Posts

Introduction – The Insolvency and Bankruptcy Code

/in , /by

The Insolvency and Bankruptcy Code, 2016 (“Code”) is a perfect platform that oversees and addresses the Corporate Insolvency Resolution Process (“CIRP”) and liquidation proceedings for individuals, firms, corporates and others. It seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy that will provide for resolution of insolvency in a speedy and time bound manner while simultaneously balancing the interest of all the stakeholders.

The ecosystem of the Code is dependent on four pillars namely, the Insolvency and Bankruptcy Board of India (IBBI), Information Utilities (IUs), Insolvency Professional Agencies (IPAs) and Insolvency Professionals (IPs).

This book attempts to cover the role of an Interim Resolution Professional (IRP) in the Corporate Insolvency Resolution Process. The role of an IRP commences from the day he/she is appointed as such by an order of the Adjudicating Authority (within fourteen days from the insolvency commencement date) and ends on the thirtieth day from the date of his appointment. During the tenure of thirty days, the IRP is provided with tasks of great responsibility and criticality that has the potential to hugely impact the implementation and success of the Code.

The IRP shall have the power of management of the corporate debtor and shall take control of the assets of the corporate debtor. The powers of the Board of Directors of the corporate debtor shall stand suspended. The IRP shall make a public announcement pertaining to his appointment and invites creditors for submission of proof of claims. On receipt of claims from various creditors, he is also entrusted with the task of verification of the claims, on the basis of which, he prepares the list of creditors. Once the list of creditors is prepared, the IRP shall constitute the Committee of Creditors (“Committee”) and file a report in this behalf with the Adjudicating Authority. Subsequently, the first meeting of the Committee is to be convened.

With the conclusion of the first meeting of the Committee, the role of the IRP also comes to an end. At the first meeting of the Committee, the role of the IRP comes to an end either by change of his role into a resolution professional, subject to approval of his appointment by a majority of seventy five percent of the voting share of the financial creditors in the Committee or by termination of his role as an IRP and appointment of another resolution professional, where his appointment is not approved by the Committee.

It is pertinent to note the importance of the IRPs under this Code, who are endowed with mammoth and pivotal tasks that needs to be undertaken within a prescribed time frame. It is their efficiency and management that provides the Code with the impetus to fulfil its objective of resolving insolvency and bankruptcy cases in a speedy and time bound manner.

Bhatt & Joshi Associates, High Court Lawyers, High Court Advocates, NCLT Lawyers - Flipkart Photo

Flipakart ordered for corporate insolvency process by NCLT, Flipkart gets stay from High Court

/in , /by

FLIPKART ISSUE PRESENTED BEFORE NCLT

A single judge bench of the Bengaluru National Company Law Tribunal (NCLT) ordered on  October 24, a Corporate Insolvency Process against Walmart controlled online retailer Flipkart for non-payment of the Rs 26.95 crore of dues to Mumbai based LED TV supplier CloudWalker Streaming Technologies Private Ltd after a petition by the Mumbai based company.

Cloud Walker Streaming Technologies Pvt. and Flipkart entered into an agreement for supply of LED TVs in 2016. As per the petition, Flipkart showed keen interest in selling the products of the supplier for their superior technology, features and other advantages over other suppliers of the product. Cloud Walker claimed that after placing purchase orders for LED TVs, Flipkart initially delayed accepting the order, citing the lack of a warehouse as a reason. Cloud Walker submitted that they had agreed to store the goods in their own warehouse temporarily, but Flipkart never collected the delivery, after making several excuses. Furthermore, Cloud Walker has also said that Flipkart ‘coerced’ them into selling the products at a discounted price, knowing that the order had been warehoused for Flipkart, for a while. In order to avoid any more losses and due to facing liquidity crunch, Cloud Walker agreed to offer a discount, but Flipkart still failed to collect delivery and make payment for over 70% of the stock ordered. It is Cloud Walker’s grievance that the supplier was forced to unload the collected goods at a heavily marked down price, as the goods had been in the warehouse for over 2 months. As a result of non-payment of balance dues, the supplier Cloud Walker issued a demand notice under section 8 of the IBC (Insolvency and Bankruptcy Code, 2016) but the Corporate Debtor (CD) Flipkart did not respond to the statutory notice, as is necessitated by the provisions of the IBC.

Flipkart challenged the petition on the ground of having made a payment of over Rs. 85.57 cr. towards the invoices raised against by Cloud Walker, as against the total Purchase Order (PO) amounting to Rs 103.62 cr. Flipkart also contended that there were huge disparities in the amount claimed by the Supplier, by way of invoices, and before these disputes are adjudicated upon by a competent civil court, the insolvency proceedings are a way of misusing the law. In addition, Flipkart submitted that an amount of Rs. 42.96 cr. payable to Cloud Walker had been withheld by them, due to deficiency in services.

In an order uploaded on the NCLT website on 5th November the single judge bench of Rajeswara Rao Vittanala said that Flipkart has committed default by the non-payment of dues despite repeated requests from CloudWalker. Vittanala appointed Deepak Saruparia as the resolution professional in the case. The NCLT Bench also said that Flipkart had failed to raise a dispute regarding deficiency of services on the part of Cloud Walker, before the insolvency petition was preferred by the Supplier, nor did it respond to the statutory demand notice issued under section 8. It was also observed that Flipkart had failed to notify the Supplier Cloud Walker of any substantive pending dispute, suit or arbitral proceedings.

 

Flipkart followed up with a writ petition in the Karnataka High Court and a day later obtained a stay on the NCLT order.

In its next hearing held on October 31, the Karnataka HC ordered continuation of the stay. The date of the next hearing has not been set yet. “In view of the above, it is clarified that as on date, Flipkart is not undergoing corporate insolvency resolution process and is continuing its operations on a going concern basis under its present management,” the company said in an email statement.

­The matter pertains to an agreement between CloudWalker and Flipkart that dates back to December 2016. CloudWalker, which sells TV under Cloud TV brand, had alleged that Flipkart had signed the agreement to purchase stock worth Rs 103.62 crore but only bought goods worth Rs 85.57 crore, and that too after many delays.

 

Read more about what is corporate insolvency process?

 

Bhatt & Joshi Associates, High Court Lawyers, High Court Advocates, NCLT Lawyers - NCLT

What is Corporate Insolvency Resolution process? – NCLT

/in , /by

Here’s a stage-wise process for Corporate Insolvency Resolution process – NCLT:-

  1. In case a corporate debtor makes a default in repayment of dues of the creditors, the financial creditor/s, an operational creditor or a corporate debtor through Corporate applicant or any authorised member, a person who has the controlling capacity over the financial affairs of the corporate debtor has the power to start the insolvency resolution process. In order to initiate the resolution process, an application has to be made to National Company Law Tribunal (NCLT) under (Section 10, IBC, 2016 in case of Corporate Debtor, Section 7 and 9 of IBC, 2016 in case of Financial Creditors and Operational Creditors).
  2. A ten days demand notice under (Section 8(2) of IBC, 2016 in case of Operational Creditors) has to be given to the corporate debtor by the Operational Creditors before he approaches the NCLT under Section 9 of IBC, 2016). However, an operational creditor can directly approach the NCLT if the corporate debtor does not repay the outstanding dues or fails to show any existing difference. (Kindly refer to Section 8: Insolvency resolution by operational creditor. & Section 9: Application for initiation of corporate insolvency resolution process by operational creditor.)
  3. The new code states that the insolvency process of a Corporate Debtor must be concluded within 180 days from the date of initiation in the NCLT (Section 12, IBC of 2016). The claims of the Creditors shall be frozen for a period of six months on admission of application by NCLT. During this time, the NCLT shall listen to the options to revive and decide the future course of action. It is further clarified that unless a resolution plan is made or liquidation process is initiated, no legal claim shall be sought against the corporate debtor in any other forum or Court (Section 14 of IBC, 2016).
  4. When the application for insolvency is accepted under Section 7/9/10 of IBC, 2016 the NCLT within fourteen days appoints an Insolvency Resolution Professional (IRP) on receiving a confirmation from Board of Insolvency and Bankruptcy. The appointed IP then takes up the responsibility of the debtor’s properties and functioning. He also collects all the information that is relevant with regard to the financial condition of the debtor from information utilities. IP is appointed for a term of thirty days only within which he does all the necessary scrutinization (Section 18, IBC, 2016).
  5. The next step is to make a public announcement about the commencement of corporate insolvency process so that claims from any other creditors can also come forward, if any. A creditor’s committee is constituted by the IRP post receiving any claims by public announcement (Section 13 of IBC, 2016). In the event any financial creditor is a related party of the defaulting debtor, such a creditor will not have the right to represent, participate or vote in the committee of creditors so constituted by the IP. In order to be a part of the Creditor’s Committee, the average dues of the operational creditors must be at least ten percent of the debt. The Committee of Creditors shall first seven days of its incorporation decide through seventy five percent votes whether the interim IRP should be used as a Resolution Professional or should be replaced with someone else.
  6. After the Committee finalizes the Resolution Professional he is appointed by the NCLT (Section 16 of IBC, 2016). The Resolution Professional so appointed can be replaced anytime by the Creditor’s Committee with a majority of seventy five percent votes. In the interim, i.e. till the appointed of any new Resolution Professional, the Creditor’s Committee can take decisions with regard to insolvency resolution by seventy five percent majority voting.
  7. In the event majority (75%) of the financial creditors are of the view that the case is very complex and more time extension is required, the NCLT may grant a one-time extension of up to a maximum of 90 days over and above the pre decided tenure of 180 days. It shall be the sole responsibility of the Resolution Professional to manage and conduct the corporate insolvency resolution procedure during such a term (Section 18 of IBC, 2016).
  8. To enable the resolution applicant for preparing a resolution plan, the Resolution Professional shall compile a statistics note. A resolution applicant can be defined as an individual who has the duty and responsibility to submit a resolution plan to the Resolution Professional. The Creditor’s Committee further receives the plan from the Resolution Professional for its approval.
  9. On the resolution being approved, the next step by the Creditor’s Committee is to come up with options on restructuring which can be either coming up with a modified repayment plan or to simply liquidate the properties of the company in order to recover dues. If the Creditor’s Committee fails to take any binding decision with regard to the repayment by the debtor, the debtor’s assets are liquidated in order to pay back the creditors. If there is a plan prepared for resolution, the same shall be sent to NCLT for approval and implementation.

Bhatt & Joshi Associates, High Court Lawyers, High Court Advocates, NCLT Lawers - Corporate Lawyers & Company Lawyers

 

Read More here : Introduction – The Insolvency and Bankruptcy Code – NCLT