Introduction
The Corporate Insolvency Resolution Process (CIRP) in India is a mechanism under the Insolvency and Bankruptcy Code, 2016 (IBC), designed to resolve the insolvency of corporate debtors in a time-bound manner. The process involves either the revival or liquidation of the debtor company. Liquidation is considered when a viable resolution plan cannot be formulated or approved. Litigation often arises during CIRP, necessitating legal intervention to address disputes and ensure compliance with the law.
Overview of CIRP
CIRP aims to provide a resolution for financially distressed companies. The process includes:
- Initiation: CIRP can be initiated by financial creditors, operational creditors, or the corporate debtor itself by filing an application with the National Company Law Tribunal (NCLT).
- Moratorium: Upon admission of the application, a moratorium is imposed, halting all legal proceedings and enforcement actions against the corporate debtor.
- Interim Resolution Professional (IRP): An IRP is appointed to take control of the debtor’s assets and operations.
- Committee of Creditors (CoC): The CoC, comprising financial creditors, is formed to evaluate and approve resolution plans.
- Resolution Plan: If a viable resolution plan is approved by the CoC and the NCLT, the company is restructured and continues operations. If not, liquidation is initiated.
Liquidation under CIRP
Liquidation is the process of winding up the company’s operations and selling its assets to repay creditors. It occurs when:
– No resolution plan is approved within the prescribed period.
– The CoC decides to liquidate the company.
– The NCLT orders liquidation due to non-compliance with the resolution plan.
Litigation in CIRP
Litigation is common during CIRP due to disputes among stakeholders, procedural challenges, and compliance issues. Key areas of litigation include:
- Admission of Insolvency Applications: Creditors may contest the validity of insolvency applications.
- Claims and Creditors’ Rights: Disputes over the acceptance and priority of claims submitted by various creditors.
- Resolution Plan Approval: Challenges to the approval or rejection of resolution plans by the CoC or NCLT.
- Management and Control: Disputes over the management of the corporate debtor during CIRP.
- Liquidation Process: Challenges related to the conduct of the liquidation process, including asset valuation and distribution.
Legal Framework
The legal framework governing CIRP, liquidation, and related litigation includes:
- Insolvency and Bankruptcy Code, 2016 (IBC)
- Insolvency and Bankruptcy Board of India (IBBI) Regulations
- Companies Act, 2013
Process of Liquidation
- Appointment of Liquidator: The NCLT appoints a liquidator to oversee the liquidation process.
- Public Announcement: A public notice is issued inviting claims from creditors.
- Verification of Claims: The liquidator verifies and admits claims submitted by creditors.
- Asset Liquidation: The liquidator sells the company’s assets to repay creditors.
- Distribution of Proceeds: The proceeds from asset sales are distributed to creditors in a specified order of priority.
- Dissolution: Upon completion of the liquidation process, the liquidator files a final report with the NCLT, and the company is formally dissolved.
Role of the NCLT
The NCLT plays a crucial role in overseeing the CIRP and liquidation process. It adjudicates disputes, approves resolution plans, and ensures that the process adheres to the legal framework. Parties aggrieved by NCLT decisions can appeal to the National Company Law Appellate Tribunal (NCLAT).
Conclusion
Liquidation and litigation are integral aspects of the CIRP in India, ensuring that insolvent companies are resolved efficiently and fairly. Understanding the legal framework and procedural intricacies is crucial for stakeholders involved in CIRP. For expert guidance and support in navigating CIRP, liquidation, and related litigation, contact our professionals at SBR & Co. LLP. We provide comprehensive legal and advisory services to ensure a smooth and compliant resolution process.
Feel free to reach out to us for more information and personalized assistance.