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Overview of IBC (Amendment)

Ordinance, 2018
csrahulhyd 1 day ago

Honʼble President on June 06, 2018 gave his assent to promulgate

the Insolvency and Bankruptcy Code (Amendment) Ordinance,
2018. These Sections shall come into force with immediate effect.
An attempt has been made in this document to shed light on the key
changes in the insolvency legislation.



In furtherance of the Government of Indiaʼs continuous efforts in

facilitating “ease of resolving insolvency in India”, maximising value
of assets locked up in NPAs, protecting the interest of various
Creditors, the Honʼble President on June 06, 2018 gave his assent
to promulgate the Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2018. These Sections shall come into force with
immediate effect. An attempt has been made in this document to
shed light on the key changes in the insolvency legislation. 13/06/18, 09C53

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1. In the definition of term ‘defaultʼ the word ‘repaidʼ
shall be substituted with the word ‘paidʼ.

• The meaning of the term ‘repayʼ is narrow in scope

Sec 3 –
meaning “to pay back” or “refund” and the term
‘repaymentʼ means “the act of repaying. Whereas,
the word ‘paymentʼ is a wider term which may
include even other dues to banks like taxes and
1. ‘Corporate Guarantorʼ has now been defined to
mean a corporate person who is the surety in a
contract of guarantee to a corporate debtor.

2. Definition of ‘Financial Debtʼ has been amended.

Now, any amount raised from allottees under a real
estate project shall be deemed to be an amount 13/06/18, 09C53

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having commercial effect of a borrowing and hence
allottees under a real estate project will now be
treated as ‘financial creditorsʼ under the Code.

• Earlier, non-inclusion of home buyers within either

the definition of ‘financialʼ or ‘operationalʼ creditors
was a cause of worry since it deprived them of:

a) the right to initiate the Corporate Insolvency

Resolution Process (“CIRP”)

b) the right to be on the Committee of Creditors

(“CoC”) and the guarantee of receiving at least the
liquidation value under the resolution plan.

• Amounts so raised under home buyer contracts

are a significant amount, and used as a means of
financing the real estate project.

• Also, the amount of money given by home buyers

Sec 5 –
as advances for their purchase is usually very high,
and frequent delays in delivery of possession may
thus, have a huge impact.

• In Chitra Sharma v. Union of India the amount of

debts owed to home buyers, which was paid by
them as advances, was claimed to be Rs. 15,000
Crore, more than what was due to banks. Despite
this, banks are in a more favorable position under
the Code since they are financial creditors.

• Similar judgments in Anil Mahindroo & Anr v.

Earth Organics Infrastructure and Nikhil Mehta
and Sons (HUF) v. AMR Infrastructure Ltd paved
way for this amendment.

3. In the definition of operation debt the word

‘repaymentʼ has been substituted with the word
‘paymentʼ for the reasons mentioned above.

4. The term ‘related partyʼ in relation to an individual

has now been specifically defined. 13/06/18, 09C53

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• Several Sections of the code and regulations use
the term ‘related partyʼ w.r.t an individual but the
same was not defined. Hence, this amendment.

1. Now, even a guardian of a financial creditor,

Sec 7 – Initiation
administrator or executor of estate of a financial
of CIRP by
creditor or debenture trustee and the like may
trigger insolvency of a corporate debtor, and be a
part of the CoC.
1. The definition of the term ‘disputeʼ has been
amended to even include such disputes which are
not pending in a suit or arbitration proceedings.

• Earlier, the definition had an anomaly which implied

Sec 8 – that there must be existence of dispute + a pending
Insolvency suit / arbitration before triggering of the insolvency
resolution by process.
creditor • The Honʼble Supreme Court in the matter of
Mobilox Innovations Private Limited v. Kirusa
Software Private Limited held that the dispute
must be existing prior to the receipt of the notice but
need not be pending in a suit or arbitration
1. The requirement for operational creditors to
submit a certificate from a financial institution has
been made optional.

• The Honʼble Supreme Court in Macquarie Bank

Limited v. Shilpi Cable Technologies Ltd held that
Section 9(3)(c) of the Code is an optional
requirement and an alternate understanding would
make it discriminatory.

• The definition of ‘financial institutionʼ under

Section 3(14) does not include foreign banks and
non-scheduled banks, thus creating a void for filing
Sec 9 – of applications by creditors with such banks. 13/06/18, 09C53

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Application for • The process of availing such certification may be
initiation of cumbersome if the creditor has multiple bank
corporate accounts.
resolution • Banks presently do not have a format for providing
process by such certification which may lead to denial of such
operational certification by banks.
• Most importantly, certificate is not a conclusive
proof of the relevant operational debt having been
satisfied, as the financial institution may not have
the details to map whether the entry in their records
is in relation to the payment of the particular debt in

2. Now operational creditor shall submit as proof of

its debt, available records with an Information Utility
or such other proof confirming that there is no
payment of an unpaid operational debt by the
corporate debtor.

1. Corporate Debtor shall now get special resolution

passed by its shareholders or a resolution passed by
at least 3/4th of the total number of its partners, as
the case may be, for filing of the CIRP application.

• It appeared that many CIRP applications filed on

behalf of the Corporate Debtor under the Code were
made without an underlying shareholders/partners
Sec 10 – approval.
Initiation of
Corporate • Commencement of CIRP is a major decision for the
Insolvency corporate debtor and may have a huge impact on its
Resolution functioning or even lead to its liquidation. Hence,
process by this amendment.
applicant 2. The presence or absence of pending disciplinary
proceedings against the proposed Resolution
Professional shall now be a ground for acceptance
or rejection of application for CIRP filed by the 13/06/18, 09C53

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corporate applicant.

• Earlier such condition was there only when CIRP

applications were filed by financial or operational
1. For extension of CIRP period the COC voting
Sec 12 – Time- threshold is reduced from 75% to 66% of voting
limit for share.
completion of
insolvency • The high threshold of 75% of voting share was
resolution proving to be a road-block. Hence, a suitable
process amendment has been made to reduce the same to
66% of voting share.
1. The Adjudicating Authority (referred to as ‘AAʼ in
rest of the Article) may allow withdrawal of CIRP
application post admission with the approval of 90%
Sec 12A – voting share of CoC
Withdrawal of
• Prior to this, there was no provision in the Code or
the CIRP Rules in relation to permissibility of
admitted under
withdrawal post admission of a CIRP application.
Section 7, 9 or
However, a consistent pattern that emerged in many
CIRP cases was that for a settlement between
applicant creditor and the debtor leading to
withdrawal of CIRP post admission, consensus was
also required amongst all creditors and the debtor.
1. The scope of the moratorium may be restricted to
the assets of the Corporate Debtor only and
Moratorium shall not be applicable to a surety in a
contract of guarantee to a corporate debtor.

• Since many guarantees for loans of corporates are

given by its promoters in the form of personal
guarantees, if there is a stay on actions against their
assets during a CIRP, such promoters (who are also
corporate applicants) may file frivolous applications
to merely take advantage of the stay and guard their
assets. 13/06/18, 09C53

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Sec 14 – Case Judgment
Moratorium NCLAT in the matter of
Alpha and Omega
Diagnostics (India) Ltd. v. • Moratorium has no
Asset Reconstruction application on the
Company of India & properties beyond the
Schweitzer Systemtek ownership of the
India Private Limited v. Corporate Debtor.
Phoenix ARC Private
Allahabad High Court • Applied moratorium to
subsequently took a enforcement of
differing view in Sanjeev guarantee against
Shriya vs. State Bank of personal guarantor to
India the debt.

1. Now, IBBI is vested with the power to specify the

last date for submission of claims.
Sec 15 – Public
announcement • Different Sections and CIRP regulations have
of corporate provided for different period for submission of
insolvency claims. Since the nuances regarding submission of
resolution claims, constitution of the CoC, verification of
process claims, etc. are captured in the CIRP Regulations, it
is now decided to vest such powers with IBBI to
provide for flexibility
1. Now, IRP to continue till the appointment of the

• Section 16(5) of the Code provided that the term

of the IRP shall not exceed 30 days from the date of
his appointment and Regulation 17(1) of CIRP
Regulations states that the IRP is required to file a
report certifying the constitution of CoC on or
Sec 16 – before the expiry of 30 days from the date of his
Appointment appointment.
and tenure of
interim • Whereas, Regulation 17(2) requires a meeting of
resolution the CoC to be convened within 7 days of filing the
professional report. 13/06/18, 09C53

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• This had led to an anomaly whereby the term of
the IRP ends on the 30th day from the date of his
appointment and the meeting may not be called till
the 37th day, leading to a period during the CIRP
where a professional is absent.

Hence, this amendment.

1. The IRP will also be responsible for complying with
Sec 17 – the statutory requirements under applicable laws
Management of while managing the affairs of the corporate debtor
the affairs of the during CIRP.
• To avoid any ambiguity, ‘management of corporate
debtor by IRP
affairsʼ also includes responsibility for statutory
1. Authorised Representatives of financial creditors
who are related parties to the corporate debtor are
now disqualified from participating in the CoC.

2. However, a carve out has been provided for

financial creditors that are regulated by a financial
sector regulator and have become a related party of
the corporate debtor solely on account of
conversion or substitution of debt into equity shares
of the corporate debtor, prior to the insolvency
commencement date.

• There might be a situation where the financial

creditor holding a large portion of financial debt in
the corporate debtor was excluded from the CoC on
account of equity or preference shares of the
corporate debtor held by it pursuant to a previous
debt restructuring for sustainable structuring of
stressed assets which enabled financial creditors
such as banks to convert part of their debt into
equity in the borrower. Therefore, it would be unfair
to deny such pure play financial creditors
representation or voting rights in the CoC formed
under the Code on account of equity held by them
pursuant to debt restructuring schemes 13/06/18, 09C53

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implemented in the past.

3. Persons other than the financial creditors shall not

Sec 21-
be a part of the CoC for the purposes of
Committee of
representation and voting
Creditors (CoC)
• Earlier it was provided that creditors in respect of
certain debts issued as securities, may choose to be
present in the meetings themselves or appoint a
single trustee, agent, to act and vote on their behalf.

4. Manner of participation and voting in the CoC

provided for, where the financial debt-

(i) is in the form of securities and deposits

(ii) is owed to a class of creditors (other than under

consortium arrangement or syndicated facility)
exceeding the specified number;

(iii) is represented by a guardian, executor or


• There was a need of mechanism for providing

mode of representation in meetings of security
holders, deposit holders, and all other classes of
financial creditors which exceed a certain number,
through an authorised representative. Hence, this

5. The decisions of routine nature shall require

approval from 51% of voting share of CoC instead of
present provision requiring approval from 75% of
voting share.

1. Voting threshold for obtaining the approval of the

CoC for appointment of RP reduced from 75% to
66% of voting share.

• The high threshold of 75 percent of voting share of

Sec 22 – financial creditors for decisions of the CoC was
Appointment of proving to be a road-block in the resolution process. 13/06/18, 09C53

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resolution Effectively, as a result of the high threshold, blocking
professional the resolution plan and other decisions of the CoC,
was easier than approving these.

2. Now, it is required to obtain consent of an IRP to

continue as RP or for appointment of RP.

1. RP shall continue to manage the operations of the

Sec 23 – corporate debtor after the expiry of the CIRP period
Resolution post submission of the resolution plan, until an order
professional to is passed by the AA.
conduct the
• Currently, the RP is responsible to manage the
Corporate Debtor only during the CIRP i.e., 180/270
days as the case may be. However, there was no
guidance in the Code regarding the responsibility
management after the CIRP process until an order
was passed by the AA.
1. The new Section provides for the rights and duties
of the authorised representatives of financial

Few salient features of the provision are as follows:

Sec 25A – a) The authorised representative shall have the right

Rights and to participate and vote in the meeting of the CoC on
duties of behalf of the financial creditors it represents.
representative b) It shall be the duty of the authorised
of financial representative to circulate the agenda and minutes
creditors of the meeting of the CoC to the financial creditors it

c) The authorised representative shall not act

against the interest of the financial creditors it

Sec 27 –
Replacement of 1. The threshold for replacing the existing RP
resolution appointed with another RP has been reduced from 13/06/18, 09C53

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professional by 75% to 51% of voting share, subject to a written
committee of consent from the latter.
Sec 28 – 1. The threshold for voting for all actions under this
Approval of Section such as raising of interim finance, create any
committee of security interest over the assets of corporate debtor,
creditors for undertake any RPT etc. has been reduced from 75%
certain actions to 51% of voting share.
1. Account must be Non performing asset (“NPA”) at
the time of submission of the resolution plan.

2. Financial creditor which is not a related party to

the corporate debtor and holding convertible
securities therein not to be disqualified from
submitting resolution plan.

• Taking into consideration the nature of business of

financial entities such as ARCs, AIF, FII, FVCI etc.
they are likely to be related to Companies that are
classified as NPA and consequently be disqualified.
Hence these pure play financial entities have been
exempted from disqualification u/s 29A(c).

3. No disqualification under this section for

resolution applicants with an NPA account, if such
account was acquired pursuant to a prior resolution
plan approved under this Code for a period of 3
years from the date of approval of such prior
resolution plan by the AA.

• In order to ensure that the underlying objective of

the Code to promote resolution is furthered,
resolution applicants who hold NPA accounts solely
due to acquisition of corporate debtors under the
CIRP, must be given some time to revive the
corporate debtor without being disqualified from
bidding for other corporate debtors if they fulfill all
other criteria. In this regard, a period of Three (3)
years has been provided for suspending the
disqualification under section 29A(c). 13/06/18, 09C53

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4. A Person is disqualified from filing resolution plan
for a period of Two (2) years from the date of his
release from imprisonment if he has been convicted
for Two (2) years or more for offences under the
Acts listed in the Schedule XII or for Seven (7) years
Sec 29A – or more under any other law for the time being in
Persons not force.
eligible to
submit • Earlier disqualification norms were of a very wide
resolution plan criterion which may cast within its net offences
which have no nexus with the ability to run a
corporate debtor successfully.

5. Exemption from disqualification has been

provided to a connected person of a disqualified

• Keeping in mind that the disqualification based on

extant criterion also extends to connected persons
of the resolution applicant, a need was felt to narrow
down the scope of this clause.

6. No disqualification for a resolution applicant who

has acquired a corporate debtor in which a
preferential, undervalued, extortionate credit
transaction or fraudulent transaction has taken place
prior to the acquisition of the corporate debtor
pursuant to a resolution plan approved under the
Code or pursuant to a scheme or plan approved by a
financial sector regulator or a court of law and has
not otherwise contributed to such transaction/s.

• The probable reasons is that a person must not be

punished for acts of its predecessors if it had no
nexus with such past acts that led to the
preferential, undervalue, fraudulent or extortionate
credit transaction.

7. It is specified that the disqualification is applicable

only if the guarantee has been invoked by the
creditor and dishonoured by the guarantor. 13/06/18, 09C53

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• Intent of the provision could not have been to
disqualify every guarantor only for the reason of
issuing an enforceable guarantee as that would be
discriminatory. Hence, the suitable amendment.

1. The resolution plan submitted by RP deemed

posses shareholder approval required under the
Companies Act, 2013 or any other law for the time
being in force

2. The voting threshold for approving the resolution

plan has been reduced from 75% to 66% of voting
Sec 30 –
Submission of • Earlier, owing to higher threshold, only 9 out of 30
resolution plan cases went into liquidation on account of rejection
by the CoC.

3. Clarification has been provided that the eligibility

criteria in section 29A as amended by this
Ordinance, shall be applicable to resolution
applicants that have not submitted resolution plans
on the date of coming into force of this Ordinance.
1. The AA shall, before passing an order of approval
of resolution plan, ensure that the resolution plan
has a satisfactory implementation plan.
Sec 31 –
2. Specifically provided that necessary approvals
Approval of the
required under any law for the time being in force,
resolution plan
may be obtained within a period of One (1) year from
the date of approval of the resolution plan or such
time as is specified in the relevant law for obtaining
such approvals, whichever is later.
1. The threshold for obtaining the approval of the
Sec 33 –
CoC for making an application to the AA to pass a
Initiation of
liquidation order has been reduced from 75% to 66%
of voting share.
1. There is now a requirement to obtain consent of 13/06/18, 09C53

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Sec 34 – an RP to continue as a liquidator.
Appointment of
2. The AA shall by order replace the RP if the RP fails
liquidator and
to submit written consent.
fee to be paid
3. There is now a requirement to obtain consent of
an Insolvency Professional to act as the liquidator.
1. Now, even those claims which have been
accepted by the liquidator may be appealed.

• Earlier, only those Creditors whose claims have

been rejected by liquidator had right of appeal to AA
Sec 42 – Appeal
under Section 42. However, there was no scope for
against the
appeal based on disputes in accepted claims, say, in
decision of
terms of valuation or any other ground.
• Providing a right to a creditor to challenge such
accepted claims may be essential, especially since
liquidation may be the last resort for recovery of
1. If any application for CIRP or liquidation of a
corporate debtor is pending before an AA, then an
application for insolvency resolution or liquidation or
bankruptcy, as the case may be, of a corporate
guarantor or personal guarantor of such corporate
debtor must be filed before the same AA.

2. The proceeding for insolvency resolution,

Sec 60 –
liquidation or bankruptcy, as the case may be, of a
corporate guarantor or personal guarantor of a
Authority for
corporate debtor pending in any court or tribunal
shall stand transferred to the AA dealing with the
insolvency resolution process or liquidation
proceeding of such corporate debtor.

• Section 60 provides a link between corporate

debtor and personal guarantor but no such link is
present between the insolvency resolution or
liquidation processes of the corporate debtor and
the corporate guarantor. Hence, this amendment. 13/06/18, 09C53

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1. The provisions of the Limitation Act, 1963 shall, as
far as may be, apply to proceedings or appeals
under the Code before the AA or the NCLAT, as the
case may be.
Sec 238A –
Limitation • The intent was not to package the Code as a fresh
opportunity for creditors and claimants who did not
exercise their remedy under existing laws within the
prescribed limitation period. Hence a specific
section applying the Limitation Act to the Code.

1. Central Government has been empowered to

Sec 240A – exempt or vary application of provisions of the Code
Application of for MSMEs.
this code to
micro, small and • The introduction of such a Section will be
medium beneficial for MSMEs, in public interest while
enterprises preserving the overall scheme and objective of the

Disclaimer: This material and the information contained herein is

prepared by Corporate Updates Team of RANJ & Associates,
Company Secretaries, Hyderabad. The above information is only
indicative and solely for informational purpose and private
circulation. RANJ & Associates, Company Secretaries intend to, but
do not guarantee or promise that it is correct, complete / up to date.
We expressly disclaim any liability to any person in respect of
anything, and of consequences of anything done, or omitted to be
done by any such person in reliance upon the contents of this
document. 13/06/18, 09C53

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Author CS Rahul Jain is Partner with ‘RANJ & Associatesʼ and
CS Prafful Jain is Associate with RANJ & Associates and can be
reached at . 13/06/18, 09C53

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