Between the lines... For Private Circulation-Educational & Information purpose only Vaish Associates Advocates… Distinct. By Experience. I. Supreme Court: A liability in respect of a claim arising out of a recovery certificate under the Recovery of Debts and Bankruptcy Act, 1993 would be a "financial debt" under the IBC and a holder of such recovery certificate would be a "financial creditor" under the IBC. The Supreme Court (“SC”) has in its judgment dated May 30, 2022, in the matter of Kotak Mahindra Bank Limited v. A. Balakrishna and Another [Civil Appeal No.

Introduction

The Insolvency and Bankruptcy Board of India (the Board) vide its circular no. IBBI/2022-23/GN/REG084 dated 14 June 2022, in exercise of the powers conferred under clause (t) of sub- section (1) of section 196 read with sections 7, 9 and 240 of the Insolvency and Bankruptcy Code, 2016 (the Code) has introduced the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2022 (Amendment Regulations).

Amendments

The Insolvency and Bankruptcy Code, 2016 (Code) was enacted to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons.

The Insolvency and Bankruptcy Code, 2016 empowers Financial Creditor, Operational Creditors, and Corporate Debtor to initiate the Corporate Insolvency Resolution Process (CIRP) upon a default being committed by a Corporate Debtor. CIRP involves the setting up of a Committee of Creditors (CoC) and approval of a resolution plan to restructure the Corporate Debtor, or the liquidation of the Corporate Debtor. Often, Creditors and Corporate Debtor prefer to reach amicable settlements instead of going through with the entire CIRP process.

INTRODUCTION

The Apex Court on May 21,2021 in Lalit Kumar Jain V. Union of India &Ors[1] recognized and upheld the Rules on Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) 2019, as notified by the Central Government on November 15, 2019.

The Reserve Bank of India (“RBI”) has, in its capacity as the regulator of non-banking financial companies and under the powers conferred to it pursuant to Section 45-IE (1) of the Reserve Bank of India Act, 1934 (“RBI Act”), superseded the Board of Directors of SIFL and SEFL.

The press release of even date from the RBI also stipulates the following:

1) The step has been taken owing to governance concerns and defaults by SIFL and SEFL in meeting their various payment obligations.

When the Corporate Debtor defaults in making payments to its creditors the process of Corporate Insolvency Resolution Process (CIRP) can be initiated against it by its creditors. The Insolvency and Bankruptcy Code, 2016 (hereafter “the Code”) provides the process for insolvency resolution process (IRP). For this purpose the government also enacted the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and  Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereafter “the Rules”).

State Bank of India v. M/s. Metenere Limited^[1]

In a recent case, the National Company Law Appellate Tribunal ("NCLAT"), vide its ruling dated May 22, 2020 upheld the order passed by respective National Company Law Tribunal ("NCLT") dated January 4, 2020 with respect to substitution of appointment of an ex-employee of the Financial Creditor as the Interim Resolution Professional (IRP).

Factual Background

In the case of BRS Ventures Investments Ltd. vs. SREI Infrastructure Finance Ltd. & Anr. the Hon’ble Supreme Court of India (“Supreme Court”) held that simultaneous insolvency proceedings against a borrower and a corporate guarantor can be initiated for the same debt and default; and that assets of a subsidiary do not form part of the corporate insolvency resolution process (“CIRP”) of its holding company.

Brief Facts

In the ever-evolving landscape of corporate governance and insolvency regulation, the Ministry of Corporate Affairs (MCA) stands at the forefront, orchestrating strategic reforms to fortify the framework governing businesses in India. The idea for seeking reforms in the Insolvency and Bankruptcy Code (IBC) are the dual imperatives of enhancing corporate governance standards and streamlining insolvency processes to foster economic resilience and growth.