The law requires everyone to pay their debts in time. But what if a person lacks any source of income and has comparatively big debts to pay? Does law become a savior in such a scenario? India has quite a few such examples of big names of business tycoons who led a kingly life while in India and had to flee overnight to other countries after being a financial defaulter. Not everyone can evade the situation by flying to another nation and that is how the nation brought a new law that could safeguard financial interests of individuals and corporations while supporting business in India.
The Insolvency and Bankruptcy Code came into existence in 2016 being a merger of several relative Acts. The same has been amended as well since its enforcement. Chapter 2 of Part 1 of the Bankruptcy and Insolvency Code, 2016 deals with the corporate insolvency resolution. However, Chapter 3 of Part 3 of the same IBC Code 2016 deals with insolvency resolution processes for individuals and partnership firms. For genuine debtors suffering due to financial losses beyond control, punishment for non-payment of personal loan can be evaded through insolvency resolution. Know more about the legal battle that starts with insolvency petition procedure in India.
The insolvency proceedings in India can be initiated by the following:
Although a government employee is not shielded from insolvency petition procedure in India. However, such an employee is liable to be dismissed from services once declared insolvent.
The Insolvency and Bankruptcy Code, 2016 provides in detail the procedure to be followed in case of insolvency. Separate process has been explained for insolvency petition by debtor and creditors, and also for individuals, partnership firms and creditors respectively.
1. Application to Initiate Insolvency Process
The creditor, joint creditors or the insolvency petition by debtor himself may be initiated. An application has to be filed with the adjudicating authority in this regard. The insolvency petition in India has to be accompanied with the following documents:
Debtors may consult with corporate lawyers in Kolkata in case jurisdiction for filing insolvency petition is Kolkata.
The after effect of the insolvency application is that any kind of legal proceeding can not be invoked for any debt involved. It is a kind of stay on legal action until the current process is over.
3. Appointment of Resolution Professional
Insolvency petition procedure in India is usually initiated by a resolution professional whose disciplinary records are checked by the Insolvency and Bankruptcy Board of India within 7 days. The same is again confirmed by the board within 7 days. In case the insolvency petition by debtor or creditor is filed personally, the board nominates a resolution professional itself. Appointment is officially done by the adjudicating authority.
4. Submission of Report
The resolution professional is required to examine the application and submit a report within 10 days of his/ her appointment. The professional may also seek additional evidence or information if necessary which has to be furnished within 7 days. A report regarding acceptance or reflection of insolvency application has to be prepared by the resolution professional elaborating the reasons. In case the debtor is eligible for fresh start, conversion to fresh start application under Section 81 of IBC Code 2016 is done by the resolution professional.
5. Admission or Rejection of Application
In accordance with the report submitted by the resolution professional, the adjudicating authority passes an order within 14 days for admission or rejection of the insolvency petition. In case the application is accepted, instructions for negotiation among creditors and debtors are issued in order to deduce a repayment plan.
6. Commencement of Moratorium
After acceptance of the insolvency application, there will be a stay on any further legal proceedings by creditors against any of the debts involved. The debtor shall be restricted from alienating or disposing of any property
7. Public Notice Seeking Creditor Claims
The adjudicating authority shall issue a public notice inviting claims from creditors within 21 days. Such notice includes the following information:
- Order containing acceptance of insolvency application
- Details of the resolution professional who registers the claims
- This notice has to be published in an English and one local language newspaper.
- The notice is affixed at the adjudicating authority’s office and website.
8. Creditor Claim Registration
The creditors are required to register their claims with the resolution professional through convenient means containing their personal information and other particulars.
9. Preparation of Creditor List
The resolution professional has to prepare a list of creditors within 30 days. The same has to be prepared based on the information provided in the insolvency application and the creditor registrations received.
10. Devise Repayment Plan
The debtor accompanied with the resolution professional shall devise a repayment plan restructuring the debtor’s debts and affairs. Justification for preparing a particular plan also needs to be made with the repayment plan. The resolution professional has to prepare a report regarding repayment plan and hand over the same to adjudicating authority within 21 days.
11. Meeting of Creditors
Once the repayment plan is approved, creditors will be notified 14 days before the conduct of a meeting for discussion over such a plan. During this meeting, creditors have a certain voting share as approved by the resolution professional and may approve, modify or reject the repayment plan. For any modifications suggested, debtor’s consent is necessary. The decisions made during creditor meeting have to be notified to the debtor, creditors and the adjudicating authority.
12. Order of Adjudicating Authority
The adjudicating authority approves or rejects the repayment plan finalized during the creditor meeting. Modifications may be suggested or directions for implementation of repayment plan may be issued by the adjudicating authority. In case the repayment plan is rejected by the authority, debtor or creditor may file a bankruptcy petition.
13. Implementation and Supervision of Repayment Plan
It is the duty of resolution professionals to oversee the implementation of repayment plans. If required, resolution professionals may also seek directions from the adjudicating authority for matters arising in between while implementing the repayment plan. After completing implementation, resolution professionals shall notify the people involved and the adjudicating authority through a final report containing all receipts.
14. Discharge Order by Adjudicating Authority
After everything is done with, the resolution professional may seek a discharge order from the adjudication authority in relation with all the debts involved in the matter.
In case of companies/ corporate identities in India, insolvency petition procedure takes place as follows:
A corporate creditor or someone who owes money to an individual or a partnership firm creditor enjoys the following rights during insolvency resolution:
Given below are the scenarios when insolvency resolution proceedings may interchange to bankruptcy:
 Section 32 of Insolvency and Bankruptcy Code, 2016.