Insolvency and Bankruptcy Code (Amendment) Act, 2023

Share on:

Introduction

In India, the Insolvency and Bankruptcy Code (IBC) has been an important regulation since its enactment in 2016 but its efficiency has been in question due to which it is amended from time to time to improve its overall efficiency. The primary aim of the Insolvency and bankruptcy Code, 2016 is “to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.” In other words, it aimed to provide a comprehensive framework for the resolution of distressed companies and individuals. Further, to strengthen the IBC process, the Insolvency and Bankruptcy Code (Amendment) Act, 2023 is introduced highlighting several noteworthy changes. The amendment is also known as the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2023, introduced by the Insolvency and Bankruptcy Board of India (IBBI) on September 18, 2023. Major changes in the process of CIRP (Corporate Insolvency Resolution Process) have been brought through this 2023 amendment. 

Amendment Overview

The motive behind introducing the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2023, is to facilitate the smooth functioning of the corporate insolvency resolution process. According to a report, the total number of default cases admitted to the IBC is 6,567 whereas the IBC successfully resolved 678 cases. Moreover, it has been observed that the liquidation value of the resolved cases is 18.99% and the average time taken for closure of cases is 614 days. This amendment brought various changes in the regulations along with the introduction of new regulations. Some of the regulations added are related to the cooperation with a Resolution Professional (RP), submission of proof of claims, claim verification, authorized representatives, an enhanced fee to authorized representative, obligations of authorized representative, transfer of debt due to creditors, audit of the corporate debtor, request for a resolution plan, the model timeline for CIRP, and the timeline for filing of forms (Form G and Form H). All these regulations are discussed in the further section of the article.

Explore Supreme Court Judgments for Free

Newly added regulations

Regulation 2D: Details of Debt, Default, and Limitation

This regulation states that “While filing an application under section 7 or 9, the financial creditor or the operational creditor, as the case may be, shall also submit along with evidence, chronology of the debt and default including the date when the debt became due, date of default, dates of part payments, if any, date of last acknowledgment of debt and the limitation applicable.”

Regulation 3A: Assistance and Cooperation by Personnel of the Corporate Debtor

After Regulation 3 in the principal regulations, the following should be inserted, 

• “The interim resolution professional or resolution professional, as the case may be, shall take custody and control as specified under this regulation from the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor as the case may be, of the following:- 
  • (a) the records of information relating to the assets, finances and operations of the corporate debtor referred in clause (a) of section 18 and such other information required under regulation 36; 
  • (b) the assets recorded in the balance sheet of the corporate debtor or in any other records referred in clause (f) of section 18. 
• The personnel of the corporate debtor, its promoters, or any other person associated with the management of the corporate debtor shall provide to the interim resolution professional or resolution professional, as the case may be, a list of assets and records while handing over their custody and control, and the interim resolution professional or resolution professional may, after taking such custody and control, if deemed necessary, identify person(s) in whose possession these assets and records will be held. 
• Where any asset or record has not been handed over or the list has not been provided under sub-regulation (2), the interim resolution professional or resolution professional, as the case may be, shall himself prepare a list of assets and records while taking custody and control of assets and records, and the interim resolution professional or resolution professional may, after taking such custody and control, if deemed necessary, identify person(s) in whose possession these assets and records will be held. 
• Each list of assets and records under sub-regulation (2) and (3) shall be signed by the parties present and by at least two individuals who have witnessed the act of taking control and custody of such assets and records. 
• The interim resolution professional or resolution professional, as the case may be, shall requisition from the personnel of the corporate debtor, its promoters, or any other person associated with the management of the corporate debtor as the case may be, the information relating to the assets, finances and operations of the corporate debtor referred in clause (a) of section 18 and such information required under regulation 36 which were required to be maintained by the corporate debtor but have not yet been handed over. 
• The interim resolution professional or resolution professional, as the case may be, shall requisition from the personnel of the corporate debtor, its promoters, or any other person associated with the management of the corporate debtor as the case may be, the assets that are recorded in the balance sheet or in any other records referred in clause (f) of section 18 and whose custody has not been handed over. 
• An application made under sub-section (2) of section 19 in respect of failure to provide any asset or record as requisitioned under the Code and this regulation, shall show the presence of such asset or record in the notice of requisition and absence of such asset or record in the list of assets and records taken in control and custody under sub-regulation (2) and (3).”

Regulation 12 Amendment: Submission of proof of claims

According to this regulation, “A creditor shall submit a claim with proof on or before the last date mentioned in the public announcement. Provided that a creditor, who fails to submit a claim with proof within the time stipulated in the public announcement, may submit his claim with proof to the interim resolution professional or the resolution professional, as the case may be, up to the date of issue of request for resolution plans under regulation 36B or ninety days from the insolvency commencement date, whichever is later: Provided further that the creditor shall provide reasons for delay in submitting the claim beyond the period of ninety days from the insolvency commencement date.” It omitted sub-regulation (2). 

Regulation 13 Amendment: Claim Verification

After sub-regulation (1) in Regulation 13 of the principal regulations, Regulation 1A (Regulation 13(1A), Regulation 1B (Regulation 13(1B), and Regulation 1C (Regulation 13(1C) should be inserted. 

• Regulation 13(1A) states that “Where the interim resolution professional or the resolution professional, as the case may be, does not collate the claim after verification, he shall provide reasons for the same.”
• Regulation 13(1B) illustrates “In the event that claims are received after the period specified under sub-regulation (1) of regulation 12 and up to seven days before the date of the meeting of creditors for voting on the resolution plan or the initiation of liquidation, as the case may be, the interim resolution professional or resolution professional, as the case may be, shall verify all such claims and categorize them as acceptable or non-acceptable for collation.”
• Regulation 13(1C) provides that the interim resolution professional or the RP should
• “intimate the creditor within seven days of categorization thereof under sub-regulation (1B) and provide reasons where such claim has been categorized as non-acceptable for collation; and
• put up the claims categorized as acceptable under sub-regulation (1B) and collated by him to:-
  • the committee in its next meeting for its recommendation for inclusion in the list of creditors and its treatment in the resolution plan, if any; and 
  • submit such claims before the Adjudicating Authority for condonation of delay and adjudication wherever applicable.”

Also Read: Legal News

Regulation 16A Amendments: Authorized Representatives

A more flexible process for the appointment and replacement of authorized representatives was introduced, benefiting financial creditors. After sub-regulation (3) in the principal regulation 16A, the newly added:

• Sub-regulation (3A) states that “the financial creditors in the class, representing not less than 10 percent. voting share may seek replacement of the authorized representative with an insolvency professional of their choice by making a request to the interim resolution professional or resolution professional who shall circulate such request to the creditors in that class and announce a voting window open for at least twenty-four hours.” 
• Sub-regulation (3B), subject to clauses (a) and (b) of sub-regulation (2) of regulation 4A, states that “the interim resolution professional or resolution professional, as the case may be, shall offer a choice of at least three insolvency professionals to the financial creditors in the class including such insolvency professional(s) proposed under sub-regulation (3A) along with the existing authorized representative.” 
• Sub-regulation (3C) illustrates that “the resolution professional shall apply to the Adjudicating Authority for the appointment of the authorized representative who receives the highest percentage of voting share of financial creditors in that class.”

Also, a new regulation for the existing sub-regulation (8) is inserted which highlights the enhanced fee to authorized representatives. Fees for authorized representatives are defined based on the number of creditors in a class. The amendment provides, “The authorized representative of creditors in a class shall be entitled to receive a fee for every meeting of the committee attended by him in the following manner.”

It also provides “the authorized representative shall be entitled to receive a fee for every meeting of the class of creditors convened by him in the following manner:”

It also illustrates that “the payment of fee to authorized representative shall be part of insolvency resolution process cost in respect of two meetings with the creditors he represents corresponding to a meeting of the committee of creditors. The fee for any additional meeting beyond two meetings corresponding to a meeting of the committee of creditors shall be part of the insolvency resolution process cost subject to the approval of the committee of creditors.”

Along with this, certain obligations of authorized representatives are also inserted after sub-regulation (9) which include sub-regulation (10), sub-regulation (11), and sub-regulation (12).  As per sub-regulation (10), “The authorized representative shall-

• assist the creditors in a class he represents in understanding the discussions and considerations of the committee meetings and facilitate informed decision-making; 
• review the contents of minutes prepared by the resolution professional and provide his comments to the resolution professional, if any; 
• help the creditors in a class he represents during the consultations made by the resolution professional to prepare a strategy for marketing of the assets of the corporate debtor in terms of sub-regulation (1) of regulation 36C; 
• work in collaboration with the creditors in a class he represents to enhance the marketability of the assets of the corporate debtor in terms of sub-regulation (3) of regulation 36C; 
• assist the creditors in a class he represents in evaluating the resolution plans submitted by resolution applicants; 
• ensure that the creditors in a class he represents have access to any information or documents required to form an opinion on issues discussed in the committee meetings; 
• update regularly the creditors in a class he represents on the progress of the corporate insolvency resolution process; 
• make suggestions for modifications of the resolution plan as may be required by the creditors in class he represents;
• record proceedings and prepare the minutes of the meeting with the creditors in a class he represents; and 
• act as a representative for the creditors in a class he represents in representations before the Adjudicating Authority, National Company Law Appellate Tribunal, and other regulatory authorities.”

Sub-regulation (11) states “the provisions regarding minutes of meetings in this regulation shall apply mutatis mutandis for clause (i) of sub-regulation (10).” and Sub-regulation (12) describes that “the creditors in a class may propose any additional responsibility upon the authorized representative in relation to the representation of their interest in the committee.”

Regulation 28 Amendment: Debt Assignment 

This amendment substitutes a new regulation to the principal regulation 28 which provides information regarding the debt assignment or transfer during the insolvency resolution process. It states “In the event a creditor assigns or transfers the debt due to such creditor to any other person during the insolvency resolution process period, both parties shall, within seven days of such assignment or transfer, provide the interim resolution professional or the resolution professional, as the case may be, the terms of such assignment or transfer and the identity of the assignee or transferee.”

Regulation 30B: Audit of Corporate Debtor

As per this regulation, members of the committee can propose audits of the corporate debtor to ensure transparency in financial matters. Regulation 30B is inserted after regulation 30A in the principal regulation and shall include the following:

• “Any member(s) of the committee may propose an audit of the corporate debtor along with the objectives, scope, estimate of the costs, timeframe, and name(s) of the proposed auditor(s). 
• A proposal made under sub-regulation (1) shall be considered as per sub-regulation (3) of regulation 18 and an audit shall be conducted if such proposal is approved by the committee. 
• The audit shall be conducted by an insolvency professional having the qualifications required for such an audit.
• The auditor shall prepare a report detailing his findings and the same shall be presented before the committee along with the comments of the interim resolution professional or the resolution professional, as the case may be. 
• The expenses of such audit shall be treated as insolvency resolution process costs.”

Regulation 36B Amendment: Issuance of Request for Resolution Plans (RFRP)

According to this regulation, the RP should issue the information memorandum, evaluation matrix, and a request for resolution plans to every resolution applicant in the final list within five days of the date of issue of the final list under sub-regulation (12) of regulation 36A; “Provided that where such documents are available, the same may also be provided to every prospective resolution applicant in the provisional list.”  

Regulation 40A Amendment: Model Timeline for CIRP

The following should be substituted for the row relating to Regulation 36B:

Regulation 40B Amendment: Timeline for filling forms

The following rows should be substituted in the table in sub-regulation (1A): 

Forms 

In Schedule-I in the principal regulation, a new Form G is substituted for the existing one and certain additions are done in existing Form H. After para 6, “minutes of the committee meeting relating to discussions and decisions about resolution plan are attached with this certificate.” Also, the rows related to Regulation 36(1) and Regulation 36A are substituted with 

Submission of Information Memorandum to CoC- T+95, in the case of Regulation 36(1) and 

Invitation of EoI- T+60, Publication of Form G- T+60, Provisional List of Resolution Applicants- T+85, and Final List of Resolution Applicants- T+100, in case of Regulation 36A.

Also Read: Supreme Court Updates

Related Case Laws

• RPS Infrastructure Ltd. vs. Mukul Kumar & Anr. (September 11, 2023): In this case, “Supreme Court finds it difficult to unleash the hydra-headed monster of undecided claims on the resolution applicant.” [Section 7, Section 15, Section 12A, Section 19, Section 31, Section 34, Section 60(5), and Section 61.]
• Eva Agro Feeds Private Limited vs. Punjab National Bank and Anr. (September 06, 2023): In this case, the Supreme Court observed “Post-auction it is not open to the Liquidator to act on third party communication and cancel an auction, unless it is found that fraud or collusion had vitiated the auction.” [Section 5, Section 5(24), Section 9, Section 29A, Section 35, Section 36, Section 60, Section 61, Section 62, and Section 240.]
• Ajay Kumar Radheyshyam Goenka vs. Tourism Finance Corporation of India Ltd. (March 15, 2023): SC observed, “The signatories/directors cannot escape from their penal liability under Section 138 of the NI Act by citing its dissolution.”  [Section 9, Section 14, Section 3(30), Section 38, Section 39, Section 39, Section 40, and Section 41.]
• M. Suresh Kumar Reddy vs. Canara Bank & Ors. (May 11, 2023): The Supreme Court notes that “the amount payable by the Corporate Debtor also included the amount repayable under the fund-based credit facility of secured overdrafts.” [Section 3(12), Section 7, and Section 14.]
• Indiabulls Asset Reconstruction Company Limited vs. Ram Kishore Arora & Ors. (May 11, 2023): The bench pointed out, “Greater inconvenience is to be caused by passing interim order of constitution of CoC in relation to the corporate debtor as a whole, and may cause irreparable injury to home buyers.” [Section 7.]
• Moser Baer Karamchari Union Thr. President Mahesh Chand Sharma Manoj Kumar Nagar Raj Kumar Verma vs. Union of India and Ors. (May 02, 2023): The Supreme Court stated that “In economic matters, a wider latitude is given to the law-maker and the court allows for experimentation in such legislations.” [Section 31]
• State Tax Officer (1) vs. Rainbow Papers Limited (September 06, 2022): In this case, the bench observed, “Section 53 of the IBC overrides Section 48 of the GVAT Act. Section 53 of the IBC begins with a non-obstante clause, delay in filing can’t be the sole ground of rejection of claim.” [Section 7, Section 9, Section 14, Section 15, Section 17, Section 18, Section 21, Section 24, Section 25, Section 29, Section 30, Section 53, Section 61, and Section 62.]
• Babulal Vardharji Gurjar vs. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. (August 14, 2020): The bench observed that “the legislative policy now is to move away from the concept of “inability to pay debts” to “determination of default.”  [Section 7 and Section 62.]