The Corporate Insolvency Resolution Process (CIRP) is a recovery mechanism made

available to creditors as under the Insolvency and Bankruptcy Code, 2016 (IBC). In case a
corporate entity becomes insolvent (unable to repay debt), the concerned creditor or the
corporate entity (the debtor) itself, may initiate CIRP.

The Insolvency and Bankruptcy Code, 2016, is aimed at balancing the interests of all
stakeholders by amending and consolidating the laws related to reorganisation and insolvency of
corporate entities, individuals and partnership firms in a time-bound manner.

Talking about the same, Vikas Bhasin, Managing Director, Saya Homes, shares, “The Corporate
Insolvency Resolution Process (CIRP) is a redressal mechanism for creditors as per the
provisions of the Insolvency and Bankruptcy Code, 2016. Owing to the improvement in
insolvency proceedings in a time-bound manner as according to CIRP, the ease of doing business
and willingness of creditors to lend has improved significantly, thus positively affecting credit
flow in Indian realty.”

Who can initiate a corporate insolvency resolution process?

If a corporate entity (debtor) becomes insolvent and commits a default, a financial creditor, an
operational creditor or the corporate debtor itself may approach the National Company Law
Tribunal (NCLT) - the Adjudicating Authority for insolvency resolution of corporate persons - to
hand-over an application for initiating CIRP against the defaulter. The procedure of initiating
proceedings and other processes to be followed vary for each category of the creditor.

IBC provisions define a financial creditor as someone to whom a financial debt is owed.
Subsequently, financial debt, in terms of real estate, has been defined as: any amount that is
raised under a real estate project from an allottee is deemed to be an amount which has the
commercial effect of a borrowing. Home buyers, thus, have been classified as financial creditors,
and they have to follow such specific application procedure as laid out for financial creditors.

Initiation of CIRP by a financial creditor

For financial creditors who are allottees of a real estate project, an application to initiate CIRP
against a corporate debtor will have to be filed jointly by not less than ten percent of the total
number of the concerned project’s allottees or not less than one hundred of such allottees of the
project, whichever is lower.

Such creditors shall have to make an application along with a prescribed fee, and also have to
furnish:

• Evidence of the debt default or record of default which is stored with an information utility (a
person or entity entitled to act as a repository of legal information relating to any debt/claim, as
submitted by a financial or operational creditor and verified and authenticated by the other
parties to the debt/claims, such as National E-Governance Services Limited)
• Name of the resolution professional which the creditors propose to be the interim resolution
professional
• Any other information as required by the Insolvency and Bankruptcy Board of India (IBBI).

NCLT shall, within 14 days of the receipt of the application made, establish the existence of a
default, through accessing the records of an information utility or as per other evidence provided
by the financial creditor. If the same is not done within the time-limit, the Tribunal shall record
its reasons for the same in writing.

If the Tribunal has established the default, is satisfied with the application made, and sees that
there are no pending disciplinary proceedings against the proposed resolution professional, it
may, by its order, admit the application. If the Adjudicating Authority finds issues in any of the
above three components, it will, before rejecting the application, give seven days to the applicant
to rectify that mistake; the seven days starting from the date of receipt by an applicant of the
notice to rectify the application. If admitted, NCLT will communicate the order to the financial
creditor and the corporate debtor, and the resolution process shall begin from the date of
admission of the application.

Interim resolution professional and moratorium

After a corporate debtor is admitted into the resolution process, an Interim Resolution
Professional (IRP) is appointed by the Adjudicating Authority (NCLT) as proposed by financial
creditors. The board of directors of the corporate debtor (corporate entity) is suspended, and
control of the corporate entity’s affairs is shifted into the hands of the IRP. The IRP shall receive
assistance from the existing personnel of the corporate debtor, and his/her term will continue till
the appointment date of the Resolution Professional.

After the appointment, a public announcement shall be made stating the initiation of CIRP
against the corporate debtor which would have details such as name and address of the corporate
debtor, name of the IRP, and the date on which the CIRP would conclude.

A moratorium shall also be made effective which shall prohibit:

• The transfer of its assets

• Initiation or continuation of any legal proceedings against the corporate entity/corporate debtor
• Recovery of any property from the debtor by an owner
• The enforcement of any security interest
• The termination or suspension of the supply of essential goods and services
The moratorium continues to be in effect as long as the corporate debtor is under the resolution
process. Nevertheless, the moratorium’s effect does not extend to key business contracts entered
into by the corporate entity (the debtor).

The verification and analysis of claims

During this stage of the proceedings, the IRP shall access and evaluate all information on the
corporate debtor including but not limited to the assets and liabilities, business operations,
financial and operational payments for the previous two years. The IRP shall then view, summon
and verify the claims made by the financial creditors and also classify the same. Subsequently,
the IRP constitutes a Committee of Creditors (COC), which comprises of all the corporate
debtor’s financial creditors. In case there are two or more financial creditors as part of a
consortium, as is usually the case with homebuyers of a real estate project, each such financial
creditor would be part of the COC, and their voting share would be determined on the basis of
the financial debts owed to them.

Appointment of the resolution professional

Within seven days of the formation of the COC, the committee shall have to decide, by a
majority vote of not less than 66 percent of the voting share of the financial creditors, to either
appoint the IRP as the resolution professional or to replace the IRP by another resolution
professional. The committee shall then communicate its decision to the Adjudicating Authority.

Duties of the resolution professional

The Resolution Professional shall have the responsibility to protect and preserve the assets of the
corporate debtor, which also includes the continued business operations of the debtor. The
professional shall convene and attend all COC meetings, while also exercising rights for the
benefit of the corporate debtor in quasi-judicial, judicial or arbitration proceedings.
In case the committee believes that the resolution professional should be replaced, it can, by a
vote of 66 percent of voting shares, decide to replace the professional and forward such name to
the Adjudicating Authority.

Eligibility of resolution applicants

IBC has been drafted and designed to explore various revival opportunities for an ailing
corporate debtor. Therefore, it gives opportunities to an individual, a trust or a corporate bidder
(a resolution applicant) to come forward, invest capital, acquire and purchase the concerned
corporate entity which is under CIRP, and get the company back on its feet. Section 29A of IBC
enacted various layers of relations to stop the back-door entry of promoters or those who are
connected to the promoter group of the corporate debtor to acquire the ailing company (corporate
debtor) at a discount, a few of which have been explained below.
This is vital to ensure that promoters of an ailing real estate company do not acquire the same
themselves or via anybody else in that company. Accordingly, an individual, trust or company is
not eligible to submit a resolution plan, if the same, or any other person acting in concert or
jointly with such person or entity –

• is an un-discharged insolvent
• is a willful defaulter as per the guidelines of the Reserve Bank of India (RBI)
• has an account classified as a Non-Performing Asset (NPA)
• is a promoter of a corporate debtor, the account of which has been classified as an NPA
• is in the management of a corporate entity (corporate debtor), the account of which is classified
as an NPA
• is in control of a corporate debtor, the account of which is classified as a non-performing asset
Any such company, its promoters or management which has its account classified as NPA
cannot, for at least one year, submit a resolution plan for a corporate debtor under CIRP.
However, if the same makes the payment of all overdue amounts with the needed interest and
other charges relevant to NPA accounts, the company, its promoters or management will be
eligible to submit a resolution plan. However, the above provisions shall not be applicable to a
resolution applicant, where the same is a financial entity and is not a related party to the
concerned corporate debtor.

Submission and approval of the resolution plan

The resolution professional shall have to examine every resolution plan submitted by eligible
applicants to ensure that the plan provides for the payment of debts of the corporate debtor in
addition to providing for the costs of the corporate insolvency resolution process. The plans shall
then be presented to the committee of creditors for approval. The approval will require a vote of
not less than 66 percent of voting share of financial creditors. The resolution plan shall then be
submitted to the Adjudicating Authority by the resolution professional. This plan must be
approved within 180 days from the beginning of CIRP by financial creditors. However, the
Adjudicating Authority can extend this period up to 90 days.

In case a resolution plan is approved within the period mentioned above and is sanctioned by
NCLT, the plan would be binding on the corporate debtor and its members, employees,
guarantors, creditors and other stakeholders involved in the resolution plan. If no plan is
approved within the mentioned period, then the Adjudicating Authority is required to order the
liquidation of the corporate debtor. After the approval of the same, the committee of creditors
appoints the liquidator to sell off the assets of the debtor and distribute them among stakeholders.

Fast-track Corporate Insolvency Resolution Process

This is a quicker way to achieve corporate insolvency within 90 days as compared to the
standard 180-day process as under IBC for regular CIRP proceedings. The fast-track CIRP can
be extended beyond 90 days, if required and if approved by the Adjudicating Authority on
application by the resolution professional. However, the extension cannot be beyond 45 days.
The other processes will be similar to the ones conducted in the 180-day CIRP.

The fast-track CIRP is applicable to:

• A small company (defined under Section 2 (85) of the Companies Act, 2013)
• Start-up (other than a partnership firm), as defined by the Ministry of Commerce and Industry
• An unlisted company with total assets, as recorded in the financial statement of the preceding
fiscal year, not higher than Rs 1 crore.

The corporate insolvency resolution process, as part of the Insolvency and Bankruptcy Code,

2016, has heralded a new era in handling insolvency proceedings and has led to improved ease of
doing business in the Indian real estate and other sectors, with regards to redressal mechanisms
in case of a default.