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(by CA Siddhesh S. Valimbe, CA Final Rank:26th)

IBC Question Bank

(Applicable for CA Final November 2020
onwards)

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Note: ©No part of Questions 1-10 may be reproduced or copied

in any form or by any means without prior permission of Mr.
Siddhesh Valimbe.

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Q1) MSP Services Limited is a company registered in New Delhi. The company
defaulted in the payment of Rs 1.2 Cr due to Mr. Ram, who had given a Loan to the
company. Mr. Ram approached his lawyer Mr. Jain on 14th September 2019 to know
about how to approach the Insolvency Law for purpose of recovery of dues from the
company. After proper discussion, On 22nd September 2019, Mr Jain sent a Notice to
the company giving a final time limit of 8 Days to clear the dues owed to Mr. Ram. The
Company did not respond.

On 8th October 2020, an application was filed to NCLT under Insolvency Bankruptcy
Code, 2016.

NCLT found a defect in the notice on 12th October, and gave 7 days’ time limit for
rectification. Rectification was carried out on 16th October and on 19th October, NCLT
passed an order admitting the application.

The “Initiation Date” and “Insolvency Commencement Date” in the above case are

A) 14th September and 16th October

B) 14th September and 22nd September
C) 8th October and 19th October
D) 8th October and 12th October

Q2) ABC Material Suppliers Pvt Ltd had an amount of Rs. 1.3 Lacs due from Sharma
Builders Ltd against goods supplied. On 8th June, 2019 Finance Manager of ABC
Materials called the CFO of Sharma Builders Ltd asking for payment, to which the CFO
promised to clear the dues by 12th June, but no such payment was received. Pursuant
to Section 8 of IBC, 2016: on 13th June, ABC Materials Pvt Ltd served a Demand Notice
along with the copy of Invoice to Sharma Builders Ltd. How much time does the Code
allow the corporate debtor (Sharma Builders in this case) to reply to bring to the notice
of operational creditor (ABC Material Suppliers in this case) any existence of dispute or
clear the dues?

A) 14 Days from 8th June

B) 14 Days from 12th June
C) 10 Days from 8th June
D) 10 Days from 13th June

Q3) Who amongst the following has an ‘option’ to recommend the name of the Interim
Resolution Professional

A) Financial Creditor
B) Operational Creditor
C) Corporate Debtor
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Q4) Except as otherwise provided in the code, all the decisions of the Committee of
Creditors shall be taken by a vote__ % voting share of all financial creditors.

A) 90%
B) 66%
C) 75%
D) 51%

Q5) Mr Mohan is an Authorized Representative for the Debenture Holders of KK Group

Ltd pursuant to Section 21(6A). He represents 9 Debenture Holders. On a particular
matter to be voted upon, holders representing 62.5% of total said “Yes”, and balance
said “No”. Which statement is the most appropriate out of the given below?

A) He has to vote as per the Individual preferences of the debenture holders and
to the extent of each holder’s voting share.
B) He shall be voting as NO on that particular decision since required percentage
of 66% could not be achieved.
C) He shall be voting as Yes since majority of the holders he represents have voted
YES.

What if in above case, the matter with respect to which voting is being held, related to
withdrawal of application? (Choose among A, B or C options as given above).

Q6) Replacement of the resolution professional by Committee of Creditors (Coc)

requires what percentage of voting?

A) 51%
B) 66%
C) 90%
D) 75%

Q7) In CIRP of a company, Mr SK Mishra (Resolution Professional for the company) had
submitted a Resolution Plan pursuant to Section 30 to the NCLT, which was rejected
due to Non Compliance of the requirements of Section 30(2). The company went into
liquidation thereafter. Can Mr. SK Mishra continue to act as “Liquidator”? Select the
most appropriate statement,

A) Mr SK Mishra shall continue to act as the Liquidator, provided he submits a

written consent for the same, and NCLT has no power to replace him.
B) Mr. SK Mishra cannot act as liquidator since he already acted as the Resolution
Professional and both need to be different persons.

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C) Mr SK Mishra shall act as liquidator subject to submission of written consent,

but the NCLT shall be empowered to make an order replacing the resolution
professional.

Q8) Liquidator while reviewing the claims of the creditors passed the requisite orders
of accepting or rejecting the same. What step can be taken by the creditor against the
same?

A) No action can be taken by the creditor as the order of accepting or rejecting the
claim by the liquidator is final.
B) The creditor may file an appeal to Central Government within 45 Days.
C) The creditor may file an appeal to the Appellate Tribunal within 14 Days.
D) The creditor may file an appeal against an order of rejection of claim to NCLT
within 14 Days of receipt of such decision.
E) The creditor may file an appeal against an order of Acceptance or Rejection of
claim to NCLT within 14 Days of receipt of such decision.

Q9) Zed Telecom Ltd was going under Voluntary Liquidation process pursuant to
Section 59 of IBC, 2016. After complying with the other initial formalities, the members
passed a Resolution on 16th December for voluntary liquidation as a result of expiry of
the period of it’s duration as fixed by the company’s Articles of Association (AOA).

The company owed Rs 62.5 Lacs in debts to it’s creditors. Creditors of Rs 43 Lacs
approved the resolution on 18th December.

The company knows about it’s obligation to notify the Registrar and the Board. But, is
unable to determine the time limit within which it has to notify. Select the most
appropriate option.

A) Within 30 Days from 16th December

B) Within 30 Days from 18th December
C) Within 7 Days from 16th December
D) Within 7 Days from 18th December

The Date of commencement of voluntary liquidation shall be

A) 18th December
B) 16Th December
C) 7 Days from 18th December
D) 7 Days from 16th December

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What if Creditors of value Rs 38 Lacs approved the member’s resolution?

A) Company shall still notify the Registrar and Board.

B) Company shall now have 30 Days to notify from 18th December.
C) No need to notify as the company has not complied with the provisions fully, so
no voluntary liquidation can take place.

What if Creditors of Value Rs 43 Lacs approved the member’s resolution on 30th

December? (Select from A, B, C options given immediately above)

Q10) The following particulars relate to M/s DET Homes (P) Ltd, which has gone into
Corporate Insolvency Resolution Process (CIRP). Calculate the amount which the Equity
Shareholders will receive (if any).

S.No Particulars Amount (Rs)

1) Mr Ravi, a secured creditor who relinquished his security 45,000
2) Insolvency resolution process cost 10,500
3) Workmen Dues for 30 months preceding the liquidation 54,000
commencement date
4) Employee (Other than workmen) dues for 18 Months preceding 10,800
the liquidation commencement date
5) Unsecured Creditor Dues 22,000
6) Mr Raman, a secured creditor who had enforced his security 15,000
interest but still has 15,000 yet to be recovered
7) Preference Shareholder Dues 12,000
8) Dues owed to Central Government of past 2 Years 36,000
9) Amount Realized from sale of assets 2,10,000

A) 19,100
B) 4,700
C) NIL
D) 16,700

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ICAI Questions
(RTPs, PTPs, MTPs: Old+New Course)

Note: The ICAI Questions covered below are as applicable during the time
they were asked in exam. Relevant Amendments as applicable to the
respective attempts shall have to be applied accordingly depending upon
what and how the questions are asked.
Ques 1) (ICAI RTP New Course May 19)
The financial creditor, Mr. Raman, was an investor and a debenture holder of
‘Optionally Convertible Debenture Bond (OPDB)’ payable on maturity, was issued by
the M/s Asset Ltd. (corporate debtor). The zero interest OCD bonds amounted to 2
crores matured in 2016. The liability to redeem the debentures on maturity along
with a redemption premium lay on the debtor, which was not made. Mr. Raman filed
the Corporate Insolvency resolution process before the NCLT. Advise in the light of
the given facts, the following situations:
(i) State whether Mr. Raman is eligible for filing of application for initiation of
CIRP?
(ii) Do the redemption of debenture payable on the maturity date amounts to
debt?
Answer:

Legal Provisions:

As per Section 5(7) of the Insolvency and Bankruptcy Code, 2016, financial creditor
means any person to whom a financial debt is owed and includes a person to whom
such debt has been legally assigned or transferred to.
Whereas the term Financial debt defined under Section 5(8) means a debt along with
interest, if any, which is disbursed against the consideration for the time value of
money and includes as per sub clause (c) any amount raised pursuant to the issue of
bonds, notes, debentures, loan stock or any similar instrument.
Facts of the case:
As per the facts, Mr. Raman, was an investor and a debenture holder of ‘Optionally
Convertible Debenture Bond (OPDB)’ issued by the Asset Ltd. With the debenture
payable, as on the maturity date with interest, it was disbursed against consideration
for the time value of the money.
Analysis & Conclusion:
Thus, it can be said that debentures on maturity will come under that purview of
Section 5(8)(c), and will amount to debt.
Since Mr. Raman is a person to whom a financial debt is owed, he will come within
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the definition of Financial creditor. Being a debenture-holder and shareholder of the

company he, being a creditor is entitled to claim debt amount. Therefore, as per
section 7, Mr. Raman is entitled to file an application to initiate CIRP against the M/s
Asset Ltd.

Ques 2) (ICAI RTP New Course Nov 19)

Mr. Satya, filed a petition for default of non-payment of the debt against Mr. X. The
amount in default claimed by petitioner was 30 lakhs. Mr. X (Respondent) pleaded
before the adjudicating authority that the amount of claim was not belonging to the
applicant/petitioner. Mr. Satya, asserted that he himself with his son owns 26 Lakh to
the respondent. Though nowhere in the petition and the supportive documents, he
admitted that he himself with his Son owns 26 Lakh to the respondent. Considering
the above facts in the light of the Insolvency and Bankruptcy Code, state the action
that will be taken by the Adjudicating Authority:
(a) NCLT will admit the application of Mr. Satya, as he jointly with his son owned the
debt to the Mr. X, so he is a valid petitioner.
(b) NCLT will admit the application filed by Mr. Satya on behalf of his son.
(c) NCLT will reject the application considering that no default has occurred against
Mr. Satya, and his stand as a financial creditor is not proved in the petition.
(d) NCLT will dismiss the application on the ground of non- existence of dispute
against Mr. Satya.
ANS: C

Ques 3) (ICAI RTP New Course Nov 19)

How many times Corporate Insolvency Resolution Process period can be extended?
(a) shall not be granted more than once
(b) shall be granted more than once
(c) shall be granted more than twice on the reasonable cause
(d) cannot be granted at all

ANS: A

Ques 4) (ICAI RTP New Course Nov 19)

Creative India Limited owes a sum of 2,80,000 to S, who assigns this debt to his two
creditors, Mr. R – to the extent of 1,40,000 and Mr. M - to the extent of 1,40,000.
Mr. M makes a demand for his money from the company by giving a legal notice. The
company could not meet Mr. M’s demand or otherwise satisfy him till the expiry of
four weeks from the date of notice. Mr. M, therefore, moves to NCLT with an
application for initiation of Insolvency and Bankruptcy Code, 2016, decide whether
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an application filed by Mr. M can be accepted by NCLT.

Answer:
Issue: Can a person to whom a debt is assigned file an application for initiation of
Corporate Insolvency Resolution Process?
Legal Provisions:
As per section 5(7), financial creditor includes a person to whom a financial debt
has been legally assigned or transferred to.
Financial creditor can initiate corporate insolvency resolution process himself or
jointly with other financial creditors against corporate debtor on default of payment
of debt of 1,00,000 or more. Assignee of financial debt is also financial creditor as
per section 5(7) of the IBC, 2016.
Analysis & Conclusion:
In the given case, Mr M shall be considered as a financial creditor since he has been
legally assigned this debt by Mr S.
Therefor in given case, Mr. M's application can be accepted by NCLT if company fails
to pay debt within stipulated time. Application should be supported with a copy of
the assignment or transfer agreement and other relevant documents as may be
required to demonstrate the assignment or transfer.

Ques 5) (ICAI RTP New Course May 2020)

The IRP appointed for M Ltd. is seeking your views on the constitution of the
Committee of creditors of M Ltd. M Ltd. does not have any financial debt other
than loan obtained from Mr. A, son of Mr. B, the managing director of M Ltd.
Considering the above, identify the appropriate constitution of the committee of
creditors out of the following:
(a) Mr. A, 18 largest operational creditors, 1 representative of all workmen
(b) 18 largest operational creditors, 1 representative of workmen and 1
representative of employees.
(c) Only Mr. A since he is the only financial creditor
(d) 18 largest operational creditors, 1 representative of workmen and 1
representative of employees and the resolution professional.
ANS: B

Ques 6) (ICAI RTP New Course May 2020)

ABZ Ltd. an unlisted company with total assets of one crore as per financial
statement as on 31st March, 2018, defaulted in the payment of the financial debt

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against the financial creditor Mr. X. Mr. X filed an application for initiation of
insolvency process against ABZ Ltd. under the fast track corporate insolvency
resolution process on 31st May 2019. Discuss the relevancy for disposal through
the mechanism of the fast track corporate insolvency resolution process and the
legal position of holding of fast track corporate insolvency resolution process by
Mr. X in the term of the IBC, 2016. Compute the time period for completion of fast
track process in the said situation.
Answer:
Relevancy: Fast track corporate insolvency resolution process is a speedy process for
corporate insolvency resolution for small corporates.

As per section 55 of the IBC, 2016, it is applicable to following corporate debtors:

(a) a corporate debtor with assets and income below a level as may be notified by
the Central Government; or

(b) a corporate debtor with such class of creditors or such amount of debt as may
be notified by the Central Government; or

(c) such other category of corporate persons as may be notified by the Central
Government.
Applicability of the provisions - The provisions are applicable to –
(a) small company under section 2(85) of Companies Act
(b) a start-up (other than partnership firm) [as defined by Ministry of Commerce
and Industry notification No. GSR 501(E) dated 23 -5-2017]
(c) an unlisted company with total assets not exceeding one crore as per financial
statement immediately preceding the financial year [SO 1911(E) dated 14-6-2017].
Time period for completion of fast track process (Section 56)
The fast track corporate insolvency resolution process shall be completed within a
period of 90 days from the insolvency commencement date. It can be extended by
Adjudicating Authority by further 45 days, if resolution passed at a meeting of the
committee of creditors and supported by a vote of 75% per cent of the voting
shares.
In the given case, fast track corporate insolvency resolution process shall be
completed by 29th of August 2019. Extension may be granted till 13th of October,
2019 in compliance with above provision.

Ques 7) (ICAI RTP New Course May 2020)

Mr. Mediator was proposed to be appointed as a resolution professional for the
corporate insolvency resolution process initiated against BMR Ltd. Mr. R, a relative
of director of BMR Ltd. is a partner in the insolvency professional entity in which
Mr. Mediator is partner. In the light of the given facts, examine the nature of the
proposal of the appointment of Mr. Mediator for the conduct of the CIRP as per
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the Insolvency and Bankruptcy Code, 2016.

Answer:
Legal Provisions:
As per Regulation 3 of the Insolvency and Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) Regulations, 2016, an insolvency
professional shall be eligible to be appointed as a resolution professional for a
corporate insolvency resolution process of a corporate debtor 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.
Explanation– A person shall be considered independent of the corporate debtor, if
he:
(a) is eligible to be appointed as an independent director on the board of the
corporate debtor under section 149 of the Companies Act, 2013, where the
corporate debtor is a company;
(b) is not a related party of the corporate debtor; or
(c) is not an employee or proprietor or a partner:
(i) of a firm of auditors or secretarial auditors in practice or cost auditors of
the corporate debtor in the last three financial years.
(ii) of a legal or a consulting firm, that has or had any transaction with the
corporate debtor amounting to five per cent or more of the gross
turnover of such firm, in the last three financial years.

Given Case Analysis:

As per the given facts, Mr. Mediator was proposed to be appointed as a
resolution professional for the insolvency resolution process initiated against
BMR Ltd. Whereas, Mr. R, a relative of director of BMR Ltd. is a partner in the
insolvency professional entity in which Mr. Mediator is partner.
Conclusion:
Since, Mr. R is the partner in Insolvency Professional Entity in which Mr.
Mediator is also a partner, so, Mr. Mediator is not eligible for appointment as
Resolution Professional as he is not independent of the corporate debtor,
because Mr. R is relative of Director of BMR Ltd. (Corporate Debtor)
Ques 8 (ICAI RTP Old Course May 19)
Mr. Ram, an operational creditor filed an application for corporate insolvency
resolution process. He did not propose for appointment of an interim resolution
professional in the application. State the provisions given by the Code in the given
situation. State the term of such appointed IRP.

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Answer:
Legal Provision:
Appointment of IRP: As per Section 16 of the Code where the application for
corporate insolvency resolution process is made by an operational creditor and no
proposal for an interim resolution professional is made in the said application, the
Adjudicating Authority shall make a reference to the Board for the recommendation
of an insolvency professional who may act as an interim resolution professional.
The Board shall recommend the name of an insolvency professional to the
Adjudicating Authority against whom no disciplinary proceedings are pending, within
ten days of the receipt of a reference from the Adjudicating Authority.
Period of appointment of IRP: The term of Interim Resolution Professional shall
continue till the date of appointment of the resolution professional under section
22 of the Code.

Ques 9 (ICAI Old Course MTP May 20)

Integrated Case Scenario

Hiwaves Private Ltd. for expansion of its business took the financial debt of Rs. 50
crores from the GBC Bank Ltd. in 2017. Hiwaves Private Ltd. in its initial one year
paid the instalments of the amount of debt timely. However, from mid of 2018,
Hiwaves Private Ltd. started omission in the payments of instalments. Despite of
repeated reminders, Hiwaves Private Ltd. continued with default in payments of
instalments.
GBC Bank Ltd. filed an application under Insolvency and Bankruptcy Code, 2016 for
initiating Corporate Insolvency Resolution Process (CIRP) against Hiwaves Private
Ltd., alleging default in payments of debt, interest and other charges on 18th
November, 2018.
The application was admitted in the NCLT on 1st December, 2018.
The Ex-directors and shareholders of Hiwaves Private Ltd. preferred an appeal
against the said admission of application under section 7 of the IBC. Appellant
submitted that name of Hiwaves Private Ltd. was struck off from the Register of
Companies under Section 248 of the Companies Act, 2013. Also, asserted that
application under section 7 of IBC was preferred by GBC Bank Ltd., is barred by
limitation and against a non-existent company (i.e. Hiwaves Private Ltd.). So, they
alleged that no such application is maintainable. However, the appeal was set
aside.
During the CIRP, Resolution Professional (RP), “Mr. Amar” was appointed to
manage the estate of the Hiwaves Private Ltd.
During the pendency of the CIRP, the Enforcement Directorate (ED) provisionally
attached the assets belonging to the Hiwaves Private Ltd. Mr. Amar (RP) intimated
the ED about initiation of the CIRP and imposition of moratorium on the property
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and assets of the Hiwaves Private Ltd. as the resolution professional was required
to take charge and custody of the same. ED submitted that moratorium declared by
the Adjudicating Authority would not be applicable to the criminal case initiated
under the Prevention of Money Laundering Act, 2002.

Multiple Choice Questions

1. Comments upon attachment order of Enforcement Directorate under PML Act
during moratorium in the given case:
(a) Attachment order is valid and resolution professional cannot take charge of
property.
(b) Attachment order is not valid.

(c) Attachment order is valid but Resolution Professional can proceed to take
charge of property and deal under IBC.
(d) Attachment order is nullity and Resolution Professional can proceed to
take charge of the property and deal under the IBC, as if no attachment
orders.
2. In the given case, Hiwaves Private Ltd. was struck off from Register of
Companies under the Companies Act, 2013. State whether GBC Bank Ltd. can
file an application under section 7 of the Code-
(a) No. Application cannot be filed as the Hiwaves Private Ltd. is no more in
the existence as it is struck off from Register of Companies.
(b) No. Application cannot be filed under the Code but under the Companies
Act be filed within 2 years from the date of notice notified in Official
Gazette on struck off from Register of Companies.
(c) Yes. Application can be filed under both the laws by the GBC Bank Ltd,
being under the two different jurisdictions.
(d) Yes. Application can be filed on an appeal of GBC bank Ltd. (being a
creditor) before Tribunal under the Companies Act for taking Hiwaves
Private Ltd. into register of companies, and then may file an application of
initiation of CIRP under the capacity financial creditor, under the Code.
3. As given in the case, GBC Bank Ltd. files an application for initiation of CIRP on
18th November, 2018 which was admitted on 1st December, 2018. Suppose, if
later Hiwaves Private Ltd. pays off the outstanding debt amount and request
the GBC Bank Ltd. to withdraw the application. Specify which amongst the
following is the correct statement:
(a) No withdrawal can be done, as the application has been admitted.
(b) Yes, withdrawal is possible by approval of 66% of voting shares of the CoC.
(c) No withdrawal is applicable here as application of CIRP is not

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maintainable as Hiwaves Private Ltd. is struck off.

(d) Yes, withdrawal is possible by approval of 90% of voting shares of the CoC.

4. Within how many days application for initiation of CIRP can be admitted by
NCLT, as it was filed on 18th November, 2018 by GBC Bank Ltd.?
(a) Within 7 days from receipt of application
(b) Within 10 days from receipt of application

(c) Within 14 days from receipt of application

(d) Within 21 days from receipt of application

5. Suppose, NCLT rejects application of GBC Bank Ltd. on account of incomplete

application submitted before it. Within how many days, the applicant can
rectify the defect in the application?
(a) Within 7 days of receipt of such notice from NCLT
(b) Within 10 days of receipt of such notice from NCLT

(c) Within 14 days of receipt of such notice from NCLT

Within 30 days of receipt of such notice from NCLT
ANS: d,d,d,c,a

Ques 16 (ICAI New Course May 18)

You are appointed as Interim Resolution Professional in XYZ Company Ltd. under the
Insolvency and Bankruptcy Code, 2016. State the time limit to make Public
Announcement? Also state the protocol for issuance of public notice. Who shall bear
the expenses of public announcement?
Answer:
Legal Provisions:
(1) Time Limit for making Public Announcement
Interim Resolution Professional shall make the Public Announcement immediately
after his appointment.
“Immediately” here means not more than three days from the date of appointment
of the Interim Resolution Professional.
Hence, the time limit to make Public Announcement is within 3 days from the date of
appointment of the Interim Resolution Professional.
(2) Protocol for issuance of Public Notice
As per Section 15 of the Insolvency and Bankruptcy Code,2016, public
announcement shall include the following: -
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(a) Name & Address of Corporate Debtor under the Corporate Insolvency
Resolution Process.
(b) Name of the authority with which the corporate debtor is incorporated or
registered.
(c) Details of interim resolution Professional who shall be vested with the
management of the Corporate Debtor and be responsible for receiving claims.
(d) Penalties for false or misleading Claims.
(e) The last date for the submission of the claims, as may be specified.
(f) The date on which the Corporate Insolvency Resolution Process ends.
The public announcement shall be published in the following:
 One English Newspaper
 One Vernacular Newspaper
 Website of the company
 Website of the Board
(3) Expenses of Public Announcement
The expenses of public announcement shall be borne by the applicant which may be
reimbursed by the Committee of Creditors, to the extent it ratifies them.

Ques 17 (ICAI New Course May 18)

Rose Garden Ltd. was incurring continuous losses and its financial position went bad
to worse. Black Stone (Private) Ltd., a trade creditor, issued notice under Section
271 of the Companies Act, 2013 for winding up of Rose Garden Ltd. on the ground
that Rose Garden Ltd. was unable to pay its debts. After some time, Black Stone
(Private) Ltd. being an operational creditor filed a petition before the Adjudicating
Authority to initiate insolvency process under the Insolvency and Bankruptcy Code,
2016. Demand Notice and copy of invoice were not served to Rose Garden. Ltd.
since a notice was earlier issued for winding up. All other formalities were complied
with. The Adjudicating Authority Initiated Insolvency Resolution Process by
admitting the application and appointed Resolution Professional. After complying
required formalities, the Adjudicating Authority issued orders for moratorium and
other relief within the stipulated time. Being aggrieved by the order of Adjudicating
Authority, Rose Garden Ltd. (Corporate debtor) filed an appeal before NCLAT under
the Insolvency and Bankruptcy Code, 2016. Determine will the Company succeed in
its appeal?

Answer:
The given problem relates to Section 8 read with Section 9, and other applicable IBC
Provisions.
Legal Provisions:
As per Section 8 of the Insolvency and Bankruptcy Code, 2016, once a default has
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occurred, the operational creditor has to deliver a demand notice of unpaid

operational debt or copy of invoice demanding payment of debt in default to the
corporate debtor.
Section 9 gives the operational creditor the right to file an application with the NCLT
if the corporate debtor did not reply in the manner provided in 10 days.
Facts of the Case:
In the given case, demand notice or copy of invoice as required by Section 8 was not
served to the Rose Garden Ltd., so the requirement for the initiation of the
corporate insolvency resolution process by operational creditor under section 9 of
the Code, was not in compliance.
Analysis:
Serving of notice compliant to Section 8 is mandatory in nature and notice under
section 271 of Companies Act, 2013 is not a sufficient compliance.
Conclusion:
So, the admission of application in line with the compliance of other required
formality as to issue of order of moratorium and other relief, given by the NCLT was
against the law.
As Rose Garden Ltd. (Corporate debtor) was aggrieved by the Order of the
Adjudicating Authority on the non-compliance of requirement of Section 8, Rose
Garden Ltd. will succeed in its appeal filed before the National Company Law
Appellate Tribunal.

Ques 19 (ICAI New Course Nov 18)

XY Ltd. filed a petition under Insolvency and Bankruptcy Code, 2016 with NCLT against
DF Ltd. (Corporate Debtor) and the petition was admitted. There were only three
financial creditors including XY Ltd. During the Corporate Insolvency Resolution
process, the Corporate Debtor settled the claims of all the 3 financial creditors.
Whether such settlement agreement could be termed as a valid resolution plan? Also
discuss whether a financial creditor in respect of whom there is no default can file an
application before Adjudicating Authority (NCLT) for initiating corporate insolvency
resolution process. Discuss.

Answer:
Issue:
Whether settlement with all the financial creditors constitutes a valid resolution plan?
Legal Provisions:
As per section 7 of the Insolvency and Bankruptcy Code, 2016, a financial creditor
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either by itself or jointly with other financial creditors, may file an application for
initiating corporate insolvency resolution process against a corporate debtor before
the Adjudicating Authority when a default has occurred.

As per section 5(26), resolution plan means a plan proposed by a resolution

applicant for insolvency resolution of the corporate debtor as a going concern in
accordance with Part II.
Also, a detailed procedure is required to be followed as per section 30 wherein, the
resolution applicant submits a resolution plan to the resolution professional. The
plan needs to be in accordance with the conditions of Section 30(2).
It also needs an approval by the Committee of Creditors by a vote not less than
66% of the voting share of Financial Creditors. Such approved plan is then
submitted to the Adjudicating Authority.

Facts of the Case:

As per the facts given, the Adjudicating Authority admitted the petition. During the
Corporate Insolvency Resolution Process (CIRP), the DF (Corporate debtor) settled the
claims of all the 3 financial creditors.
Analysis:
However, as per the Code, during the insolvency resolution process, the IRP/RP was
appointed to collate the claims in a collective mechanism to propose a time bound
solution to resolve the situation of insolvency and prepare the resolution plan as
agreed to by the debtors and creditors and submit the same to Committee of
Creditors for its approval.

Conclusion:
Since in the give case, debtor itself settled the claims without following the said
procedure, such a settlement agreement cannot be termed as valid resolution plan.

As per the requirement of the code, the process of Insolvency is triggered by

occurrence of Default. As per Section 3(12), “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.

So, a Financial Creditor in respect of whom there is no default, cannot file an

application for initiating insolvency resolution process.

One more answer is also possible: if we consider the Explanation to subsection (1) of
Section 7. It clearly states that default includes a default in respect of a financial debt
owed not only to the applicant financial creditor but to any other financial creditor of
the corporate debtor, in which case the financial creditor may file an application. It

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depends upon the interpretation of the question wrt existence of default by the
company or not.

However, it’s recommended to follow ICAI Answer.

Ques 20 (ICAI New Course May 19)

Continental Rubber Limited is a supplier of raw materials to Smooth Latex Limited. It

filed a petition before the NCLT for the recovery of 10,00,000 from Smooth Latex
Limited. Smooth Latex Limited, the Corporate Debtor, has other financial creditors to
the extent of 1,50,00,000 and they also joined together and filed petitions to NCLT.
The Corporate Debtor has a total of 40 financial creditors and 2 operational creditors.
Further, all the financial creditors are having equal voting rights/shares.

Notice was issued on 1st August, 2018 for the conduct of the first meeting to be held
on 5th August, 2018 at a common venue. The meeting was attended by all 40 financial
creditors and 2 operational creditors. A resolution was passed to appoint Mr. TK as a
Resolution Professional. 25 of the financial creditors voted in favour of the resolution
and 10 voted against the resolution and 5 financial creditors and 2 operational
creditors abstained from voting. Decide whether the resolution passed is valid? In the
light of the provisions of Insolvency and Bankruptcy Code, 2016 read with rules
framed thereunder, explain the requirements of issue of notice and quorum for the
conduct of the meeting.

Answer:
The given problem relates to Section 22, 24 read along with the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process of Corporate Persons)
Regulations, 2016:

Legal Provisions:
According to section 22 of the Insolvency and Bankruptcy Code, 2016,
First Meeting of Creditors
(ii) The first meeting of the committee of creditors shall be held within seven days
of the constitution of the committee of creditors.
(iii) The committee of creditors in the first meeting may by a majority vote of not
less than 66% of the voting share of the financial creditors, either resolve to
appoint the interim resolution professional as a resolution professional or to
replace the interim resolution professional by another resolution professional.
Notice of the Meeting (Section 24)
The resolution professional shall give notice of each meeting of the committee of
creditors to: -
(a) Members of Committee of creditors, including the authorised representatives
referred to in sub-sections (6) and (6A) of section 21 and sub-section (5);

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(b) Members of the suspended Board of Directors or the partners of the corporate
persons, as the case may be;
(c) Operational creditors or their representatives if the amount of their aggregate
dues is not less than 10% of the debt.
Quorum for the Meeting (As per Regulation 22)
 A meeting of committee of creditors shall quorate if members of the committee of
creditors representing at least thirty three percent of the voting rights are present
either in person or by video/audio means.
 If the requisite quorum for committee of creditors is not fulfilled, the meeting cannot
be held and unless the committee has previously decided otherwise, the meeting
shall automatically stand adjourned at the same time and place on the next day.
 The adjourned meeting shall quorate with the members of the committee attending
the meeting.
Given Case and Analysis:
As per the facts of the question and the provisions of law:
(1) The first meeting of committee of creditors was validly held within three days of
the constitution of the committee of creditors.
(2) The requisite quorum was present in the meeting as all 40 financial creditors
attended the meeting.
(3) The Act requires that not less than 66% of the financial creditors shall resolve to
appoint resolution professional. However, in the given case 71.4% [(25/35)* 100]
voted in favour of Mr. TK. Hence, the said appointment is valid.

Ques 21 ICAI New Course Nov 19)

In view of the deep recession prevailing in, the market for the past three years, M/s.
Infra Limited (Corporate Debtor), which was facing the brunt of financial crisis, could
not pay salaries and wages to its workmen and employees for the past 6 months.
The workmen and the employees, who are the members of a recognized Trade
Union "Infra Labor Federation", made a complaint in this regard. Thereafter, the
Trade Union approached and urged the Management of the Company in person and
through representations in writing to settle the arrears of wages and salaries due to
its members. The Corporate Debtor neither disputed nor took any actions to settle
the amount. Under the circumstances, Infra Labor Federation filed an application
before the Adjudicating Authority i.e. with the National Company Law Tribunal for
initiating a Corporate Insolvency Resolution Process under the Insolvency and
Bankruptcy Code, 2016.
In the light of the provisions of the Insolvency and Bankruptcy Code, 2016, examine
the following:

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(i) Validity of the Application.

(ii) What will be the "Initiation date" for initiating the Corporate Insolvency
Resolution Process?

Answer:
This problem related to section 5 read with section 8 and 9 of the Insolvency
Bankruptcy Code, 2016.
Legal Provisions:
Workmen & Employees as Operational Creditor: The Insolvency and Bankruptcy
Code, 2016 considers all employees and workmen as operational creditors.
As per section 5(20) of the Code, "Operational creditor" means a person to whom an
operational debt is owed and includes any person to whom such debt has been legally
assigned or transferred;

Whereas Operational Debt as per Section 5 (21) of the Code means a claim in
respect of the provision of goods or services including employment or a debt in
respect of the payment of dues arising under any law for the time being in force and
payable to the Central Government, any State Government or any local authority.

Filing of an application by Operational Creditor: Application can be filed by the

Operational Creditor in the NCLT if there is a debt, in compliance with sections 8 & 9
of the Code.

Prior to filling the application before NCLT, an employee has to comply with the
procedure of sending the demand notice to the Corporate Debtor. If the Corporate
Debtor has not paid the amount of debt even after sending the demand notice,
neither intimated to the operational creditor about the existence of any regarding
the dispute pertaining to the due debts.
After the expiry of ten days, if the operational creditor does not receive his payment
or the confirmation of a dispute that existed even before the demand notice was
sent, he may file an application before the Adjudicating Authority for initiating a
corporate insolvency resolution process.
The date of filing of the application before the NCLT will be the initiation date for
initiating the Corporate Insolvency Resolution Process (Section 5(11)).
Facts of the case and analysis:

Accordingly, if there are any dues arising in the course of employment, then that will
be considered as an operational debt and the person to whom such operational debt
is owed shall be treated as the Operational Creditor. Therefore, workmen &
employees shall be treated as Operational Creditor of the Corporate Debtor.
The term “person” as defined under section 3(23) of the IBC, 2016 includes “any
other entity established under any statute”(sub clause (g)).
Hence, A trade union, when registered under the Trade Union Act, 1926 would
come within the purview of any other entity “established” under the statute.

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Conclusion:
Accordingly, in the light of the given provisions, following are the answers:
(i) It can’t be expected that the each workman shall file an application individually
and hence, application filed by trade union, Infra Labor Federation on behalf of
the workmen & employees in the said instance is valid as operational debt had
been being legally assigned to the trade union in terms of section 5(20) of the
Code and is included in the definition in section 3(23) of IBC, 2016.
(ii) Trade union, Infra Labour Federation may file an application before the
Adjudicating Authority for initiating a corporate insolvency resolution process
after expiry of 10 days from the date of serving demand notice to the M/s Infra
Ltd.
(iii) Date of filing of the application before the NCLT will be the date of initiation.

Ques 22 ICAI New Course Nov 19)

The Committee of Creditors of M/s XYZ Limited proposes to appoint Mr. Ajit, an
Insolvency Professional, as Insolvency Resolution Professional in the matter of
corporate insolvency process of M/s XYZ Limited. Mr. Ajit was a promoter of M/s ABC
Limited which is a holding company of M/s XYZ Limited. Examine and decide whether
Mr. Ajit is eligible for appointment as an Insolvency Resolution Professional under the
Provisions of Insolvency and Bankruptcy Code, 2016.

Answer:
Legal Provisions:
As per Regulation 3 of Insolvency and Bankruptcy (Insolvency Resolution process for
corporate persons) Regulation, 2016, an insolvency professional shall be eligible for
appointment as a resolution professional for a corporate insolvency resolution
process if he and all partners and directors of the insolvency professional entity of
which he is partner or director, are independent of the corporate debtor.
A person shall be considered to be independent of the corporate debtor if he is
eligible to be appointed as an Independent Director on the board of the corporate
debtor under section 149 of the Companies Act, 2013, if the corporate debtor is a
company.
Given case analysis:
In the given instance, Committee of Creditors of M/s XYZ Ltd. proposed to appoint
Mr. Ajit, as IRP in the matter of corporate insolvency resolution process of M/s XYZ
Ltd. However, Mr. Ajit was a promoter of M/s ABC Ltd. which is a holding company of
M/s XYZ Ltd. As per section 149, a person shall not be eligible to become an
independent director in a company if he is a promoter of the holding company.
Conclusion:
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Therefore, Mr. Ajit is not eligible for appointment as an insolvency resolution

professional in terms of the said legal provisions of the Code.

Ques 23 (ICAI Old Course May 18)

M/s Systemtek India Private Limited (Appellant-Corporate Debtor) has challenged
the order dated 3rd July, 2017 passed by the Adjudicating Authority (National
Company Law Tribunal) Mumbai Bench, Mumbai, in the National Company Law
Appellate Tribunal (NCLAT).
NCLT had admitted the application preferred by appellant under Section 10 of the
Insolvency and Bankruptcy Code, 2016 and an order of Moratorium was passed and
Insolvency Resolution Professional was ordered to be appointed by the Ld.
Adjudicating Authority (NCLT).

The only grievance of the appellant in its challenge is that the movable and
immovable property of Guarantor (promoter) has been attached pursuant to a
Corporate Insolvency Resolution Process initiated under section 10 against the
Appellant by the Ld. Adjudicating Authority (NCLT) which is violative of section
14(1)(c) of the Insolvency and Bankruptcy Code, 2016 though the Code prescribes a
Moratorium for certain types of transactions. Decide.

Answer:
Issue: Can Guarantor’s property be attached when moratorium period is going on?
Legal Provisions:
As per Section 14(1)(c) read with section 13, when the Adjudicating Auuthority admits
an application for corporate insolvency resolution process of a corporate debtor, it
shall, by an order, declare moratorium prohibiting any action to foreclose, recover or
enforce any security interest created by the corporate debtor in respect of it’s
property including any action under Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002.
Facts of the case:
As per the given facts in the question, Appellant, M/S Systemtek India Private
Limited, challenged the order passed by the NCLT on the ground stating that the
movable and immovable property of guarantor (Promoter) has been attached
pursuant to a Corporate Insolvency Resolution Process initiated under Section 10 of
the Code against the Appellant.
Analysis:
As per Section 14(1) of the Insolvency and Bankruptcy Code, 2016, on the Insolvency
commencement date, the NCLT shall by order declare moratorium prohibiting
certain acts by /against the Corporate Debtor. According to clause (c) of the said
provision, the order prohibits 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 Securitisation and Reconstruction of Financial Assets and
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Enforcement of Security Interest Act, 2002.

The order of moratorium shall have effect from the date of such order till the
completion of the corporate insolvency resolution process.
The word ‘its’ used in clause (c) of sub-Section (1) of Section 14 of IBC, 2016, refers to
corporate debtor and not the guarantors.
Also, sub section (3) clearly states that the moratorium provision does not apply to a
surety in a contract of guarantee to a corporate debtor.
Conclusion:
So, it is now clear that the restrictions under moratorium does not apply to the
property of any third party.
In view of this, the Order of NCLT under Section 14(1)(c) of IBC 2016 is not violative.
However, M/s Systemtek India Private Limited can challenge the Order of the NCLT
on the ground that until the liability of the Company is decisively crystallized, the
guarantor cannot be held liable.

Ques 24 (ICAI Old Course May 18)

M/s TAS Constructions Private Limited, an operational creditor on 2nd April, 2018
being the default date issued a demand notice through speed post to M/s Dheeraj
Constructions Private Limited, an unpaid operational/corporate debtor demanding
payment of its invoice dated 19th March, 2018 for `5,60,000 (15 days payment
terms) towards supply of certain works contract services as per the provisions of
section 8(1) of the Insolvency and Bankruptcy Code, 2016 and rules framed there
under. Dheeraj Constructions Private Limited on receipt of the demand notice
informed the operational creditor, that vide their e-mail dated 30th March, 2018,
addressed to the company and all its directors, they have disputed the invoice on
the quality of the services rendered and were withholding payment till the
dispute is settled but without initiating any legal proceedings under any law for the
time being in force. The operational creditor on expiry of the period of 10 days from
the date of delivery of the demand notice and non-payment of its dues approached
the Adjudicating Authority for the initiation of the corporate insolvency resolution
process under section 9(1) of the Insolvency and Bankruptcy Code, 2016. Will the
application of the operational creditor filed under section 9 (1) read with section
8(2) (a) of the Insolvency and Bankruptcy Code, 2016 be permitted? (4 Marks)

Answer:
The given problem is based on Section 9 read with Section 8 and Section 5 of the
Insolvency and Bankruptcy Code, 2016.
Legal Provisions:
According to the Section 9, after the expiry of the period of ten days from the date
of delivery of the notice or invoice demanding payment, if the operational creditor
does not receive payment from the corporate debtor or notice of the dispute, the
operational creditor may file an application before the Adjudicating Authority for
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initiating corporate insolvency resolution process.

However, as per Section 8(2)(a) of the Code, the corporate debtor shall, within a
period of ten days of the receipt of the demand notice or copy of the invoice bring
to the notice of the operational creditor about existence of dispute, if any, or
record of the pendency of the suit or arbitration proceedings filed before the
receipt of such notice or invoice in relation to such dispute.

Section 5 (6) defines ‘disputes” as disputes includes a suit or an arbitration

proceeding relating to:
(a) The existence of the amount of the debt
(b) The quality of goods or service or
(c) The breach of the representation or the warranties.

Facts of the Case:

Facts given state that Dheeraj Constructions Private Limited on receipt of the
demand notice, informed M/s TAS Constructions Private Limited (Operational
Creditor) that through email dated 30th March, 2018, addressed the company and
all its directors, of the dispute on the invoice and withholding of the payment till the
settlement of the dispute.

Analysis:

The provision of Section 8(2)(a) envisages existence of dispute, if any or record of

the pendency of the suit or arbitration proceedings filed by the Corporate Debtor
before receipt of such notice or invoice in relation to such disputes: thus, it is
evident that the corporate debtor has to satisfy any of the 2 requirements
contained in section 8(2)(a), i.e existence of disputes or record of pendency of the
suit or arbitration proceedings.
The Supreme Court has settled the position in the case of Mobilox Innovations Private
Limited Vs. Kirusa Soft Ware Private Limited and Innoventive Industries Vs ICICI Bank
by deciding that “and” used in Section 8(2)(a) has to be read as disjunctively and
“and” to be read as “or” else, the purpose of the IBC will be defeated.
Coming to the issue of what constitutes dispute, the Supreme Court in the case of
Mobilox Innovations Private Limited Vs. Kirusa Soft Ware Private Limited held that the
definition of dispute in section 5(6) is an inclusive definition, and even if no suit or
other proceedings were initiated by the corporate debtor against the operational
creditor, there was a dispute. If in fact, a dispute truly exists and is not spurious,
hypothetical or illusory, the Adjudicating Authority has to reject the application made
to it for initiating the corporate insolvency resolution process.
Hence, the requirement of Section 8, to bring to the notice of the operational
creditor about an existence of dispute only and not along with the record of the
pendency of the suit or arbitration proceedings as settled by the Supreme Court in
the cases referred above filed before the receipt of such notice or invoice in

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relation to such dispute have been complied with and record of the pendency of the
suit or arbitration proceedings filed before the receipt of such notice or invoice in
relation to such dispute, have been complied with.

Conclusion:
So, the application of M/s TAS Constructions Private Limited (Operational Creditor)
shall not be permitted under Section 9 of the Insolvency and Bankruptcy Code, 2016
as Dheeraj Construction Private Limited has complied the provisions of Section 8(2)(a)
of the IBC, 2016.

Ques 25 (ICAI Old Course November 18)

Best Bank, a financial creditor sent a demand notice for a claim of ` 10.2 crores on XYZ
Limited, a corporate debtor on 6th February, 2018. When the petition was filed
before NCLT under Insolvency and Bankruptcy Code, 2016, Best Bank claimed that the
XYZ Limited has defaulted ` 29.8 crores instead of original amount of ` 10.2 crores.
NCLT appointed an interim insolvency resolution professional. XYZ Limited made an
appeal with NCLAT demanding that the Best Bank's claim is not maintainable as there
is a difference in the amount mentioned in the demand notice and the application
filed under the Code. Decide whether the contention of XYZ Limited is correct. Also,
state who can file Corporate Insolvency Resolution Process under the Code.

Answer:
Issue: Whether an application made by financial creditor is valid if there is a difference
between the amount specified in the demand notice and amount specified in the application
made to the adjudicating authority?
Legal Provisions:
As per section 7 of the Insolvency and Bankruptcy Code, 2016, a financial creditor
either by itself or jointly with other financial creditors, may file an application for
initiating corporate insolvency resolution process against a corporate debtor before
the Adjudicating Authority when a default has occurred. The financial creditor shall,
along with the application furnish-
(a) record of the default recorded with the information utility or such other record
or evidence of default as may be specified;
(b) the name of the resolution professional proposed to act as an interim resolution
professional; and
(c) any other information as may be specified by the Board.
The Adjudicating Authority shall, within fourteen days of the receipt of the
application, ascertain the existence of a default from the records of an information
utility or on the basis of other evidence furnished by the financial creditor.
Facts of the case and Analysis:
Here, in the given instance, Best Bank (Financial creditor) filed a petition against the
XYZ Ltd. (Corporate debtor) for the default of ` 29.8 crore instead the earlier
demanded amount of ` 10.2 Crore. As per the above provision, NCLT (Adjudicating
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Authority) shall, ascertain the existence of a default from the records of an

information utility or on the basis of other evidence furnished by the financial
creditor. When NCLT is satisfied, it admits the submitted application for initiation of
corporate insolvency process.

Conclusion:
Therefore, contention of XYZ Ltd. as to filing of appeal before NCLAT demanding that
the best bank's claim is not maintainable due to difference in the claim amount, is
incorrect.
Who can file insolvency resolution process: As per section 6 of the Code, where any
corporate debtor commits a default, a financial creditor, an operational creditor or
the corporate debtor itself may initiate corporate insolvency resolution process in
respect of such corporate debtor.

If we consider the case law: Starlog Enterprises Ltd V ICICI Bank Ltd. (Bank was said to
be having a malafide intention): - The answer would change, but it’s better to follow
ICAI.

Question 26 (ICAI Old Course November 18)

Mr. SP booked office space with Elegant Construction Limited. At the time of booking
` 36 lakhs were paid. Remaining amount of ` 10 lakhs was paid at the time of taking
delivery. He entered into a Memorandum of Understanding (MoU) with the company
having various terms and conditions of the sale/allotment. According to the MoU,
Elegant Construction Limited was required to build and deliver the possession of the
unit within 2 years from the date of execution of the MoU. It also stipulated payment of
an assured return of ` 82,000 per month (subject to TDS u/s 194A of IT Act, 1961) till
possession of the unit was delivered to Mr. SP. Elegant Construction Limited failed to
pay the assured return. Thereafter, Mr. SP filed an application for initiating insolvency
resolution process. Decide about the validity of the said application in view of the
provisions of Insolvency and Bankruptcy Code, 2016 as regards the definition of a
"Financial Creditor" under Section 5 (7) read with Section 5 (8) of the Code.

Answer:
This case relates to sections 7 and 5 of the Insolvency and Bankruptcy Code, 2016.
Legal Provisions:
As per Section 5(7), Financial creditor means any person to whom a financial debt is
owed and includes a person to whom such debt has been legally assigned or
transferred to.
As Per Section 5(8), Financial Debt means a debt along with interest, if any, which is
disbursed against the consideration for the time value of money. The financial debt
besides with other debts, includes any amount raised under any other transaction,
including any forward sale or purchase agreement, having the commercial effect of a

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borrowing [Section 5(8) of the IBC].

Also, the explanation to sub clause (f) of section 5(8) states that any amount raised from
an allotee under a real estate project shall be deemed to be an amount having
commercial effect of a borrowing.
Issue: Whether Mr SP, who has paid 36 Lacs as booking amount of an office space, be
termed as a financial creditor? And can he initiate corporate insolvency resolution
process against the builder, if he fails to pay the assured return?
Given Case Analysis:
As per the given facts, Mr. SP booked office space with Elegant Construction Limited.
He entered into MoU with the condition stating to build and deliver the possession of
the unit within 2 years from the date of execution of MoU. MoU also stipulated
payment of an assured return of ` 82,000 per month till possession of the unit was
delivered. Elegant Construction Limited failed to pay the assured sum. Mr. SP filed an
application for initiating insolvency resolution process against the Elegant
Construction Limited.
Conclusion:
In the light of the stated provisions in the given circumstances, assured returns are
regular payment and qualify as financial debt. As to the promise to pay the assured
return of ` 19,68,000 (i.e. 82,000 x 24 months) by Elegant Construction Limited to Mr.
SP makes the Mr. SP (applicant) as Financial creditor. The amount involved in default
is also not less than 1 lac, hence he can file an application before the Adjudicating
Authority for initiating corporate insolvency resolution process against Elegant
Construction Limited.

Initiation of corporate insolvency resolution process by financial creditor

As per section 7 of the Code, a financial creditor by itself, may file an application for
initiating corporate insolvency resolution process against a corporate debtor before
the Adjudicating Authority when a default has occurred. A default includes a default
in respect of a financial debt owed to the applicant financial creditor of the corporate
debtor.
Hence, an application for initiating corporate insolvency resolution process against
Elegant Construction Limited is valid.

Ques 27 (ICAI Old Course May 19)

MF Capital Private Limited accepted inter-corporate deposits from JS financial
Services Private Limited. MF Capital Private Limited is a Non-banking financial
company which obtained a certificate from the Reserve Bank of India for carrying on
the business of providing financial services. As there was a default in repayment of
deposits, JS Financial Services Private Limited filed' an application with the NCLT
under Section 7 of the Insolvency and Bankruptcy Code, 2016. Examine the validity
of the Application.
Answer:

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Legal Provisions:
As per Section 2 of the Insolvency and Bankruptcy Code, 2016, the provisions of the
Code shall apply for insolvency, liquidation, voluntary liquidation or bankruptcy of
the following entities: -
(a) Any Company incorporated under the Companies Act, 2013 or under any
previous law.
(b) Any other Company governed by any Special Act for the time being in force,
except in so far as the said provision is inconsistent with the provisions of such
Special Act.
(c) Any Limited Liability Partnership under the LLP Act, 2008.
(d) Any other body incorporated under any law for the time being in force, as the
Central Government may by notification specify in this behalf.
(e) personal guarantors to corporate debtors;
(f) partnership firms and proprietorship firms; and
(g) individuals, other than persons referred to in clause (e)

Further, Preamble to the Insolvency & Bankruptcy Code, implicit that the purpose of
this Act is to consolidate and amend the laws relating to reorganization and
insolvency resolution of corporate persons, partnership firms and individuals.
Section 3(7) of Insolvency & Bankruptcy Code, 2016 states that "Corporate Person"
shall not include any financial service provider such as Banks, Financial Institutions,
Insurance Company, Asset Reconstruction Company, Mutual Funds, Collective
Investment Schemes or Pension Funds.
Also, section 7 of the code clearly talks about filing of application for initiating the
corporate insolvency resolution process against a “corporate debtor”.
Issue: Is MF Capital Private Limited a corporate debtor?
Given Case Analysis:
MF Capital Private Limited is a NBFC which has obtained a certificate from RBI for
carrying the business of providing financial services.
As per decision in the case of Jindal Saxena Financial Services Vs Mayfair Capital
(2018), NBFC which has obtained a certificate from the Reserve Bank of India will be
considered as a financial service provider.

Conclusion:

In view of above, filing of an application with NCLT under Section 7 of the IBC, 2016
by JS Financial Services Private Limited against MF Capital Private Limited is invalid, as
NBFC in the given case is not a “Corporate Debtor”.

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Extra Point to Note: V Imp: Impact of amendment vide Notification S.O. 4139(E) dated
18th November 2019

The answer above shall change now as vide the notification, the Central Government
has notified in consultation with the Reserve Bank of India the insolvency resolution
and liquidation proceedings of the Non Banking Finance Companies (which includes
housing finance companies) with assets size of Rs 500 Cr or more, as per latest audited
balance sheet, and it shall be undertaken with the provisions of the Insolvency and
Bankruptcy Code, 2016 read with the Insolvency and Bankruptcy (Insolvency and
Liquidation Proceedings of Financial Service Providers and Application to Adjudicating
Authority) Rules, 2019 and the applicable Regulations.

Ques 28 (ICAI Old Course May 19)

Mr. Atul was appointed as the Insolvency Resolution Professional for XYZ Ltd. An
application to replace the Insolvency resolution professional was filed before the
Adjudicating Authority by some Financial Creditors. The financial Creditors propose
to appoint Mr. K as the insolvency professional instead of Mr. Atul. Referring to the
relevant provisions of the Insolvency and Bankruptcy Code 2016, decide whether
Mr. Atul can be replaced and if so, state the procedure to be followed to appoint
another IRP in place of existing one.

Answer:

Legal Provisions:

Replacement of Resolution Professional (Section 27 of the Insolvency and

Bankruptcy Code, 2016)
(1) Where, at any time during the corporate insolvency resolution process, the
committee of creditors (comprising all financial creditors of the corporate
debtor) is of the opinion that a resolution professional appointed under Section
22 is required to be replaced, it may replace him with another resolution
professional.
(2) The committee of creditors [COC] may, at a meeting, by a vote of 66% of voting
shares, resolve to replace the resolution professional appointed under Section
22 with another resolution professional, subject to a written consent from the
proposed resolution professional in the specified form.
(3) The committee of creditors shall forward the name of the insolvency
professional proposed by them to the Adjudicating Authority.
(4) The Adjudicating Authority shall forward the name of the proposed resolution
professional to the Board for its confirmation and a resolution professional shall
be appointed in the same manner as laid down in section 16.
(5) Where any disciplinary proceedings are pending against the proposed
resolution professional, the resolution professional appointed under Section 22
shall continue till the appointment of another resolution professional under
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this Section.
Given Case and Conclusion:
Hence, in the instant case, Mr. Atul can be replaced by the COC comprising of
financial creditors of corporate debtors, by following the above procedure.

Ques 29 (ICAI Old Course Nov 19)

Rose Garden Limited filed its financial statements for the year ending 31st March,
2019 with Registrar of Companies, Chennai which disclosed that the liabilities
amounted to 3.87 crores as against the assets of ` 1.37 crores. On the basis of the
scrutiny of the financial statements, the Registrar filed an application for Corporate
Insolvency Resolution Process under Insolvency & Bankruptcy Code, 2016 against
the company that the company is unable to pay its debts on the ground that the
value of liabilities far exceeded the value of assets. Examine whether the company
has any case to defend against the application filed by the Registrar.
Answer:

This case relates to the sections 3, 5 and 6 of the Insolvency and Bankruptcy Code,
2016.

Legal Provisions:

As per the Insolvency and Bankruptcy Code, 2016, the process of insolvency is
triggered by occurrence of default.
As per section 3(12), Default occurs when a whole or any part 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.
As per section 4, The provisions relating to the insolvency and liquidation of
corporate debtors shall be applicable only when default of amount is one lakh
rupees or more.
Filing of application before NCLT: Further, as per section 6, the corporate insolvency
resolution process may be initiated against any defaulting corporate debtor by
making an application for corporate insolvency resolution, by: -
(a) Financial creditor (Section 7)
(b) Operational creditor (Section 9)
(c) Corporate debtor (Section 10)
Facts of the Case:
As per the given facts, Registrar of Company, on the basis of the filed financial
statements by the Rose Garden Ltd. came to know of the liabilities of the Company
amounted to ` 3.87 crore as against the amount of assets of ` 1.37 crore. On further
scrutiny of the Financial statements, the Registrar filed an application for initiation
of Corporate Insolvency Resolution Process (CIRP) against Rose Garden Limited
stating the Company is unable to pay its debts on the ground that the value of
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liabilities far exceeded the value of assets.

Analysis:
Accordingly, in the given situation, there seems to be no occurrence of default
against any creditor. It is just that Registrar on the scrutiny of the financial
statement of Rose Garden Ltd. was disclosed of the facts of the liabilities of the
company exceeding of the value of the assets.

Conclusion:
So, Registrar of Company is not eligible for filing of application of initiation of
corporate insolvency resolution process in the given instance as he is neither a
financial nor an operational creditor when the company is regular in filing documents.
Therefore, Rose Garden Ltd. on the basis of said grounds can defend the application
filed by the Registrar and get the application rejected.

Some more issues:

 If a foreign trade creditor files an application under IBC, 2016, how will he
provide the required ‘certificate from the financial institutions maintaining the
accounts of the operational creditor confirming no payment of unpaid
operational debt? (Nov 17)
o ANS: It is to be submitted only “if available” (however ICAI had not
amended the solution)

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