1. Bankruptcy is a determination of insolvency made by a court of law with resulting legal orders intended to resolve the insolvency.

Insolvency
describes a situation where the debtor is unable to meet his/her obligations. Bankruptcy is a legal scheme in which an insolvent debtor seeks
relief. In case of insolvency, one cannot pay off the debts, whereas in the case of bankruptcy, a court order states as how an insolvent person or
business has to pay off their debts – by way of selling their assets or erasing the debt that cannot be paid.

2. European insolvency framework, started in the 15th century, was the preliminary base for countries that had developed insolvency framework
in the subsequent centuries.

3. The earliest insolvency legislation can be traced to sections 23 and 24 of the Government of India Act, 1800 (39 and 40 Geo III c 79), which
conferred insolvency jurisdiction on the Supreme Court.

4. The Presidency Towns Insolvency Act, 1909 and Provisional Insolvency Act, 1920 are two major enactments that deal with personal insolvency
and have parallel provisions and their substantial content is also similar but the two differ in respect of their territorial jurisdiction. These two
Acts are applicable to individuals as well as to sole proprietorships and partnership firms.

Reforms in Insolvency Law for Corporates

Industrial sickness in India started form the pre-indipendence period itself and GOI took some ad-hoc ineffective
measures. Measures like nationalising the banks helped but did not solve the problem. Later the following
important developments took place.

Tiwari Committee(1981) - Appointed to suggest a comprehensive special legislation designed to deal with the problem of
sickness laying down its basic objectives and parameters, remedies necessary for revival of sick Units. The committee
recommended for the enactment of a special legislation and for setting up a separate regulatory body. SICA and BIFR were born.

Eradi Committee – The Beginning (1999) – GOI set up a high level committee headed by Justice VB Eradi to make
recommendations with regard to the desirability of changes in existing law relating to winding up of companies so as to achieve
more transparency and avoid delays in the final liquidation.
Committee addressed the following Key Points
*The Committee recognized after considering international practices that the law of insolvency should
not only provide for quick disposal of assets but in Indian economic scene, it should first look at the
possibilities of rehabilitation and revival of companies.
*In order to overcome the said issues and to avoid mulplicity of fora, the Committee recommend
the need for establishing National Company Law Tribunal as a specialized agency to deal with
matters of rehabilitation, revival and winding up of companies.

Bankruptcy Law Reforms Committee (2014) - The Hon’ble Finance Minster in his Budget Speech of 2014-15 announced that an
entrepreneur friendly legal bankruptcy framework would be developed for SMEs to enable easy exit. Pursuant to the above
announcement, (BLRC) was set up under Shri TK Viswanathan, former Secretary General, Lok Sabha and former Union Law
Secretary, on 22.8.2014 to study the corporate bankruptcy legal framework in India and submit a report.
The Major recommendations of this committee were –
1. The objectives of the Committee were to resolve insolvency with: lesser time involved, lesser loss in recovery, and
higher levels of debt financing across instruments
2. The Committee had recommended a consolidation of the existing legal framework, by repealing two laws and amending
six others.
3. The Committee had proposed to establish a creditors committee, where the financial creditors will have votes in
proportion to their magnitude of debt.
4. he report outlined the procedure for insolvency resolution for companies and individuals. The process may be initiated by
either the debtor or the creditors.
5. Both financial and operational crs could initiate.
6. The entire IRP to be managed by a licenced professional.
7. The Committee had proposed to set up Insolvency Professional Agencies.
8. Time limits of 180 days + 90 days were recommended.
9. The Committee had proposed to establish information utilities which would maintain a range of information about firms,
and thus avoid delays in the IRP, typically caused by a lack ofdata.
10. Recommended to est IBBI as a regulator.
11. Proposed 2 tribunals – NCLT/DRT

Note :- The objectives of the Committee were to resolve insolvency with: lesser time involved, lesser loss in recovery, and higher
levels of debt financing across instruments.
Preamble of IBC - To consolidate and amend the laws relating to reorganisation and insolvency resolution of
corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of
such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders
including alteration in the order of priority of payment of Government dues and to establish an Insolvency and
Bankruptcy Board of India, and for matters connected therewith or incidental thereto.
Impact of the Code on other Legislations – Seeks to repeal the Presidency Towns Insolvency Act, 1909 and Provincial
Insolvency Act, 1920 and further make amendments to the following legislations.
Central Excise Act ,1944, Income Tax Act, 1961, Customs Act, 1962, Finance Act, 1994, Recovery of Debts Due to Banks and
Financial Institutions Act, 1993, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002, Sick Industrial Companies (Special Provisions) Repeal Act, 2003, Indian Partnership Act, 1932, Limited Liability
Partnership Act, 2008, Companies Act, 2013.

The Regulatory Mechanism

Regulatory Framework in UK – Cork report was adopted in 1982 and the Insolvency Act, 1986 (UK) was enacted and this
encompasses both types of insolvency administrations,including corporate restructuring. The Insolvency Act, 1986 deals with the
insolvency of individuals and companies. The Act is divided into threegroups and 14 Schedules as follows:
Group 1 deals with Company Insolvency
Group 2 deals with Insolvency of Individuals and
Group 3 deals with Miscellaneous Matters bearing on both Company & Individual Insolvency
Basically, a company in financial difficulties may be made subject to any of five statutory procedures
1. administration; 2. company voluntary arrangement; 3. scheme of arrangement; 4. receivership (including administrative
receivership); and 5. liquidation (winding-up).
The Insolvency Act, 1986 also introduced three new procedures that held out the possibility of a company being brought
back to life as a viable entity.
1. company voluntary arrangements’ (CVAs)
2. ‘administration’ – offers companies a breathing space during which creditors arerestrained from taking action
against them. An Administrator is appointed.
3. administrative receivership’ – permits the appointment of a receiver by certain creditors (normally the holders of a
floating charge) with the objective of ensuring repayment of secured debts.
The enterprise act 2002 also introduced ‘hierarchy of purposes’ for administration process. Primary duty of the
administrator Is to rescue the entreprise only if that fails the other remedies could be looked into.

US Bankruptcy laws

- model for bankruptcy laws in the English colonies in America and in the American states after independence from
England in 1776.
- Early American bankruptcy laws were only available to merchants and generally involved imprisonment until debts were
paid or until property was liquidated or creditors agreed to the release of the debtor. The process was not uniform through
out the country and few US states were called Debtor heavens cuz of their unwillingness to enforce debts.
- The United States Constitution as adopted in 1789 provides in Article I, Section 8, Clause 4 that the states granted to
Congress the power to establish uniform laws on the subject of bankruptcies throughout the United States.
- The Congress enacted temporary bankruptcy statutes in 1800, 1841 and 1867 to deal with economic downturns.
However, those laws were temporary measures and were repealed as soon as economic conditions stabilized.
 - The Bankruptcy Act of 1898, together with its amendments, was known as the Bankruptcy Act. Under the Bankruptcy
Act, the district court had jurisdiction over bankruptcy cases, but could appoint a referee in bankruptcy to oversee the
administration of bankruptcy cases, the allowance of claims and the distribution of payments to creditors. The
Bankruptcy Act governed bankruptcy in the United States for 80 years.
- The US Congress enacted the “Bankruptcy Code” in 1978. It is the uniform federal law
that governs all bankruptcy cases. which is codified as title 11 of the United States Code.

Six basic types of bankruptcy cases are provided for under the Bankruptcy Code.
Chapter 7 bankruptcy leading to liquidation. In this type of bankruptcy, a court-appointed trustee or administrator takes
possession of any nonexempt assets, liquidates these assets
Chapter 9, entitled Adjustment of Debts of a Municipality, provides essentially for reorganization
Chapter 11 entitled Reorganization, ordinarily is used by commercial enterprises that desire to continue operating a
business and repay creditors concurrently through a court-approved plan of reorganization.
Chapter 12 allows a family farmer or fisherman to continue to operate the business while the plan is being carried out.
Chapter 13 enables individuals with regular income to develop a plan to repay all or part of their debts.
Chapter 15 is to provide effective mechanisms for dealing with insolvency cases involving debtors, assets, claimants,
and other parties of interest involving more than one country.

IMPORTANT NOTE:- Read The Section w.r.t the comparision of moratorium period between UK, US and
Indian insolvency laws.

Chapter – 2 Introduction to Insolvency and Bankruptcy Code

The term “insolvency” denotes the state of one whose assets are insufficient to pay his debts; or his general inability to pay his debts. The term
“insolvency” is used in a restricted sense to express the inability of a party to pay his debts as they become due in the ordinary course of business.
WEREAS
The word “bankruptcy” denotes a legal status of a person or an entity who cannot repay debts to creditors. The bankruptcy process begins with
filing of a petition in a court or before an appropriate authority designated for this purpose. The debtor’s assets are then evaluated and used to pay
the creditors in accordance with law. It is a formal declaration of insolvency in accordance with law of the land.

Sec 79(4) of the Insolvency and Bankruptcy Code, 2016 defines the term “bankruptcy” as the state of being bankrupt.
According to Sec 79(3) of the Code, “bankrupt” means –
(a) a debtor who has been adjudged as bankrupt by a bankruptcy order under section 126;
(b) each of the partners of a firm, where a bankruptcy order under section 126 has been made against a firm; or
(c) any person adjudged as an undischarged insolvent.

Historical Background

Tiwari Committee (1981):- Following the recommendations of the Tiwari Committee, GOI enacted the SICA - 85 in order to
provide for timely detection of sickness in industrial companies and
for expeditious determination of preventive and remedial measures. The major constraint of SICA was that it was applicable only
to sick industrial companies keeping away other companies which were in trading, service or other activities.

Narasimham Committee I (1991):- The government enacted Recovery of Debts Due to Banks and Financial Institutions
(RDDBFI) Act, 1993
Narasimham Committee II (1998):- led to the enactment of the SARFAESI ACT, 2002.

Bankruptcy Law Reforms Committee:- The Committee has presented its report in two parts: Vol 1, with its rationale and design
for legislation, and Vol 2, with the Draft Insolvency and Bankruptcy Bill.
The report proposed repealing of 2 legislations and amending 6 ors.
The Committee observed that currently creditors have limited power, in case the debtor defaults in making the payment. They are
able to recover only 20% of the debt amount on an average, which ultimately leads to lending being restricted to a few large
companies. The Committee also observed that decisions regarding the defaulting firm are business decisions, and should be taken
by the creditors. Thus, the Committee paved the way for a ‘creditor-in-control’ regime.

Need for a New Law

1. insolvency and bankruptcy was covered in various legislations which led to the creation of multiple regulators and
fourms with overlapping powers. i.e., companies = RDDBFI, SARFESI, CA13, SICA – NCLT, BIFR, High Court etc.
 2. The framework for insolvency and bankruptcy was inadequate, ineffective and resulted in undue delays in resolution.
The legal and institutional framework did not aid lenders in effective and timely recovery or restructuring of defaulted
assets and causes undue strain on the Indian credit system.
Section 2 of the Insolvency and Bankruptcy Code, 2016 as amended vide the Insolvency and Bankruptcy Code (Amendment) Act,
2018 provides that the provisions of the Code shall apply to –

(a) any company incorporated under the CA 13 or under any previous company law,
(b) any other company governed by any special Act for the time being in force,
(c) any LLP incorporated under the Limited Liability Partnership Act, 2008,
(d) such 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) in relation to their insolvency, liquidation, voluntary liquidation or
bankruptcy, as the case may be.
Note:- Financial service providers are not included in the ambit of the Insolvency and Bankruptcy Code, 2016
Note:- To ensure that the insolvency resolution is commercially viable, the Code separates the commercial aspects from the
judicial aspects and thus limits the role of adjudicating authorities to ensuring due process rather than adjudicating on the
merits of the insolvency resolution.
Note:- T initiate an insolvency process for corporate debtors, the default should be at least INR 1cr.

Section 11 of the Code disentitles the following persons to make an application to initiate corporate
insolvency resolution process:
(a) a corporate debtor undergoing a corporate insolvency resolution process; or
(b) a corporate debtor having completed CIRP 12 months preceding the date of making of the application; or
(c) 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 under this Chapter; or
(d) a corporate debtor in respect of whom a liquidation order has been made
However, It may be noted that a corporate debtor falling under the above clauses can initiate corporate insolvency resolution
process against another corporate debtor.

Code provides for the creation of Insolvency and Bankruptcy Fund. Section 224 of the Code
provides that the following amounts shall be credited to the fund
(a) the grants made by the Central Government for the purposes of the Fund;
(b) the amount deposited by persons as contribution to the Fund;
(c) the amount received in the Fund from any other source; and
(d) he interest or other income received out of the investment made from the Fund.
Section 224(3) further provides that a person who has contributed any amount to the Fund may, in
the event of proceedings initiated in respect of such person under the Code before an Adjudicating
Authority, make an application to such Adjudicating Authority for withdrawal of funds not exceeding
the amount contributed by it, for making payments to workmen, protecting the assets of such
persons, meeting the incidental costs during the proceedings or such other purposes as may be
prescribed.
 Chapter 3 - Corporate Insolvency Resolution Process

In CIRP, the financial creditors assess the viability of debtor’s business and the options for its revival and rehabilitation. If the CIRP fails or the
financial creditors decide that the business of the debtor cannot be carried on in a profitable manner and it should be wound up, the debtor’s business
undergoes the liquidation process.
In the liquidation process, the assets of the debtor are realised and distributed by the liquidator in accordance with the provisions of the Insolvency
and Bankruptcy Code, 2016.

As per Sec 6 of the Coad where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor
itself may initiate CIRP in respect of such corporate debtor in the manner as provided under Chapter II of Part II of the Code.

FINANCIAL DEBT

According to section 5(8) of the Code, a “financial debt” means a debt along with interest, if any, which is disbursed against the consideration for
the time value of money. According to section 5(8), a financial debt includes –
(a) money borrowed against the payment of interest;
(b) any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent;
(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian
Accounting Standards or such other accounting standards as may be prescribed;
(e) receivables sold or discounted other than any receivables sold on non-recourse basis;
(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a
borrowing;
(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating
the value of any derivative transaction, only the market value of such transaction shall be taken into account;
(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a
bank or financial institution;
(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clause (a) to (h) of this clause.

“operational debt” as defined in 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.

Note: The Code adopts a default based test for initiating the corporate insolvency resolution process.

INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS BY FINANCIAL CREDITOR

Sec 7 prescribes the MO for initiation of CIRP by a financial creditor or two or more financial creditors jointly, or any other person
on behalf of the financial creditor, as may be notified by CG in Form 1

Provided :- a. the financial crs mentioned in clause (a) & (b) of subsection 6A shall be filled jointly by not less than 100 such crs
in the same class or not less than 10% of such crs in the same class, WIL.
THE SAME POINT ABOVE applies to allotees under a real estate project.

Explanation.– For the purposes of this sub-section, a 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
- the financial cr shall make application in such form with such fees.
- He shall furnish the record of his debt in IU or such other record or evidence.
- The name of the IP to act as an IRP
- Any other info as may be prescribed by the Board
The AA shall within 14 days of receiving the application ascertain the existence of a default in the records of IU or on the
basis of other evidence furnished. Provided that if the Adjudicating Authority has not ascertained the existence of default and
passed an order under sub-section (5) within such time, it shall record its reasons in writing for the same.
If there is a record and there are no disciplinary proceedings pending against the proposed RP it may admit such application.
The NCLT is not required to look into any other criteria for admission of the application.
Or reject it – before rejecting it a 7 days time shall be given to the applicant to remove any defects.
 - CIRP shall commence from the date of admission of the application by AA.
- AA shall communicate to financial cr and the corp Debtor if accepted or to the financial cr if the application is rejected
within 7 days of such acceptance or rejection as the case be.

Pioneer Urban Land and Infrastructure Limited vs. Union of India’ - SC upheld the constitutional validity of the explanation to sec
5(7) which held the real estate allotees to be held as financial crs.
Manish Kumar & Ors. Vs. Union of India & Anr – w.r.t min no of real estate allottee required to initiate CIRP – SC passed an
interim order to maintain the status quo of the pending applications till the matter is decided by it.
Surendra Trading Company v. Juggilal Kamlapat Jute Mills Company Limited and Ors – SC held that time period of 14 days is
directory and not mandatory.

INSOLVENCY RESOLUTION BY OPERATIONAL CREDITOR

Sec 8 of the code

Operational cr on occurrence of a default, deliver a demand notice or an invoice for the unpaid debt.
The Corp within 10 days of receipt of the same has to either –
a) Bring to notice of the op cr of existence of a dispute on record of any suit or arbitration before the receipt of such notice/invoice. OR
b) By sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or by
sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.
Sec 9 of the Coad
If after 10 days there is no communication by the co the op cr may file an application in Form 5 to AA
With the application he shall furnish the following information.
- A copy of the notice/invoice sent to the company
- Affidavit saying that the co has not given any reasonable reply
- Record of his debt with an IU, if available
- A certificate form his financial institution stating that the amount is not credited into his a/c.
- Any other proof conforming the non payment of the unpaid op debt.
- the operational cr may give a name of a IRP with the application.

AA shall within 14 days of receiving the application shall satisfy itself with the above mentioned conditions and either accept
it or reject it. If rejected it shall give 7 days time to rectify the defects before doing so.
If AA accepts the application it shall send a notice to the op cr and the corp debtor and if it rejects to the op cr within 7 days

INITIATION OF CIRP BY CORPORATE APPLICANT

Sec 10 of the code-
Where a corp applicant has committed a default he may file an application in form 6 to AA

The form shall be in such form, containing such info accompanied with such fees
Along with it he shall also furnish the following details-
a) the information relating to its books of account and such other documents for such period as may be specified;
b) info relating to rp as irp
c) a SR or a resolution passed by atleast 3/4th of the total no of partners of the corp debtor.
AA on receiving the application – Mutatis-mutandis

According to section 5(5) of the Code, a “corporate applicant” means

(a) corporate debtor; or
(b) a member or partner of the corporate debtor who is authorised to make an application for the CIRP under the
constitutional document of the corporate debtor; or
(c) an individual who is in charge of managing the operations and resources of the corporate debtor; or
(d) person who has the control, and supervision over the financial affairs of the corporate debtor.
Note:- The corporate applicant can only initiate the corporate insolvency resolution process upon the occurrence of a default and
not on mere likelihood of inability to pay debts.

SUSPENSION OF INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS

Section 10A - “Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency
resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six
months or such further period, not exceeding one year from such date, as may be notified in this behalf:
Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for
the said default occurring during the said period.

Sec 11 - Persons not entitled to make application (POST)

Sec 12- Time-limit for Completion of Insolvency Resolution Process

Shall be completed within a period of 180 days form the date of admission. Can further ge given a ONE TIME
extention of upto 90 days with the approval of 66% of the committee of crs and an application made to the AA
seeking for the same.
PROVIDED FURTHER THAT the CIRP shall mandatorily be completed within a period of 330 days from the insolvency
commencement date, including any extension of the period of CIRP granted under this section and the time taken in legal
proceedings in relation to such resolution process of the corporate debtor.

Sec 12A - Withdrawal of Application Admitted under Section 7, 9 or 10

AA may allow on an application made with the permission of atleast 90% of the voting share of the COC.

Sec – 13- Declaration of Moratorium and Public Announcement

NCLT as soon as it has admitted the application it has to

a) declare a moratorium for the purposes referred to in section 14
b) cause a PA of the initiation of CIRP & call for the submission of claims under sec 15,
c) appoint an interim resolution professional in the manner as laid down in section 16.
Note: the PA must be immediately after the appointment of the IRP and according to the
IBBI(IRPFCP) rules 2016 – immediately = within 3 days of his appointment.

SEC – 14 – EFFECT OF THE MORATORIUM DECLARED U/S 13

1) prohibiting all or any of the following,

a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor
including execution of any judgement, 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 i.r.f
property including any action under the SARFESI
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.
licence, permit, registration, quota, concession, clearance or a similar grant or right given by the CG, SG, LA, sectoral
regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or
terminated on the grounds of insolvency, provided there is no default of CURRENT DUES.

2) The supply of essential goods and services shall not be halted.

2A If IRP or RP considers any supply of goods or service to be essential it shall it shall not be terminated
provided there is no default in the current dues.
3) The (1) shall not apply to
a) Such txns and ageements as may be specified by CG ft financial sector regulator or any other authority.
b) a surety in a contract of guarantee to a corporate debtor.
4) The order of moratorium shall have effect from the date of such order till the completion ofcirp
Provided any time during the CIRP if the AA approves the resolution plan or passes a liquidation order It shall come to an end.

The order of moratorium shall have effect from the date of such order till the completion
 Ensures that multiple proceedings are not taking place simultaneously and thus avoids the possibility of potentially
conflicting outcomes of related proceedings.
 Keeps the corporate debtor’s assets together during the insolvency resolution process and facilitates orderly completion
of the process,
 Ensures that the company may continue as a going concern while the creditors assess the options for resolution of
default.
 Prohibition on disposal of the corporate debtor’s assets ensures that the corporate debtor/
 management does not transfer its assets, thereby stripping the corporate debtor of value during the corporate insolvency
resolution process.
SEC – 15 – Contents of the PA
1) Name and address of the corporate debtor under the CIRP. So that there is no delay and the corp debtor is managed by
the IRP from day 1.
2) Name of the authority with which the corporate debtor is incorporated or registered,
3) Last date for submission of claims
4) Details of IRP who shall be vested with the management & responsible for receiving claims.
5) penalties for false or misleading claims
6) date on which the corporate insolvency resolution process shall close

sec – 16 - Appointment and Tenure of Interim Resolution Professional

AA shall appoint an IRP on the insolvency commencement date.
Where the name of the irp is given with the application it shall appoint him if there are no dicipliary…
In case of operation cr – if the name of the IRP is given with the application – mutandis mutandis
If not – AA shall shall make a reference to the board and the board shall reply back within 10 days of such receipt with its
recommendation – a IRP who has no pending diciplinary proceedings.
The term of the IPR shall be till an RP is appointed u/s 22 of the coad.

Sec 17(1) Management of Affairs of Corporate Debtor by Interim Resolution Professional

a) the management of the affairs of the corporate debtor shall vest in the IRP.
b) the powers of the BOD or the partners of the corporate debtor shall stand suspended and be exercised by the IRP.
c) the officers and managers of the corporate debtor shall report to the IRP provide access to such documents and records of
the corporate debtor as may be required by the IRP.
d) the FI maintaining a/c’s of the corporate debtor shall act on the instructions of IRP and furnish all info as required by the
IRP.
M/s. Subasri Realty Private Limited v. Mr. N. Subramanian & Anr., the NCLAT directed that after the appointment of the RP
and declaration of moratorium, the Board of Directors stands suspended, but that does not amount to a suspension of Managing
Director, or any of the directors or officers or employees ofthe Corporate Debtor (‘CD’). To ensure that the CD remains a going
concern, all the directors/employees are required to function and to assist the RP who manages the affairs of the CD during the
moratorium. If one or other officer or employee had the power to sign a cheque on behalf of the CD prior to the order of
moratorium, such power does not stand suspended on suspension of Board of Directors nor can it be taken away by the RP. If the
person empowered to sign cheque refuses to function on the direction of the RP or misuse the power, it is always open to the RP
to take away such power, after issuing notice to the person concerned.

Sec 17(2) – code further provides that IRP vested with the management of the corporate debtor, shall
a) act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other documents, if any,
b) take such actions, in the manner and subject to such restrictions, as may be specified by the Board
c) have the authority to access the electronic records of corporate debtor from IU having financial information of the
corporate debtor,
d) have the authority to access the books of accounts, records and other relevant documents of corporate debtor available
with government authorities, statutory auditors, accountants and such other persons as may be specified and
e) be responsible for complying with the requirements under any law for the time being in force on behalf of the corporate
debtor.
Sec 17 has been inserted keeping in mind the experience of a debtor-in-possession regime under SICA which was known to be
one of the fetal flaws of the regime.

Lesson 10 - Debt Recovery & Securitization

Securitisation is the process of pooling and repackaging of homogenous illiquid financial assets into
marketable securities that can be sold to investors. Basically Securitisation is a method of raising funds by
way of selling receivables for money. The process leads to the creation of financial instruments that
represent ownership interest in, or are secured by a segregated income producing asset or pool of assets.
The pool of assets collateralises securities. These assets are generally secured by personal or real property
but in some cases are unsecured.

Prior to the enactment of SARFAESI, the banks had to take recourse to the long legal route against the
defaulting borrowers beginning from filling of claims in the courts. A lot of time was usually spent in
getting decrees and execution thereof before the banks could make some recoveries. In the meantime, the
promoters could seek the protection of BIFR and could also dilute the securities available to banks. The
(DRT s) set up by the Government. also did not prove to be of much help as these get gradually
overburdened by the huge volume of cases referred to them. All along, the banks were feeling greatly
handicapped in the absence of any powers for seizure of assets charged to them.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance,
2002 was promulgated on the 21st June, 2002 to regulate securitisation and reconstruction of financial
assets and enforcement of security interest and for matters connected therewith or incidental thereto. The
provisions of the Ordinance enabled banks and financial institutions to manage problems of liquidity,
asset liability mismatches and improvement in recovery by exercising powers to take possession of
securities, sell them and reduce nonperforming assets by adopting measures for recovery or
reconstruction. The main purpose of the SARFAESI Act is to enable and empower the secured creditors to
take possession of their securities and to deal with them without the intervention of the court and also
alternatively to authorise any securitisation or reconstruction company to acquire financial assets of any
bank or financial institution.

Constitutional Validity of SARFESI – Mardia chemicals v. ICICI Bank – refer pg 212 – ICSIMAT – J21

ARC - means a company registered with RBI u/s 3 of SARFAESI Act for the purposes of carrying on the business of asset
reconstruction or securitisation, or both.
OBJECTIVE - The main objective of ARC is to act as agent for any bank or FI for the purpose of recovering their dues
from the borrowers on payment of fees or charges, to act as manager of the borrowers’ asset taken over by banks, or
financial institution, to act as the receiver of properties of any bank or financial institution and to carry on such ancillary
or incidental business with the prior approval of RBI wherever necessary. If an ARC carries on any business other than
the business of asset reconstruction or securitisation or the business mentioned above, it shall cease to carry on any such
business within one year of doing such other business.

Section 3 of SARFAESI Act deals with the Registration of Asset Reconstruction Companies (PG 218)
-no co without registration point - P(different class) P2(already carrying on)
-shall be in such form and in such manner
- RBI – Books and Records satisfies - no loss 3PY – adequate arrangement for realisation – dir professional experience –
dir not convicts – sponsors fit and proper – compliant of is ready to comply prudential norms –
- award registration – reject (OBH)
- major change (w. explaination)