Who can initiate insolvency proceedings against a company?

The Insolvency and Bankruptcy Code, 2016 permits a financial creditor to apply under Section 7, an operational creditor to apply under Section 9 following a demand notice under Section 8, and the corporate debtor itself to apply under Section 10. Each route has distinct requirements as to proof of default and documentation, and the application is made to the National Company Law Tribunal.

What is the minimum default required to initiate corporate insolvency?

The Code prescribes a minimum amount of default for an application to be maintainable, which the Central Government is empowered to notify. The threshold applicable at any given time should be verified against the notification in force, as it has been revised. Whether a default of the requisite amount exists is a matter of evidence before the Adjudicating Authority.

What is a moratorium under Section 14?

On admission of an application, the Adjudicating Authority declares a moratorium prohibiting, among other things, the institution or continuation of suits and proceedings against the corporate debtor, transfer of its assets, and enforcement of security interests including action under the SARFAESI Act. The moratorium continues until the resolution process concludes, subject to the exclusions provided in the Code.

What is the committee of creditors and what does it decide?

The committee of creditors is constituted from the financial creditors of the corporate debtor and takes the principal decisions in the resolution process, including on the appointment of the resolution professional and on approval of a resolution plan. Its decisions are taken by the voting thresholds specified in the Code. Commercial decisions of the committee have been treated as falling within its own domain, subject to the limited grounds of challenge in the Code.

What does Section 29A do?

Section 29A sets out the categories of persons who are ineligible to submit a resolution plan, including certain persons connected with the corporate debtor and certain persons with accounts classified as non-performing, subject to the conditions and exceptions in that section. Its purpose is to restrict participation by persons whose conduct contributed to the debtor's position.

What is the difference between resolution and liquidation?

Resolution seeks to keep the corporate debtor operating as a going concern under a plan approved by the committee of creditors and the Adjudicating Authority. Liquidation applies where no plan is approved within the statutory period, where the committee resolves to liquidate, or in the other circumstances set out in Section 33, and involves realisation of assets and distribution in the order of priority under Section 53.

Can a personal guarantor be proceeded against under the Code?

Part III of the Code, as brought into force in respect of personal guarantors to corporate debtors, provides for insolvency resolution and bankruptcy proceedings against such guarantors. Proceedings against a personal guarantor may be maintainable notwithstanding proceedings against the corporate debtor, subject to the provisions of the Code and the terms of the guarantee.

What can be challenged after a resolution plan is approved?

Section 61 provides for appeal to the National Company Law Appellate Tribunal against an order approving a resolution plan, on the grounds specified in that section, which are limited. A further appeal lies to the Supreme Court under Section 62 on a question of law. The commercial wisdom of the committee of creditors is not ordinarily a ground of challenge.

Insolvency & Bankruptcy (IBC)

Insolvency and bankruptcy practice under the Insolvency and Bankruptcy Code, 2016 concerns the resolution or liquidation of companies unable to pay their debts, and the corresponding rights of financial creditors, operational creditors and corporate debtors. Sagar & Sagar Law Offices advises and appears in corporate insolvency resolution proceedings, liquidation, avoidance applications and insolvency of personal guarantors, before the National Company Law Tribunal and the National Company Law Appellate Tribunal. Work covers admission, the conduct of the resolution process, approval or rejection of resolution plans, and appeals.

The Insolvency and Bankruptcy Code, 2016 replaced a fragmented framework with a single time-bound process. It also changed the position of the parties. Control of a corporate debtor shifts to an insolvency professional on admission; decision-making moves to a committee of financial creditors; and enforcement by individual creditors is suspended by a statutory moratorium. Rights that existed before admission — security interests, guarantees, contractual claims — do not disappear, but they are exercised through the process rather than outside it.

The practice at Sagar & Sagar Law Offices covers the process end to end and from each side of it. Work includes applications to initiate insolvency and opposition to such applications, representation of creditors in the committee, claim submission and verification disputes, applications concerning avoidance of prior transactions, resolution plan and liquidation issues, and appeals to the National Company Law Appellate Tribunal. Where the same debtor is the subject of recovery proceedings, the position is coordinated with the firm's Banking, Finance & Debt Recovery practice.

Scope of work

Initiation of insolvency proceedings

Applications to commence the corporate insolvency resolution process, and the defence of such applications.

Applications by financial creditors under Section 7 of the Code
Demand notices and applications by operational creditors under Sections 8 and 9
Applications by corporate applicants under Section 10
Advice on the threshold for default and on limitation
Defence of applications, including on grounds of pre-existing dispute in operational creditor matters
Advice on eligibility, documentation and evidence of default required at admission
Applications concerning interim moratorium and the effect of admission

Representation of creditors

Work on behalf of financial and operational creditors through the resolution process.

Submission, substantiation and revision of claims before the resolution professional
Applications arising from rejection or reduction of claims
Representation of financial creditors before the committee of creditors
Advice to committee members on voting, commercial decisions and record-keeping
Representation of operational creditors, including on the treatment of their dues
Representation of homebuyers and other classes of creditors through authorised representatives
Advice on the position of secured creditors, security interests and relinquishment

Conduct of the resolution process

Matters arising during the corporate insolvency resolution process itself.

Applications concerning the appointment, replacement or conduct of the interim resolution professional or resolution professional
Disputes concerning the constitution of the committee of creditors
Applications concerning the information memorandum and access to records
Advice on eligibility of resolution applicants under Section 29A
Advice on and objections to resolution plans
Applications for approval of resolution plans under Section 31, and objections to approval
Applications for extension of the resolution period and issues arising from statutory timelines
Applications for withdrawal of proceedings under Section 12A

Liquidation

Proceedings following a failure to resolve, or on a decision to liquidate.

Applications for liquidation under Section 33
Representation of stakeholders in the liquidation process
Claim submission and disputes before the liquidator
Advice on the order of priority of distribution under Section 53
Applications concerning sale of assets and sale as a going concern
Representation in dissolution proceedings
Advice to secured creditors on relinquishing or realising security in liquidation

Avoidance and improper transactions

Applications concerning transactions entered into before commencement of insolvency.

Applications relating to preferential transactions under Section 43
Applications relating to undervalued transactions under Section 45
Applications relating to extortionate credit transactions
Applications concerning fraudulent or wrongful trading under Section 66
Defence of directors, promoters and counterparties in avoidance proceedings
Advice on the look-back periods and the position of related parties

Personal guarantors and individual insolvency

Proceedings under Part III of the Code as applicable to personal guarantors to corporate debtors.

Applications for insolvency resolution against personal guarantors
Defence of personal guarantors in such proceedings
Advice on the interim moratorium and its scope
Representation in repayment plan proceedings
Advice on the interaction between guarantee enforcement and corporate insolvency of the principal debtor

Appeals and related proceedings

Challenges to orders passed in insolvency proceedings.

Appeals to the National Company Law Appellate Tribunal under Section 61
Appeals to the Supreme Court of India under Section 62
Applications for condonation of delay and interim relief in appeals
Writ proceedings before the High Courts in appropriate cases
Advice on the limited grounds available for challenge to a resolution plan approved by the Adjudicating Authority

Related advisory

Advice on pre-packaged insolvency resolution for eligible micro, small and medium enterprises
Advice on distressed acquisitions through the resolution process
Advice on debt restructuring outside the Code
Advice on the treatment of cross-border elements in insolvency

Forums and authorities

National Company Law Tribunal, as the Adjudicating Authority for corporate persons
National Company Law Appellate Tribunal
Supreme Court of India
High Courts, in writ jurisdiction where applicable
Insolvency and Bankruptcy Board of India, in regulatory and advisory matters
Debts Recovery Tribunals, as the Adjudicating Authority in respect of individuals and partnership firms under the relevant provisions

Who we act for

Banks and financial institutions as financial creditors
Non-banking financial companies
Asset reconstruction companies
Operational creditors, including suppliers and service providers
Corporate debtors and their boards
Promoters, directors and personal guarantors
Resolution applicants and prospective acquirers of distressed businesses
Committees of creditors and their members
Homebuyers and other creditor classes represented collectively

How we approach this work

Admission stage treated as decisive.

Whether an application is admitted determines control of the debtor, the operation of the moratorium and the position of every creditor. Work at the Section 7, 9 or 10 stage is conducted accordingly.

Claims documented for challenge.

Claims are prepared on the basis that quantum, classification and security interest may each be contested before the resolution professional and, subsequently, before the Adjudicating Authority.

Timelines treated as substantive.

The Code operates on statutory periods. Positions are prepared and filed with those periods in view rather than in response to them.

Coordination with recovery proceedings.

Where a lender has parallel SARFAESI or tribunal proceedings against the same debtor, the insolvency position is taken consistently with those proceedings.

Frequently asked questions

Who can initiate insolvency proceedings against a company?: The Insolvency and Bankruptcy Code, 2016 permits a financial creditor to apply under Section 7, an operational creditor to apply under Section 9 following a demand notice under Section 8, and the corporate debtor itself to apply under Section 10. Each route has distinct requirements as to proof of default and documentation, and the application is made to the National Company Law Tribunal.
What is the minimum default required to initiate corporate insolvency?: The Code prescribes a minimum amount of default for an application to be maintainable, which the Central Government is empowered to notify. The threshold applicable at any given time should be verified against the notification in force, as it has been revised. Whether a default of the requisite amount exists is a matter of evidence before the Adjudicating Authority.
What is a moratorium under Section 14?: On admission of an application, the Adjudicating Authority declares a moratorium prohibiting, among other things, the institution or continuation of suits and proceedings against the corporate debtor, transfer of its assets, and enforcement of security interests including action under the SARFAESI Act. The moratorium continues until the resolution process concludes, subject to the exclusions provided in the Code.
What is the committee of creditors and what does it decide?: The committee of creditors is constituted from the financial creditors of the corporate debtor and takes the principal decisions in the resolution process, including on the appointment of the resolution professional and on approval of a resolution plan. Its decisions are taken by the voting thresholds specified in the Code. Commercial decisions of the committee have been treated as falling within its own domain, subject to the limited grounds of challenge in the Code.
What does Section 29A do?: Section 29A sets out the categories of persons who are ineligible to submit a resolution plan, including certain persons connected with the corporate debtor and certain persons with accounts classified as non-performing, subject to the conditions and exceptions in that section. Its purpose is to restrict participation by persons whose conduct contributed to the debtor's position.
What is the difference between resolution and liquidation?: Resolution seeks to keep the corporate debtor operating as a going concern under a plan approved by the committee of creditors and the Adjudicating Authority. Liquidation applies where no plan is approved within the statutory period, where the committee resolves to liquidate, or in the other circumstances set out in Section 33, and involves realisation of assets and distribution in the order of priority under Section 53.
Can a personal guarantor be proceeded against under the Code?: Part III of the Code, as brought into force in respect of personal guarantors to corporate debtors, provides for insolvency resolution and bankruptcy proceedings against such guarantors. Proceedings against a personal guarantor may be maintainable notwithstanding proceedings against the corporate debtor, subject to the provisions of the Code and the terms of the guarantee.
What can be challenged after a resolution plan is approved?: Section 61 provides for appeal to the National Company Law Appellate Tribunal against an order approving a resolution plan, on the grounds specified in that section, which are limited. A further appeal lies to the Supreme Court under Section 62 on a question of law. The commercial wisdom of the committee of creditors is not ordinarily a ground of challenge.

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Overview