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

The functions of Resolution Professional are in continuation of functions of Interim Resolution Professional. The Resolution Professional exercises all the powers and duties which are vested or conferred on the Interim Resolution Professional.  The Resolution Professional continues to take forward the Corporate Insolvency Resolution Process of the Corporate Debtor till Resolution Plan is approved or Liquidation Order is passed by the Adjudicating Authority.

APPOINTMENT OF RESOLUTION PROFESSIONAL

Section 22 provides that the first meeting of Committee of Creditors has to be held within 7 days of its constitution. The Committee of Creditors has option to confirm the Interim Resolution Professional as Resolution Professional or replace the Interim Resolution Professional with another Insolvency Professional with sixty six percent of majority.

If the Committee of Creditors decide to replace the Interim Resolution Professional with some another Insolvency Professional, it has to file an application before the Adjudicating Authority to seek confirmation. The Adjudicating Authority appoints the Insolvency Professional as Resolution Professional if no disciplinary proceedings are pending against such Insolvency Professional.

Parliamentary Standing Committee on Finance (2020-21) has observed that the Committee of Creditors decides whether to continue with Interim Resolution Professional or to replace the Interim Resolution Professional with another Resolution Professional without any guidelines. The Standing Committee recommended that IBBI should frame guidelines for selection of Resolution Professional in a more transparent manner.  

INFORMATION MEMORANDUM

Information Memorandum comprises of all material and relevant information about the Corporate Debtor. Such information are critical for preparation of Resolution Plan.

Section 5 (10) defines Information Memorandum as a memorandum prepared by Resolution Professional under Section 29 (1).

Section 29 deals with preparation of Information Memorandum. The Resolution Professional has to prepare Information Memorandum in such form and manner containing such relevant information as may be specified by IBBI. The Resolution Professional has to provide the Resolution Applicant access to all relevant information in physical and electronic form. Relevant information means information required by the Resolution Applicant to make the Resolution Plan for the Corporate Debtor, which includes the financial position of the Corporate Debtor, all information related to disputes by or against Corporate Debtor and any other matter pertaining to the Corporate Debtor.  Before sharing relevant information with Resolution Applicant, the Resolution Professional has to receive undertaking from the Resolution Applicant in respect of confidentiality, insider trading and protection of intellectual property of the Corporate Debtor. The Resolution Professional has also to receive undertaking to the effect that Resolution Applicant will not share relevant information with third parties without receiving an undertaking from such third parties regarding confidentiality, insider trading and protection of intellectual property of the Corporate Debtor.

CIRP Regulation 36 provides further details of contents of Information Memorandum. The Information Memorandum has to highlight the key selling propositions and contain all relevant information which serves as a comprehensive document conveying significant information about the Corporate Debtor including its operations, financial statements, to the prospective Resolution Applicant and shall contain the following details of the Corporate Debtor. Information Memorandum comprises of following details.  

• Assets and liabilities including contingent liabilities as on the insolvency commencement date, with such description as are generally necessary for ascertaining their values.
• The latest annual financial statements
• Audited financial statements of the Corporate Debtor for the last two financial years and provisional financial statements for the current financial years made up to a date not earlier than fourteen days from the date of the application.
• A List of Creditors containing the names of creditors, the amounts claimed by them, the amount of their claim admitted and the security interest, if any, in respect of such claims.
• Particulars of a debt due from or to the Corporate Debtor with respect to related parties
• Details of guarantee that have been given in relation to the debts of the Corporate Debtor by other persons, specifying which of the guarantors is a Related Party.
• The names and addresses of the members or partners holding at least one percent stake in the Corporate Debtor along with the size of the stake.
• Details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities
• The number of workers and employees and liabilities of the Corporate Debtor
• Company overview including snapshot of business performance, key contracts, key investment highlights and other factors which bring out the value as a going concern over and above the assets of the corporate debtor such as brought forward losses in the income tax returns, input credit of GST, key employees, key customers, supply chain linkages, utility connections and other pre-existing facilities
• Details of business evolution, industry overview and key growth drivers in case of a corporate debtor having book value of total assets exceeding one hundred crores rupees as per the last available financial statements

The Resolution Professional has to submit Information Memorandum in electronic form to each member of Committee of Creditors within on or before the ninety-fifth day from the insolvency commencement date. A member of Committee of Creditors may request the Resolution Professional for further information and the Resolution Professional has to provide such information to all members within reasonable time if such information has a bearing on the Resolution Plan.

Before sharing Information Memorandum with members of Committee of Creditors or Resolution Applicant, such member of Committee of Creditors or Resolution Applicant has to give undertaking to the effect that such member or Resolution Applicant will maintain confidentiality of the information and will not use such information to cause undue gain or undue loss to itself or any other person.

The NCLAT in Employee Provident Fund Orgnisation¹ has expressed its view that there has to be an obligation of the IRP/RP to inform the creditors whose liabilities are on the record of the Corporate Debtor since the object of insolvency resolution is to take into account all liabilities of Corporate Debtor and thereafter resolve it. Relevant para reads as under:

16. The law as it exists today does not oblige the IRP/RP to send any information to any creditor or statutory authority even if the records of the Corporate Debtor reflect any liabilities of the Corporate Debtor towards them. It is his sweet will to give information or not to any such entities. We are of the view that there has to be an obligation of the IRP/RP to inform the creditors whose liabilities are on the record of the Corporate Debtor since the object of insolvency resolution is to take into account all liabilities of Corporate Debtor and thereafter resolve it. It is the matter on which attention of regulation making authority and Government has to be drawn by this Tribunal so as to take remedial measures, if any.

The NCLAT has held in Puneet Kaur² has held that liability towards homebuyers, who have not filed their claim, exists and such claims should be included in Information Memorandum.  Relevant para reads as follows:

21. When the allotment letters have been issued to the Homebuyers, payments have been received, there are Homebuyers and there is obligation on the part of real estate Company to provide possession of the houses along with other attached liabilities. The liability towards those Homebuyers, who have not filed their claim exists and required to be included in the Information Memorandum. Further, under Regulation 36, sub-regulation 2(l), there is column for other information, which the Resolution Professional deems relevant to the Committee. The liabilities which have been undertaken by the Corporate Debtor, huge money received by the Corporate Debtor from Homebuyers, whose claims, which could not be filed within time, could not be wished away by the Resolution Professional, on the convenient ground that claims have not been filed by such Homebuyers. The purpose of CIRP of Corporate Debtor is to find out all liabilities of the Corporate Debtor and take steps towards resolution. Unless all liabilities of the Corporate Debtor are not known or included in the Information Memorandum, the occasion to complete the CIRP shall not arise.

APPOINTMENT OF  REGISTERED VALUERS 

CIRP Regulation 27 deals with appointment of registered valuers.

The Resolution Professional has to within seven days of his appointment but not later than forty seventh day from the insolvency commencement date, appoint two registered valuers to determine the fair value and liquidation value of the Corporate Debtor. A relative of Resolution Professional; a Related Party to the Corporate Debtor; an auditor of the Corporate Debtor at any time during the five years preceding the insolvency commencement date; or a partner or director of the Insolvency Professional Entity of which the Resolution Professional is a partner or director cannot be appointed as registered valuer.

Two registered valuers appointed under Regulation 27 have to submit to the Resolution Professional an estimate of fair value and liquidation value computed in accordance with internationally accepted valuation standards after physical verification of the inventory and fixed assets of the Corporate Debtor.

If in the opinion of the Resolution Professional the two estimates of a value are significantly different, he may appoint another registered valuer who has to submit an estimate of the value computed in the same manner

The average of the two closest estimates of a value has to be considered as fair value or the liquidation value as the case may be.

After the receipt of Resolution Plan, the Resolution Professional has to provide the fair value and liquidation value to every member of the Committee of Creditors in electronic form, on receiving an undertaking from the member to the effect that such member has to maintain confidentiality of the fair value and liquidation value and will not use such values to cause undue gain or undue loss to itself or any other person and comply with the requirements under Section 29 (2).

INVITATION FOR EXPRESSION OF INTEREST (EOI)

CIRP Regulation 36A provides detailed procedure for inviting expression of interest.

The Resolution Professional has to publish brief particulars of the invitation for Expression of Interest in Form G of CIRP Regulation at the earliest, not later than sixtieth day from the insolvency commencement date, from interested and eligible prospective Resolution Applicants to submit Resolution Plan.  Form G has to be published one English newspaper and one regional newspaper with wide circulation at the location of the registered office and principal office, if any, of the Corporate Debtor and any other location where in the opinion of the Resolution Professional the Corporate Debtor conducts material business operations.  Form G has to be published also on the website of the Corporate Debtor.

Form G has to state from where detailed invitation for Expression of Interest can be downloaded or obtained. Form G has also to provide the last date for submission of Expression of Interest which cannot be less than 15 days from the date of issue of detailed invitation.

Form G has to specify the criteria as approved by Committee of Creditors for prospective Resolution Applicants. Form G has also to specify ineligibility norms under 29A and basic information about the Corporate Debtor. Form G has also to specify that there is no requirement of payment of any fee or any non-refundable deposit for submission of Expression of Interest.

Invitation for Expression of Interest can be modified only once. After modification such invitation for Expression of Interest will be treated as fresh invitation for Expression of Interest.

A prospective Resolution Applicant, who meets all the eligibility criteria as mentioned in Form G can submit Expression of Interest within stipulated time under Form G. The Expression of Interest received after time stipulated in Form G has to be rejected.

Expression of Interest submitted by the Resolution Professional has to be unconditional and accompanied by various undertaking, which are as follows.

• An undertaking by the prospective Resolution Applicant that it meets the criteria specified by Committee of Creditors under Section 25 (2) (h) along with relevant records in evidence of meeting criteria.
• An undertaking by the prospective Resolution Applicant that it does not suffer from any ineligibility under Section 29 A
• An undertaking by the prospective Resolution Applicant that it shall intimate the Resolution Professional forthwith if it becomes ineligible anytime during the Corporate Insolvency Resolution Process
• An undertaking by the prospective Resolution Applicant that every information and record provided in the expression of interest is true and correct and discovery of any false information or record at any time will render the applicant ineligible to submit Resolution Plan, forfeit any refundable deposit and attract penal action under the Code.
• An undertaking by the prospective Resolution Applicant to the effect that it will maintain confidentiality of the information and shall not use such information to cause undue gain or undue loss to itself or any other person and comply with the requirements under Section 29 (2)

The Resolution Professional has to do due diligence based on material on record that that the Resolution Applicant complies with provisions of Section 25 (2)(h) and applicable provisions of Section 29A and other requirements mentioned in Form G. The Resolution Professional may seek any clarification or additional information or document from the prospective Resolution Applicant for conducting due diligence.

The Resolution Applicant has to issue a provisional list of eligible prospective Resolution Applicants within ten days of the last date for submission of Expression of Interest to the Committee of Creditors and to all prospective Resolution Applicants who had  submitted  expressions of interest.

Any objection to inclusion or exclusion of prospective Resolution Applicant in the provisional list can be filed within five days of issue of the provisional list. On considering the objections, the Resolution Professional has to issue final list of prospective Resolution Applicants within 10 days of the last date of receipt of objections to the Committee of Creditors.

REQUEST FOR RESOLUTION PLAN (RFRP)

CIRP Regulation 36B provides detailed procedure of inviting Request for Resolution Plan.

The Resolution Professional has to issue Information Memorandum, Evaluation Matrix, and a Request of Resolution Plan within five days of the date of issue of the provisional list of prospective Resolution Applicants to every prospective Resolution Applicant in the provisional list and every prospective Resolution Applicant who has contested decision of the Resolution Professional against its non-inclusion in the provisional list.

The Request for Resolution Plan has to provide details of each step in the process and the manner and purposes of interaction between the Resolution Professional and the prospective Resolution Applicant along with corresponding timelines. The Request for Resolution Plan will allow the prospective Resolution Applicant a minimum of thirty days to submit Resolution Plan. The request of Resolution Plan will not require any non-refundable deposit for submission of or along with Resolution Plan.

The Request for Resolution Plan has to require  the Resolution Applicant, in case its Resolution Plan is approved by the Adjudicating Authority under  Section 30 (4) , to provide a performance security within time specified  therein and such performance security will stand forfeited if the Resolution Applicant of such plan, after its approval  by the Adjudicating Authority fails to implement or contribute to the failure of implementation of that plan in accordance with the terms of plan  and its implementation schedule.

Performance security means security of such nature, value, duration and source, as may be specified in the Request for Resolution Plans with approval of the Committee of Creditors having regard to the nature of Resolution Plan and business of the Corporate Debtor. A performance security may be specified in absolute terms such as guarantee from a bank for Rs. X for Y years or in relation to one or more variables such as the term of Resolution Plan, amount payable to creditors under the Resolution Plan etc.

Any modification in the Request of Resolution Plan or the Evaluation Matrix is deemed to be fresh issue.  Such modification cannot be made more than once. The Resolution Professional with approval of the Committee of Creditors can extend timeline for submission of Resolution Plan.

The Resolution Professional with the approval of the Committee of Creditors can reissue Request for Resolution Plan, if the Resolution Plans received in response to an earlier request are not satisfactory subject to the condition that the request is made to all prospective Resolution Applicants in final list.

If the Resolution Professional, does not receive a Resolution Plan in response to the request, he may, with the approval of the Committee of Creditors, issue request for resolution plan for sale of one or more of assets of the corporate debtor.

STRATEGY FOR MARKETING OF ASSETS OF THE CORPORATE DEBTOR

CIRP Regulation 36C provides that the Resolution Professional shall prepare a strategy for marketing of the assets of the Corporate Debtor in consultation with the Committee of Creditors, where the total assets as per the last available financial statements exceed one hundred crore rupees and may prepare such strategy in other cases.  Decision of implementing such strategy along with its cost shall be subject to the approval of the Committee of Creditors.  The member(s) of Committee of Creditors may also take measures for marketing of the assets of the Corporate Debtor.

PREFERENTIAL AND OTHER TRANSACTIONS

Under CIRP Regulation 35A, on or before the seventy fifth day of insolvency commencement date, the Resolution Professional has to form an opinion whether the Corporate Debtor has been subjected to any transaction covered under Section 43, 45, 50 or 66.  Where the Resolution Professional is of opinion that the Corporate Debtor has been subjected to any transaction covered under Section 43, 45, 50 or 66, he has to make a determination on or before the one hundred and fifteenth day of the insolvency commencement date.  Where the resolution professional makes a determination, he shall apply to the Adjudicating Authority for appropriate relief on or before the one hundred and thirtieth day of the insolvency commencement date.

 The Resolution Professional shall forward a copy of the application to the prospective Resolution Applicant to enable him to consider the same while submitting the Resolution Plan within the time initially stipulated

SALE OF ASSETS OUTSIDE THE ORDINARY COURSE OF BUSINESS

Under CIRP Regulation 29, the Resolution Professional may sell unencumbered asset(s) of the Corporate Debtor, other than in the ordinary course of business, if he is of opinion that such a sale in necessary for a better realisation of value under the facts and circumstances of the case. The book value of all such assets sold during Corporate Insolvency Resolution Process period in aggregate cannot exceed ten percent of the total claims admitted by the Interim Resolution Professional.

Sale of such assets can be done only with the approval of the Committee of Creditors by a vote of sixty six percent of voting share of members.

A bonafide purchaser of assets sold will have a free and marketable title of such assets notwithstanding the terms of constitutional documents of the Corporate Debtor, shareholder’s agreement, joint venture agreement, or other document of a similar nature.

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1. Employee Provident Fund Orgnisation¹ Vs. Subodh Kumar Agrawal; Company Appeal (AT) (Insolvency) No. 116/2022
2. Puneet Kaur² through her attorney Vs. K. V. Developers; Company Appeal (AT) (Insolvency) No. 390/2022)