Individual/ Firm Insolvency

The Insolvency and Bankruptcy Code, 2016 define a separate insolvency resolution process for individuals/partnership firms which is different from that provided for the corporate bodies. Chapter III of Part III provides for the insolvency resolution process (RP) for individuals and partnership firms.

The Adjudicatory Authority (AA) for the process enshrined under this Part is the Debt Recovery Tribunal (DRT), constituted under the Recovery of Debts due to Banks and Financial Institutions Act,1993 (RDBFI).

APPLICATION TO INITIATE INSOLVENCY RESOLUTION PROCESS

There is various procedure to file an application to initiate the insolvency resolution process (IRP) under part II and Part III of the Insolvency and Bankruptcy Code, 2016.

Both the debtors and the creditors have a right to apply Part III. Further, they can choose to file the application either by themselves or through a resolution professional (RP).

It is to be noted that the proceedings under Part III of the Code take place before the Debt Recovery Tribunals (DRT).

The procedure to file an application for initiation of an Insolvency Resolution Process under Part III of the IB Code, 2016 can be explained by the following chart.

FOLLOWING PERSON’SARE NOT ENTITLED TO INITIATE THE INSOLVENCY RESOLUTION PROCESS (IRP).

Section 94 provides that a debtor shall not be entitled to make an application if he/it is –

1. a) an undischarged bankrupt:
2. b) undergoing a fresh start process:
3. c) undergoing an insolvency resolution process
4. d) undergoing a bankruptcy process
5. e) or if an application has been admitted in respect of the debtor for?12 months?preceding the date of submission of the application.

APPLICATION CAN BE SUBMITTED IN RESPECT OF THE FOLLOWING DEBTS

According to the Code, an application to begin the bankruptcy resolution procedure must be made only for debts that are?Not excluded debts. This includes –

1. a) fine imposed by a court or tribunal;
2. b) liability to pay damages for negligence, nuisance, or breach of a statutory, contractual, or other legal obligation;
3. c) liability to pay maintenance to anyone under any legislation in place at the time;
4. d) liability about a student loan; or
5. e) any other debt as may be prescribed.

Interim-moratorium

– Date of Commencement?– Date of filing/submission of the application.

– Date of Termination –?Date of admission/acceptance of the application.

– Effects of Interim Moratorium

1. a) any pending legal action shall be deemed to have been stayed; and
2. b) Creditors are not permitted to take any legal action or commence any legal procedures concerning any debt.

APPOINTMENT OF RESOLUTION PROFESSIONAL

Part III of the Code provides an option to the applicant to apply for the initiation of an insolvency resolution process (IRP) through a resolution professional (RP). As per Section 97, the process for the appointment of the resolution professional necessarily depends upon whether the applicant has proposed the name of a resolution professional.

ADMISSION OR REJECTION OF APPLICATION

As per section 100, it mandates that the DRT pass an order either accepting or rejecting the application within?14 days?from the date of submission of the report by the resolution professional (RP). A copy of the order, along with the report of the resolution professional (RP), should be sent to the creditors within?7 days?of the said order.

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise.?AKGVG & Associates ?does not intend to advertise its services through this.

Posted by:

CS Neetu Saini

AKGVG & Associates