of section 92.
3. The resolution professional may call for such further information or explanation in connection with the application as may be required from the debtor or any other person who, in the opinion of the resolution professional, may provide such information.
4. The debtor or any other person, as the case may be, shall furnish such information or explanation within seven days of receipt of the request under sub-section (3).
5. The resolution professional shall presume that the debtor is unable to pay his debts at the date of the application if—
(a) in his opinion the information supplied in the application indicates that the debtor is unable to pay his debts and he has no reason to believe that the information supplied is incorrect or incomplete; and
(b) he has reason to believe that there is no change in the financial circumstances of the debtor since the date of the application enabling the debtor to pay his debts.
6. The resolution professional shall reject the application, if in his opinion—
(a) the debtor does not satisfy the conditions specified under section 80; or
(b) the debts disclosed in the application by the debtor are not qualifying debts; or
(c) the debtor has deliberately made a false representation or omission in the application or
with respect to the documents or information submitted.
7. The resolution professional shall record the reasons for recommending the acceptance or rejection of the application in the report to the Adjudicating Authority under sub-section
(1) and shall give a copy of the report to the debtor.



Admission or rejection of application by Adjudicating Authority
1. The Adjudicating Authority may within fourteen days from the date of submission of the report by the resolution professional, pass an order either admitting or rejecting the application made under sub-section (1) of section 81.
2. The order passed under sub-section (1) accepting the application shall state the amount which has been accepted as qualifying debts by the resolution professional and other amounts eligible for discharge under section 92 for the purposes of the fresh start order.
3. A copy of the order passed by the Adjudicating Authority under sub-section (1) along with a copy of the application shall be provided to the creditors mentioned in the application within two days of the passing of the order.

Jurisdiction
Civil court or any authority shall not have jurisdiction to entertain any suit or proceedings in respect of any matter on which DRT or DRAT have jurisdiction under Insolvency Code, 2016 – section180(1) of Insolvency Code, 2016. No injunction shall be granted by any court, Tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on DRT or DRAT under the
Insolvency Code, 2016 – section180(2) of Insolvency Code, 2016.


Appeal against order of DRT
Appeal against order of DRT shall be filed with DRAT (Debt Recovery Appellate Tribunal) within 30 days. This period can be extended by further 15 days by DRAT if sufficient cause is shown – section 181 of Insolvency Code, 2016.


Appeal to Supreme Court
An appeal from an order of DRAT can be filed before Supreme Court within 45 days only on question of law. This period can be extended by further 15 days by Supreme Court if sufficient cause is shown – section 182 of Insolvency Code, 2016


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