Corporate Insolvency Resolution Process (CIRP):
Where any corporate debtor commits a default;
a financial creditor, an operational creditor, or the corporate debtor itself may initiate the corporate insolvency resolution process.
# to initiate an insolvency process for corporate debtors, the default should be at least Rs. 1 lac.
Resolution Process :
- A financial creditor may file an application for initiating the corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority.
- And within 14 days of filing such an application, the adjudicating the authority shall accept or reject the application and appoint Interim Resolution Professional.
(IRP– the person who gives the application for carrying out the insolvency procedure)
- The RP will give public announcement intimating commencement of the proceeding. And then the NCLT declares the Moratorium Period.
- The IRP shall constitute a committee of creditors (CoC).
(The CoC can appoint IRP as Resolution Professional (RP) for carrying on the resolution process.)
- The Resolution Applicant drafts a Resolution Plan and submits it to
the Resolution Professional for consideration.
Then the Resolution Plan accepted by the CoC and approved by the NCLT.
# If the Resolution Plan is either rejected by the CoC or not approved by the NCLT, then the corporate debtor goes into liquidation.
- The Adjudicating Authority shall communicate the order to the financial creditors and the corporate debtor within 7 days of the admission or rejection of such application.
(The process shall be completed within 180 days.)
Under CIRP, a resolution plan has to go to 3 stages :
- The resolution plan has to be drafted in consideration with the
- After consideration, the plan has to be accepted by the financial
creditors in their meeting of CoC.
- Lastly, the resolution plan should be sent to NCLT for its approval .
(Only then it a plan can be implemented.)
Maharashtra Seamless Limited v. Padmanabhan Venkatesh (2020)
The Supreme Court held that a resolution plan approved by the NCLT cannot be withdrawn by the resolution applicant.
Can a resolution applicant withdraw a resolution plan?
Satyanarayan Malu v. SBM Paper Mills Ltd (2018)
However, the resolution applicant can withdraw the resolution application filed u/s 10 of the IB Code. (by enforcing the provisions of S.12A)
It was held that a resolution plan approved by the CoC i.e., at the second stage, the resolution applicant cannot withdraw the resolution plan without any reasons, as it adversely affects the corporate debtor and other resolution applicants.
The NCLT stated that such a practise should be discouraged and only half of the earnest money deposited would be returned to the resolution applicant.
In the case of Deccan Value Investors L.P v. Deutsche Bank (2019)
The Adjudication Authority (NCLT, Mumbai) permitted the withdrawal of the resolution plan even after the approval of the CoC on the following grounds that the information provided to the resolution applicant was found to be misleading and incorrect.
It stated that: ‘the IB Code neither confers the power nor jurisdiction on the
Adjudicating Authority to compel the specific performance of a resolution
plan by an unwilling resolution applicant.’
The withdrawal of the resolution plan should be allowed only in reasonable circumstances or in situations where the resolution applicant is not at fault.
If applicants are allowed to withdraw or modify the resolution plans after the approval by the CoC when they have not suffered a material adverse effect, it would be unreasonable and unviable, as it results in wastage of effort, time and money, also it will be unreasonable to other resolution applicants.