INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP) UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016

Every creditor of a Corporate Debtor has not been given right to initiate Corporate Insolvency Resolution Process (CIRP). Only Financial Creditors and Operational Creditors can initiate CIRP.  Corporate Debtor itself can also initiate CIRP.

CIRP can only be initiated if Corporate Debtor is in default in payment of debt. Default has been defined as under Section 2 (12) as under:

“Default” means non-payment of debt when whole or any part or installments 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.

Legislative policy has shifted from inability to pay debts to determination of default. Under the Code it is not essential to determine that the Corporate Debtor is insolvent or is unable to pay its debt. Only fact which is required to be proved for initiation of CIRP is the fact that the Corporate Debtor has defaulted in payment of debt. The Supreme Court has noticed this shift in Swiss Ribbons¹ as under:

37. The trigger for a Financial Creditor’s application is nonpayment of dues when they arise under loan agreements. It is for this reason that Section 433(e) of the Companies Act, 1956 has been repealed by the Code and a change in approach has been brought about. Legislative policy now is to move away from the concept of “inability to pay debts” to “determination of default”. The said shift enables the Financial Creditor to prove, based upon solid documentary evidence, that there was an obligation to pay the debt and that the debtor has failed in such obligation. Four policy reasons have been stated by the learned Solicitor General for this shift in legislative policy. First is predictability and certainty. Secondly, the paramount interest to be safeguarded is that of the Corporate Debtor and admission into the insolvency resolution process does not prejudice such interest but, in fact, protects it. Thirdly, in a situation of financial stress, the cause of default is not relevant; protecting the economic interest of the Corporate Debtor is more relevant. Fourthly, the trigger that would lead to liquidation can only be upon failure of the resolution process.

AMOUNT OF DEFAULT

Section 4 provides for minimum amount of default by Corporate Debtor for initiation of CIRP.  CIRP can only be initiated against Corporate Debtor if minimum amount of default is one lakh rupees. The Central Government has been empowered to specify the minimum amount of default of higher value which cannot be more than one crore rupees. The Central Government vide notification dated 24^th March 2020 has specified one crore rupees as minimum amount of default for initiating CIRP.  

CIRP INITIATION BY FINANCIAL CREDITOR

Financial Creditor can initiate CIRP against the Corporate Debtor under Section 7 of the Code.  Section 7 reads as under:

7. Initiation of corporate insolvency resolution process by financial creditor.

(1) A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.

Provided that for the financial creditors, referred to in clauses (a) and (b) of subsection (6A) of section 21, an application for initiation corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent. of the total number of such creditors in the same class, whichever is less:

Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less:

Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the requirements of the first or second proviso within thirty days of the commencement of the said Act, failing which the application shall be deemed to be withdrawn before its admission.

 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.

 (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed.

(3) 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.

(4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), 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 under sub-section (3): 

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.

(5) Where the Adjudicating Authority is satisfied that –

 (a) a default has occurred and the application under sub-section (2) is complete, and there are no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or

(b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application:

Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5).

(7) The Adjudicating Authority shall communicate- (a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be.

Financial Creditor can initiate CIRP individually or jointly with other Financial Creditor(s).

In case of security holders or deposit holders or real estate allottees (home buyers), an individual creditor is not eligible to file an application for initiating CIRP before the Adjudicating Authority. In such cases, at least 100 creditors or 10% of total creditors, whichever is less, are required to file an application. In case of real estate allottees (home buyers), such creditors should belong to the same real estate project.

A Financial Creditor has to file an application for initiating CIRP under Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in Form 1.  Such application has to be filed along with record of default with any information utility or any other evidence of default prescribed by IBBI.   As per CIRP Regulation 2A, a Financial Creditor may submit as record of evidence certified copy of entries in the relevant accounts in the banker’s book; or an order of Court or Tribunal that has adjudicated upon the non-payment of debt, where the period of appeal against such order has expired.

Default need not be in respect of Financial Debt owed to the applicant Financial Creditor but the default to any other Financial Creditor also.

In case of application under Section 7, the name of Insolvency Professional has to be compulsorily proposed, who will act as Interim Resolution Professional.

The Adjudicating Authority has to ascertain default within 14 days of receipt of application from the records of Information Utility or on the basis of other evidence furnished by the Financial Creditor.

In cases, where the Adjudicating Authority is satisfied that the application is complete and default has occurred and no disciplinary proceedings are pending against the proposed Interim Resolution Professional, the Adjudicating Authority may admit the application.

If the application is incomplete or default has not occurred or disciplinary proceedings is pending against the proposed Interim Resolution Professional, the Adjudicating Authority has to reject the application. 

CIRP commences from date of admission of the application.  

If the application for initiation of CIRP has been admitted, the copy of order has to be communicated to the Financial Creditor and the Corporate Debtor. If the application for initiation of CIRP has been rejected, the copy of the order has to communicated to the Financial Creditor only. Such communication has to be done within seven days.

The Supreme Court in Vidarbh Industries Power Ltd² has held that even if application under Section 7 is complete and default has occurred, it is not mandatory for the Adjudicating Authority to admit such application.  Use of word “may” under Section 7 (5) (a) shows that admission of an Application under Section 7 is discretionary in nature.   Relevant para is as under:

76. The fact that Legislature used ‘may’ in Section 7(5)(a) of the IBC but a different word, that is, ‘shall’ in the otherwise almost identical provision of Section 9(5)(a) shows that ‘may’ and ‘shall’ in the two provisions are intended to convey a different meaning. It is apparent that Legislature intended Section 9(5)(a) of the IBC to be mandatory and Section 7(5)(a) of the IBC to be discretionary. An application of an Operational Creditor for initiation of CIRP under Section 9(2) of the IBC is mandatorily required to be admitted if the application is complete in all respects and in compliance of the requisites of the IBC and the rules and regulations thereunder, there is no payment of the unpaid Operational Debt, if notices for payment or the invoice has been delivered to the Corporate Debtor by the Operational Creditor and no notice of dispute has been received by the Operational Creditor. The IBC does not countenance dishonesty or deliberate failure to repay the dues of an Operational Creditor.

CIRP INITIATION BY OPERATIONAL CREDITOR

An application for initiating CIRP by an Operational Creditor cannot be filed directly to the Adjudicating Authority. Before filing an application before the Adjudicating Authority, a demand notice has to be sent to the Corporate Debtor under Section 8 of the Code. Such demand notice can be in two forms. It can be in Form 3 prescribed under the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 or an invoice in Form 4 prescribed under the the said Rules.  Within 10 days of receipt of demand notice, the Corporate Debtor can bring to notice of the Operational Creditor existence of a dispute or record of pendency of suit or arbitration proceedings filed prior to receipt of such demand notice or invoice in relation to such notice. Alternatively, the Corporate Debtor can share with the Operational Creditor proof of payment of such debt through electronic transfer or encashment of cheque issued by Corporate Debtor.

In Macquaire Bank Ltd³, it has been held that demand notice can be sent by an advocate also.

If no payment is received within 10 days of delivery of demand notice or invoice under Section 8 by the Operational Creditor or no notice of dispute is received from the Operational Creditor, the Operational Creditor becomes eligible to file application for initiating CIRP under Section 9 of the Code.  Section 9 reads as under: 

9. Application for initiation of corporate insolvency resolution process by operational creditor. –

 (1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under subsection (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.

 (2) The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed.

 (3) The operational creditor shall, along with the application furnish-

(a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor;

(b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;

 (c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available;

(d) a copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and

(e) any other proof confirming that there is no payment of an unpaid operational debt by the corporate debtor or such other information, as may be prescribed.

 (4) An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional.

(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order– (i) admit the application and communicate such decision to the operational creditor and the corporate debtor if, –

(a) the application made under sub-section (2) is complete;

(b) there is no 3 [payment] of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;

(d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and

(e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any.

(ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if –

(a) the application made under sub-section (2) is incomplete;

(b) there has been payment of the unpaid operational debt;

(c) the creditor has not delivered the invoice or notice for payment to the corporate debtor;

(d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or

(e) any disciplinary proceeding is pending against any proposed resolution professional:

Provided that Adjudicating Authority, shall before rejecting an application under subclause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section.

Operational Creditor has to file application before the Adjudicating Authority under rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in Form 5. Such application has to be filed along with copy of demand notice or invoice and an affidavit that no notice of dispute has been received by the Operational Creditor. A certificate from the Financial Institution maintaining account of the Corporate Debtor regarding non-payment of unpaid Operational Debt can also be filed if such certificate is available. A copy of record of Information Utility confirming non-payment of Operational Debt can also be filed if such record is available. Additional evidences can also be filed by the operation creditor, if such evidences are available.  

In Macquaire Bank Ltd (Supra), the Supreme Court held that provision in Section 9 (3) (c) regarding a certificate from Financial Institution maintaining the account of Corporate Debtor is directory and not mandatory.

The Operational Creditor may propose the name of Interim Resolution Professional but it is not compulsory for the Operational Creditor to propose the name of Interim Resolution Professional as is the case in an application filed by Financial Creditor under Section 7.

The Adjudicating Authority has to admit the application within 14 days if the application is complete; there is no payment of unpaid Operational Debt; demand notice or invoice has been delivered to the Operational Creditor; there is no notice of dispute or no record of dispute with the information utility and there are no pending disciplinary proceedings against the proposed Interim Resolution Professional.

The Adjudicating Authority may reject the application if the application is incomplete; or   payment has been made against the unpaid Operational Debt; or notice of dispute has been received by the Operational Creditor or there is existence of record of dispute with the information utility; or any disciplinary proceeding is pending against the proposed Resolution Professional.

CIRP commences from the date of admission of application filed by the Operational Creditor.

EXISTENCE OF DISPUTE

Existence of pre-existing dispute is one of ground of rejection of application for initiation of CIRP by an Operational Creditor. Supreme Court has an opportunity to analyse nature of ‘dispute’ in Mobilox Innovation Pvt. Ltd.⁴ which may cause rejection of application filed by the Operational Creditor. The Supreme Court has observed that at the stage of admission of an application for initiation of CIRP, the Adjudicating Authority has to see that whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence.  Relevant para of the said judgment reads as under:

40.It is clear, therefore, that once the Operational Creditor has filed an application, which is otherwise complete the adjudicating must reject the application under Section 9 (5) (2) (d) if notice of dispute has been received by the Operational Creditor or there is record of dispute in information utility. It is clear that such notice must bring to the notice of the Operational Creditor the “existence” of a dispute or the fact that a suit or arbitration proceeding related to a dispute is pending between the parties.  Therefore, all that the Adjudicating Authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject the spurious defense which is mere a bluster.  However, in doing so, the Court does not need to be satisfied that the defense is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the Adjudicating Authority has to reject the application.

Principle evolved by the Supreme Court in Mobilox Innovations has been affirmed by the Supreme Court in various subsequent judgments including in K. Kishan⁵, Key Bowvet Engineering Ltd.⁶, M/S Jai Balaji Industries⁷ etc.

CIRP INITIATION BY CORPORATE DEBTOR

CIRP can be initiated by the Corporate Debtor itself under Section 10 of the Code.  Section 10 reads as under:

10. Initiation of corporate insolvency resolution process by corporate applicant. –

 (1) Where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency resolution process with the Adjudicating Authority.

(2) The application under sub-section (1) shall be filed in such form, containing such particulars and in such manner and accompanied with such fee as may be prescribed.

 (3) The corporate applicant shall, along with the application, furnish-

(a) the information relating to its books of account and such other documents for such period as may be specified;

(b) the information relating to the resolution professional proposed to be appointed as an interim resolution professional; and

(c) the special resolution passed by shareholders of the corporate debtor or the resolution passed by at least three-fourth of the total number of partners of the corporate debtor, as the case may be, approving filing of the application.

 (4) The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order-

(a) admit the application, if it is complete and no disciplinary proceeding is pending against the proposed resolution professional; or

 (b) reject the application, if it is incomplete or any disciplinary proceeding is pending against the proposed resolution professional:

Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within seven days from the date of receipt of such notice from the Adjudicating Authority.

 (5) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (4) of this section.

Where a Corporate Debtor has committed a default, a Corporate Applicant can file an application for initiating CIRP before the Adjudicating Authority. Corporate Applicant has been defined under Section 5 (5) as under:

(5) “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 corporate insolvency resolution process or the pre-packaged insolvency resolution process, as the case may be, 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) a person who has the control, and supervision over the financial affairs of the corporate debtor;

An application for initiating CIRP under Section 10 can be filed by Corporate Debtor itself.  Such application can also be filed by a member of a company or a partner of Limited Liability Partnership, if such person has been authorised to initiate to make an application under the constitutional document of Corporate Debtor. Such application can also be filed by an individual who is in charge of managing the operations and resources of the Corporate Debtor. Such application can also be filed by a person who is having control and supervision over the financial affairs of the Corporate Debtor.

Such application has to be filed under rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in Form 6.

The Corporate Applicant has to along with the application furnish information relating to its books of account and such other documents for such period as may be specified by IBBI. The Corporate Applicant has also to submit information relating to Insolvency Professional proposed to be appointed as an Interim Resolution Professional. The Corporate Applicant has also to submit special resolution passed by shareholders in case of a Company or resolution passed by at least three fourth of the total number of partners in a case of Limited Liability Partnership approving filing of the application.

The applicant has to serve a copy of the application to IBBI by registered post or speed post or by hand or by electronic means before filing with the Adjudicating Authority.

The Adjudicating Authority has to admit the application within a period of 14 days of receipt of the application by an order, if it is complete and no disciplinary proceedings is pending against the proposed Interim Resolution Professional.

The Adjudicating Authority has to reject the application if it is incomplete or any disciplinary proceeding is pending against the proposed Interim Resolution Professional after giving notice to the applicant to rectify the defects in his application within seven days from the date from receipt of such notice from the Adjudicating Authority.

The CIRP commences from date of admission of application filed by the Corporate Debtor.  

PERSON NOT ENTITLED TO INITIATE CIRP

Section 11 of the Code provides details of such persons who are not eligible to initiate Corporate Insolvency Resolution Process. Section 11 reads as under:

11. Persons not entitled to make application:

The following persons shall not be entitled to make an application to initiate corporate insolvency resolution process under this chapter, namely:

(a) a corporate debtor undergoing corporate insolvency resolution process or pre packaged insolvency resolution process, or

(aa) a financial creditor or an operational creditor of a corporate debtor undergoing a pre-packaged insolvency resolution process, or

(b) a corporate debtor having completed corporate insolvency resolution process twelve months preceding the date of making of the application, or

(ba) a corporate debtor in respect of whom a resolution plan has been approved under Chapter III-A, twelve 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

Explanation I: For the purpose of this section, a corporate debtor includes a corporate applicant in respect of such corporate debtor.

Explanation II: For the purpose of this section, it is hereby clarified that nothing in this section shall prevent a corporate debtor referred to in clause (a) and clause (d) form initiating corporate insolvency resolution process against another corporate debtor.

A Corporate Debtor undergoing CIRP or PPIRP cannot initiate CIRP against itself. A Financial Creditor or Operational Creditor of a Corporate Debtor cannot initiate CIRP against Corporate Debtor if such Corporate Debtor is undergoing PPIRP. If a Corporate Debtor has gone through CIRP or PPIRP then CIRP cannot be initiated against such Corporate Debtor at least for twelve months. A Corporate Debtor or a Financial Creditor, which has violated terms of a Resolution Plan, cannot file application for initiating CIRP for at least twelve months since approval of the Resolution Plan. A Corporate Debtor cannot initiate CIRP against itself, if a Liquidation Order has been made in respect of such Corporate Debtor.

There were contradictory orders of different benches of NCLT regarding whether Corporate Debtor undergoing CIRP or Liquidation is eligible to file application for initiating CIRP proceedings against its debtors. Explanation II was introduced to Section 11 under the Code vide Insolvency and Bankruptcy Code (Amendment) Act, 2020 whereby it was clarified that Corporate Debtor undergoing CIRP is not barred from filing application for initiating CIRP against another Corporate Debtor.

Constitutional validity of Explanation II was challenged before the Supreme Court in Manish Kumar⁸. The Supreme Court held that Explanation II is valid. The Supreme Court observed that it could never had been the intention of the legislature to create an obstacle in the path of the Corporate Debtor, in any of the circumstances contained in Section 11, from maximising its assets by trying to recover the liabilities due to it from others. Relevant para is as under:

243. Now, let us consider finally the impugned Explanation. The impugned Explanation came to be inserted by the impugned amendment. Apparently, interpreting Section 11, there appears to have been some cleavage of opinion. This is apparent from the case set up on behalf of the petitioners and the case set up on behalf of the Union of India. The intention of the Legislature was always to target the Corporate Debtor only insofar as it purported to prohibit application by the Corporate Debtor against itself, to prevent abuse of the provisions of the Code. It could never had been the intention of the Legislature to create an obstacle in the path of the Corporate Debtor, in any of the circumstances contained in Section 11, from maximising its assets by trying to recover the liabilities due to it from others. Not only does it go against the basic common-sense view but it would frustrate the very object of the Code, if a Corporate Debtor is prevented from invoking the provisions of the Code either by itself or through his Resolution Professional, who at later stage, may, don the mantle of its Liquidator. The provisions of the impugned Explanation, thus, clearly amount to a clarificatory amendment. A clarificatory amendment, it is not even in dispute, is retrospective in nature. The Explanation merely makes the intention of the Legislature clear beyond the pale of doubt. The argument of the petitioners that the amendment came into force only on 28.12.2019 and, therefore, in respect to applications filed under Sections 7, 9 or 10, it will not have any bearing, cannot be accepted. The Explanation, in the facts of these cases, is clearly clarificatory in nature and it will certainly apply to all pending applications also.

APPLICABILITY OF LIMITATION ACT

There was no provision regarding applicability of provisions of the Limitation Act, 1963 on proceeding initiated under the Code. The Insolvency Law Committee in its 1^st Report considered this aspect. The ILC was of the view that the intent of the Code could not have been to give a new lease of life to debts which are time-barred. The ILC recommended for insertion for specific section regarding applicability of the Limitation Act, 1963 to proceedings initiated under provisions of the Code.  Subsequently vide Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, Section 238 was inserted in respect of applicability of the Limitation Act, 1963, which reads as under:

238A. Limitation. – The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.

In B. K. Educational Services Pvt. Ltd.^9, the issue before the Supreme Court was whether provisions of the Limitation Act, 1963 are applicable to an application filed under Section 7 and Section 9 and whether the Limitation Act, 1963 will be applicable from retrospective effect. The Supreme Court held that provisions of the Limitation Act, 1963 are applicable to applications filed under Section 7 and 9 of the Code from inception of the Code.    If default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, 1963 save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.

In Sheshnath Singh¹⁰, the Supreme Court held that there can be little doubt that Section 14 of Limitation Act, 1963 in respect of exclusion of time of proceedings bonafide in a Court without jurisdiction applies to an application under Section 7 of the IBC. IBC does not exclude the operation of Section 14 of the Code.

In Bishal Jaiswall and Anr¹¹, the Supreme Court held that several judgments of the Supreme Court have indicated that an entry made in the books of accounts, including the balance sheet, can amount to an acknowledgement of liability within the meaning of Section 18 of the Limitation Act.

In Laxmi Pat Surana¹², the Supreme Court has held that it is not open to contend that the limitation for filing application under Section 7 of the Code would be limited to Article 137 of the Limitation Act, 1963 and extension to prescribed period in certain cases could be only under Section 5 of the Limitation Act, 1963. There is no reason to exclude the effect of Section 18 of the Limitation Act to the proceedings initiated under the Code.

PERIOD OF ADMISSION AND REMOVAL OF DEFECTS DIRECTORY

If the applications filed under Section 7, 9 or 10 are not complete, then the Adjudicating Authority may give 7 days’ time to cure defects. Similarly, Adjudicating Authority has to admit or reject applications filed under Section 7, 9, or 10 within 14 days.

Such period has been held to be directory in Surendra Trading Company¹³ by the Supreme Court.

SIMULTANEOUS CIRP AGAINST PRINICPAL BORROWER AND CORPORATE GUARANTOR

CIRP can be initiated against Principal Borrower or its Corporate Guarantor. There have been conflicting judgments on the issue whether simultaneous CIRP proceedings can be initiated against Principal Borrower and its Corporate Guarantor.

NCLAT in Dr Vishnu Aggarwal¹⁴ has held that once for same set of claim application under Section 7 filed by the ‘Financial Creditor’ is admitted against one of the ‘Corporate Debtors’ (‘Principal Borrower’ or ‘Corporate Guarantor(s))’, second application by the same ‘Financial Creditor’ for same set of claim and default cannot be admitted against the other ‘Corporate Debtor’ (the ‘Corporate Guarantor(s)’ or the ‘Principal Borrower’).

NCLAT in various subsequent judgments have held that CIRP proceedings can be initiated simultaneously both against the Principal Borrower as well as Corporate Guarantor and hence ratio as held in Dr. Vishnu Agarwal is no longer valid and binding.  NCLAT in Athena Energy¹⁵ has held that judgment of in the matter of Dr. Vishnu Agarwal    holds no good in light of amendment in Section 60 of Insolvency and Bankruptcy Code and CIRP proceedings can be simultaneously initiated against the Principal Borrower as well Corporate Guarantor.   NCLAT in subsequent judgments i.e Animesh Mukhopadhyaya¹⁶ and Mr. Babumanoharan¹⁷ have also consistently held that simultaneous proceedings can be initiated against Principal Borrower and its Corporate Guarantor.

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1. Swiss Ribbons Pvt. Ltd. Vs. Union of India; Writ Petition (Civil) 99 of 2018

2.Vidarbha Industries Power Ltd. Vs. Axis Bank Ltd.; Civil Appeal No. 4633 of 2021

3. Macquaire Bank Ltd Vs. Shilpi Cable Technologies Ltd; Civil Appeal 15135/2017

4. Mobilox Innovations Provided Ltd Vs. Kirusa Software Pvt. Ltd.; Civil Appeal No. 9405/2017

5. K Kishan Vs. M/s Vijay Nirman Company Ltd.; Civil Appeal No. 21825/2017

6.Kay Bowvet Engineering Ltd. Vs. Overseas Allaince (India) Private Ltd; Civil Appeal 1137/2019

7.Jai Balaj Industries Vs D K Mohanty & Anr; Civil Appeal 5899/2021

8.Manish Kumar Vs. Union of India; Writ Petition (C) 26/2020

9.B K Educational Services Private Ltd vs Parag Gupta & Associates; Civil Appeal No. 23988/2017

10.Shesh Nath Singh & Anr Vs. Baidyabati Sheoraphuli Co-operative Bank Ltd. and Anr; Civil Appeal No. 9198/2019

11.Asset Reconstruction Company (India) Ltd. Vs. Bishal Jaiswal & Anr; Civil Appeal No. 323/2021

12.Laxmi Pat Surana vs Union of India; Civil Appeal No. 2734/2020

13.Surendra Trading Company Vs. Kamlapat Jute Mills Ltd. & Ors.; Civil Appeal No. 5606/2018

14.Dr. Vishnu Kumar Agarwal Vs. Piramal Enterprise Ltd. ;Company Appeal (AT) Insolvency No. 346 -347/2018

15.State Bank of India Vs. Athena Energy Ventures Pvt. Ltd.; CA (AT) (Insolvency) 633/2020

16.Punjab National Bank Vs. Animesh Mukhopdhyaya; Company Appeal (AT) (Insolvency) No. 1082/2021

17.Mr. Babumanoharan Vs. Indian Bank & Ors;  Company Appeal (AT) Insolvency No. 503/2020