Transitional Provisions under Companies Act, 2013 and ...Transitional Provisions under Companies Act, 2013 and Insolvency and Bankruptcy Code, 2016 ... investigation or inquiry ordered

Transitional Provisions under Companies Act, 2013 and

Insolvency and Bankruptcy Code, 2016

Satwinder Singh(B.Com, FCS, LL.B., CAIIB)

Partner, Vaish Associates Advocates

Central Council Member-ICSI

1

[email protected]

Agencies Dealing with Company Law Matters

State High Court(s)

CLB

Winding up petitions,

Compromise & Arrangements,

reduction of capital,

restoration of name & appeal

from CLB

Rectification of registers,

transfer/transmission of

shares, oppression

mismanagement, compounding of offences etc.

Offences under the Old

Act

Revival and rehabilitation

of Sick Companies

Presidency Magistrate or

a Magistrate of the first class

BIFR/ AAIFR

Jurisdiction under the Companies Act, 1956

2

[email protected]

Company Law Jurisdiction

Supreme Court

High CourtsNCLAT

Special CourtsNCLT

Offences to be triedSpecified proceedingsunder the New Act

Corporate Jurisdiction Hierarchy under the Companies Act, 2013

[email protected]

With the constitution of NCLT, the powers and jurisdiction of followingagencies in respect of corresponding aspects, as and when notified, shall vestwith NCLT:

• State High Court(s): Cases relating to arrangement or compromise, windingup, reduction of capital, restoration of name of the company, appeals fromCLB orders u/s 10F of the Old Act.

• Cases pertaining to revival and rehabilitation of sick companies.

• CLB: Cases pertaining to rectification of register of members, complaintsrelating to refusal to transfer/ of transmission of shares, matters relating tooppression and mismanagement and other matters relating to investigations& compounding of offences.(Notified)

Appeals against the order(s) of NCLT to be heard by NCLAT and appealsagainst the order of NCLAT to be heard by the Hon’ble Supreme Court

NCLT – New Era of Corporate Adjudication

[email protected]

Transfer of pending proceedings [from a date to be notified by MCA(“Effective Date”)]:• All matters pending before CLB immediately before the Effective Date shall stand transferred to

NCLT. NCLT shall dispose of such matters in accordance with the provisions of the New Act(Section 434(1) (a)). Appeal from order of CLB made before the Effective Date may be filed withHigh Court within 60 days from date of communication of order on question of law. Another 60days with condonation of delay.

• The draft rules related to NCLT, under Rule 102 provides for all cases reserved for order prior tothe Effective Date to be reopened and reheard by NCLT.

• Sahe

• All proceedings under the Old Act pending before District Court or High Court shall standtransferred to NCLT and NCLT may proceed to deal with such proceedings from the stage beforetheir transfer (Section 434(1) (c)).

Provided that only such proceedings relating to the winding up of companies shall be transferredto the Tribunal that are at a stage as may be prescribed by the Central Government. (AmendmentProposed by Insolvency and Bankruptcy Code, 2016)

Abatement of proceedings (from a date to be notified by MCA):• All inquiry/ appeal pending before BIFR/ AAIFR respectively or any proceedings pending, under

SICA, before commencement of the New Act, shall stand abated (Section 434(1)(d));

• However, companies in respect of which an appeal or inquiry stands abated can make reference toNCLT in terms of the New Act, within 180 days from commencement of the New Act.

Moving from Companies Act, 1956 to Companies Act, 2013 – Transitional Provisions - NCLT

[email protected]

5

Section 465 (2), inter-alia, provides for the following:

• Any prosecution instituted under the repealed enactments and pending immediately prior tocommencement of the New Act, before any court (as defined in the New Act), shall continue to beheard by the said Court and be subject to provisions of the New Act.

• Any inspection, investigation or inquiry ordered or to be done under the Old Act, shall continueto be proceeded with as if, such inspection, investigation or inquiry has been ordered under theprovisions under the New Act.

• Any matter filed with the Registrar, Regional Directors or the Central Government under theOld Act, before commencement of the New Act and not fully addressed by the concernedperson/ authority shall be concluded in terms of the New Act.

With the constitution of NCLT and NCLAT in terms of the New Act, CLB stand dissolved.

Moving from Companies Act, 1956 to Companies Act, 2013 – Transitional Provisions - NCLT

[email protected]

Establishment of Special Courts (Section 435):

• Central Govt. may establish as many special courts as may be necessary for providing speedy trial

• A Special Court shall consist of a single judge who shall be appointed by the Central Governmentwith the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge tobe appointed is working.

• A person shall not be qualified for appointment as a judge of a Special Court unless he is,immediately before such appointment, holding office of a Sessions Judge or an Additional SessionsJudge.

Offences triable by Special Courts (Section 436):

• All offences under the New Act shall be tried by Special Court.

• Special Court may try an offence under CrPC at the same trial.

Application of Code to proceedings before a Special Court (Section 438):

• In terms of this section, Special Courts shall follow the provisions of the Code of CriminalProcedure, 1973.

• A person conducting the prosecution before Special Courts shall be deemed to be a PublicProsecutor; however, the legislature has further provided the concept of company prosecutors inSection 443 of the New Act.

Transitional Provisions (Section 440):

The said Section provides that until such time the Special Courts are established, the offences under theNew Act, shall be tried by the Court of Sessions having jurisdiction over the specific area.

Special Courts

7

On 18th May, 2016, in exercise of the powers conferred by sub-section (1) of section 435 of theCompanies Act, 2013 (18 of 2013), the Central Government, after obtaining the concurrence of therespective Chief Justices of the High Courts, designates the Courts as Special Courts for the purposes oftrial of offences punishable under the Companies Act, 2013 with imprisonment of two years or more interms of section 435 of the Companies Act, 2013.

The courts mentioned in the next slide shall exercise the jurisdiction as special courts in respect of thejurisdiction mentioned therein.

Special Courts

8

[email protected]

S. No Existing court Jurisdiction of Special Court

1. Courts of Additional Special Judge, Anti-Corruptionat Jammu and Srinagar

State of Jammu And Kashmir

2. Presiding Officers of Court No’s. 37 and 58 of theCity Civil and Sessions Court, Greater Mumbai

State of Maharashtra

3 Court of Principal District and Sessions Judge,Union territory of Dadra and Nagar Haveli atSilvassa.

Union Territories of Dadra and Nagar Haveli and Daman and Diu

4. Court of District Judge-1 and Additional SessionsJudge, Panaji.

State of Goa

5. Court of Principal District and Sessions Judge,Ahmedabad (Rural), situated at Mirzapur,Ahmedabad.

State of Gujarat

6. 9th Additional Sessions Judge, Gwalior MadhyaPradesh.

State of Madhya Pradesh

7. Court of Additional District and Session Judge, PortBlair, Andaman and Nicobar Islands.

Union territory of Andaman and Nicobar Islands.

8. 2nd Special Court, Calcutta. State of West Bengal

Special Courts

9

Expeditious disposal by Tribunal and Appellate Tribunal (Section 422):

• Every application, petition or appeal, as the case may be, presented before NCLT & NCLAT shallbe dealt with and disposed off in a speedy manner & efforts shall be made to dispose the matterwithin 3 months from the date of its presentation. Otherwise NCLT or NCLAT shall record thereasons for not disposing off the application/petition/appeal with the said period of 3 months.The said period may be extended by the President of NCLT or the Chairperson of NCLAT by suchperiod not exceeding 90 days.

Procedure before Tribunal and Appellate Tribunal (Section 424):

• NCLT and NCLAT while dealing with any matter before it are not bound by the procedure laiddown by the Code of Civil Procedure, 1908 (“CPC”). However, subject to the provisions of theNew Act and rules made there under, they shall be guided by the principles of natural justice andshall have the power to regulate their own procedure. NCLT and NCLAT shall have the samepowers vested in a civil court under CPC, for discharging its functions for specified matters.

• All proceedings before NCLT or the NCLAT shall be deemed to be judicial proceedings within themeaning of Sections 193 and 228, and for the purposes of Section 196 of the Indian Penal Code, andNCLT and NCLAT shall be deemed to be civil court for the purposes of Section 195 and ChapterXXVI of the Code of Criminal Procedure, 1973.

National Company Law Tribunal – Essential Provisions

10

[email protected]

Power to punish for contempt (Section 425):

• NCLT and NCLAT shall have the same jurisdiction, powers and authority in respect of contemptof themselves as the High Court has under the provisions of the Contempt of Courts Act, 1971, butsubject to certain modifications as provided in this Section.

Civil court not to have jurisdiction (Section 430):

• No Civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matterwhich NCLT or NCLAT is empowered to determine either in terms of the New Act or by any otherlaw in force.

• No court or authority shall have the power to grant injunction in respect of any action taken or tobe taken in pursuance of any power conferred by or under the New Act or any other law for thetime being in force, by NCLT or NCLAT.

Right to legal representation (Section 432):

• A party to any proceeding or appeal before NCLT or NCLAT may either appear in person orauthorise 1 or more CAs/ CSs/ CWAs/ Advocates or any other person to present the case.[Provision of 5 years qualification for CA/ CS/ CWA as provided in the earlier Draft Rules hasbeen done away in the Draft NCLT Rules, 2015]


11

[email protected]

Appeal to NCLAT (Section 421):

• No Appeal shall lie from an order of NCLT passed by consent of parties.

• Appeal shall be filed within 45 days from the date on which copy of order of NCLT is madeavailable. Another maximum 45 days for condonation of delay (earlier within 60 days; with another 60days with condonation of delay. u/s 10F against order of CLB but only on question of law)

Appeal to Supreme Court (Section 423):

Appeal from order of NCLAT to the Supreme Court within 60 days from the date of communication ofthe order of NCLAT on any question of law arising out of such order. Another 60 days withcondonation of delay.


12

[email protected]

Bankruptcy proceedings in India were governed by multiple laws, some of which were the CompaniesAct, ‘Sick Industrial Companies (Special Provisions) Act, 1985 ("SICA"), the Recovery of Debts due toBanks and Financial Institutions Act, 1993 ("RDDB Act") and the Securitization and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI"). As, some of these lawsdid not yield effective and time bound resolution due to inefficient enforcement and court delays, thefunctioning of these legislations has not been found to be satisfactory. A key problem of the presentenvironment is the presence of multiple frameworks such as DRT, CDR, etc. The bankruptcy process hasbecome drawn out and involves battling it out through many steps. The Code is a complete compilationof laws and rules pertaining to the subject of bankruptcy law in India.

The Code repeals the Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920 andSICA further seeks to amend various laws, including the Companies Act, 2013 and RDDB Act amongstothers. The Code introduces a time limit on the bankruptcy process. In the case of a default, the timelimit is 180 days, within which the resolution has to be completed. This can be further extended by theAdjudicating Authority for a period not more than 90 days.

The Insolvency and Bankruptcy Code, 2016

Background

13

[email protected]

Event of Default

Determination of Sickness

“Default” means non-payment of debtwhen whole or any part or instalment ofthe amount of debt has become due andpayable and is not repaid by the CD, as thecase may be

Insolvency and Bankruptcy proceedingsmay be initiated by the entitled persons inthe event of “Default”

Reference to BIFR may be when an industrialcompany has become a “Sick industrialcompany” or a “Potentially sick company “by the entitled persons.

“Sick industrial company" means anindustrial company (being a companyregistered for not less than five years)which has at the end of any financial yearaccumulated losses equal to or exceedingits entire net worth.

Applicability

The provisions of this code applies to:1. Company2. Limited Liability Partnership3. Body incorporated under any other

law as CG may specify (1, 2 and 3 arehereinafter referred as CorporateDebtors (“CD”)

4. Partnership Firms and Individual

The provisions of this act shall apply to-all the scheduled industries other than thescheduled industry relating to ships andother vessels drawn by power.

Insolvency Resolution & Liquidation forCD shall only be available if min. amt. ofdefault is one lac rupees. CG may specifyhigher value which shall not be more thanone crore rupees

If the accumulated losses of an industrialcompany, as at the end of any financialyear have resulted in erosion of 50% ormore of its peak net worth duringimmediately preceding 4 financial yearssuch company shall be considered as“Potentially Sick Company”

The Insolvency and Bankruptcy Code, 2016 SICA, 1985

14

Persons entitled to initiate CIRP

Persons not entitled to initiate CIRP

Financialcreditor (readwith section5(7) of thecode)

Operationalcreditor (readwith section5(20) of thecode)

CorporateApplicantitself (readwith section5(5) of thecode)

CD undergoing CIRP; CD having completed

CIRP in preceding 12months;

CD or a financialcreditor who hasviolated any terms ofresolution plan whichwas approved 12months before the dateof making of anapplication; and

CD in respect of whom aliquidation order hasbeen made.

Corporate Insolvency Resolution Process(“CIRP”)

CIRP to be completed within 180 days from the dateof admission of application, unless extended by aperiod not exceeding 90 days. [Extension to begranted only once]

Persons entitled to make reference

to BIFR

Persons not entitled to make reference to BIFR

BOD CG SG PFI State Level

Institution Scheduled

Banks

State Government ofother States

PFI, State LevelInstitution, ScheduledBank unless it hasinterest in suchcompany


Procedure of Board and Appellate Authority

[email protected]

FC to file an application with NCLT (either singly or jointly) on event of default by a corporate debtor

(an Interim Resolution Professional to be proposed in the application)

Within 14 days,NCLT to pass anorder admittingthe application*and tocommunicate thesame to FC andcorporate debtor

Within 14 days,NCLT to pass anorder rejecting theapplication (aftergiving a 7 dayperiod to the FC torectify the defects)and communicatethe same to the FC.

Insolvency Commencement

Date

*NCLT admits the application on being satisfied that adefault has occurred, application is complete and there isno disciplinary proceedings pending against the proposedInterim Resolution Professional.


CIRP by Financial Creditors (“FC”)

OR

Creditors cannot make a reference to BIFR

[email protected]

OC to deliver, inter-alia, demand notice along with copy of invoice to the CD in case of default

CD may notify toOC (within 10days) about:(a) existence ofany dispute andrecord ofpendency of suit/arbitrationproceedings filedbefore, receipt ofnotice/ invoice;(b) repayment ofunpaid debt

If no payment/notice of disputereceived by creditorwithin 10 days

OC to file anapplication withNCLT (an interimresolution proff.may also beproposed)

NCLT to admit theapplication within 14days of receipt ofapplication

NCLT to reject theapplication within 14days of receipt ofapplication(after giving7 days to rectify thedefects)


OR

Creditors cannot make a reference to BIFR

CIRP by Operational Creditors (“OC”)

[email protected]

CDA to file an application with NCLT on event of default by a CD (an interim resolution professional

to be proposed in the application)

Within 14 days,NCLT to pass anorder admittingthe application*and tocommunicate thesame to the CDA

Insolvency Commencement

Date

Section 15 and 23 obligates the Board of Directors of a company to report the sickness to the BIFR.

The reference is to be made within 60 daysfrom the date of finalization of the dulyaudited accounts of the company for thefinancial year at the end of which thecompany would have become a 'SickIndustrial Company'.


Reference by Board of DirectorsCIRP by Corporate Debtor Applicant (“CDA”)

Within 14 days,NCLT to pass anorder rejecting theapplication (aftergiving a 7 dayperiod to the CDAto rectify the defects)and communicatethe same to theCDA.

*NCLT admits the application on being satisfied that adefault has occurred, application is complete and there isno disciplinary proceedings pending against the proposedInterim Resolution Professional.

The Board may also make a reference ifthey have sufficient reasons even beforesuch finalization to form the opinion thatthe company had become a sick industrialcompany within sixty days after it hasformed such opinion

The reference is to be made within 60 daysfrom the date of finalization of the dulyaudited accounts of the company for thefinancial year at the end of which thecompany would have become a ‘PotentiallySick Industrial Company'.

OR

18


Post admission of CIRP application by NCLTPost admission of Reference application by BIFR

NCLT to declare Moratorium on theinsolvency commencement date (effectivefrom the date of order) and shall cease tobe in effect:

on completion of CIRP

when resolution plan is approved byNCLT during the CIRP period

where liquidation order is passed

NCLT to appoint Interim ResolutionProfessional within 14 days (after making areference to the IBBI*, as the case may be)of insolvency commencement date, term ofwhich shall not exceed 30 days; and

NCLT to cause public announcement ofinitiation of CIRP and call for submission ofclaims, immediately after appointing theInterim Resolution Professional

BIFR to initiate an inquiry into working ofthe sick industrial company: Upon receipt of reference; or Suo-motu

BIFR by an order will direct any operatingagency to enquire into working of the sickindustrial company and make a report withrespect to such maters as may be specifiedin the order

BIFR to appoint a special director in thesick industrial company, if it deemsnecessary to safeguard public interest. TheSpecial Director so appointed is vestedwith certain obligations and immunitiesunder the Act.

OR

OR

*Insolvency and Bankruptcy Board of India

[email protected]

institution of suits or continuation ofpending suits/ proceedings againstcorporate debtor including execution of anyjudgment, decree or order in any court oflaw, tribunal, arbitration panel or otherauthority;

transferring, encumbering, alienating ordisposing of by the corporate debtor any ofits assets or any legal right or beneficialinterest therein;

any action to foreclose, recover or enforceany security interest created by thecorporate debtor in respect of its propertyincluding any action under the SARFAESI;

recovery of any property by an owner/lessor where such property is occupied byor in the possession of the corporate debtor.

Note: Supply of essential goods/ services to thecorporate debtor not to be terminated orsuspended or interrupted during moratoriumperiod.

The aforesaid prohibition shall not apply to suchtransaction as may be notified by the CG

.

suspension of proceedings of winding up ofthe industrial company;

no proceedings for the winding up of theindustrial company or for execution,distress or the like against any of theproperties of the industrial company;

no proceedings for appointment of areceiver;

no suit for the recovery of money or for theenforcement of any security against theindustrial company or of any guarantee inrespect of any loans or advance granted tothe industrial company shall lie or beproceeded with further, except with theconsent of the Board or, as the case may be,the Appellate Authority

Direction not to dispose of assets:- The Boardmay, if it is of opinion that any direction isnecessary in the interest of the sick industrialcompany or creditors or shareholders or in thepublic interest, by order in writing, direct the sickindustrial company not to dispose of, except withthe consent of the Board, any of its assets duringthe given period.

.


Declaration of Moratorium – Prohibition on: Suspension of legal proceedings, contracts, etc.-

[email protected]

Collation of claims and constitution of committeeof creditors by Interim Resolution Professional

Appointment of Resolution Professional in thecreditors meeting held within 7 days ofconstitution of committee of creditors.

Resolution Professional to prepare IM

Resolution Applicant to prepare (on the basis ofIM) and submit resolution plan to ResolutionProfessional for examination & furthersubmission for approval of committee ofcreditors

Resolution planapproved bycommittee

NCLTapprovesplan

NCLTrejectsplan

Liquidation process starts

Resolution planrejected bycommittee


CIRP - Process Revival Procedure - BIFR

Reference to the Board

Inquiry into working of sick industrial company

Preparation and Sanction of Schemes

Winding up of sick industrial

company

Discharged on Revival

21

[email protected]

Application for fast track CIRP may be madein respect of the following corporate debtors:

a CD with assets and income below alevel as may be notified by the CentralGovernment; or

a CD with such class of creditors or suchamount of debt as may be notified by theCentral Government; or

such other category of corporate personsas may be notified by the CentralGovernment.

Process- Same as CIRP. However, Fast trackproceedings shall be completed within 90days from insolvency commencement date,unless extended by a period not exceeding 45days [Extension to be granted only once]

If no resolution plan is approved, liquidationprocess starts


Fast Track Proceedings

No Such Provision

[email protected]

Where the Board after making inquiryunder section 16 and afterconsideration of all the relevant factsand circumstances and after giving anopportunity of being heard to allconcerned parties, is of opinion thatthe sick industrial company is notlikely to make its net worth exceed theaccumulated losses within a reasonabletime while meeting all its financialobligations and that the company as aresult thereof is not likely to becomeviable in future and that it is just andequitable that the company should bewound up, it may record and forwardits opinion to the concerned HighCourt.


A CD may be put into liquidation if: Winding up of Sick Industrial Company

NCLT does not receive a resolution planfrom resolution professional as approvedby the committee of creditors

NCLT rejects the resolution plan underSection 31 of the code.

Resolution Professional at any time duringcorporate insolvency resolution process butbefore confirmation of resolution plan,intimates NCLT of the decision of thecommittee of creditors to liquidate CD.

OR

OR

Debtor contravenes the agreed resolutionplan & an affected person makes anapplication to NCLT to liquidate CD

OR

OR

On receipt of information, NCLTdetermines that corporate debtor hascontravened the provisions of theresolution plan.

[email protected]

Appointment of liquidator


Broad Process of Liquidation Broad Process of Winding Up

Formation of Liquidation Estate

Consolidation of Claims

Verification of Claims

Admission or Rejection of Claims

Determination of value of Claims

Appeal by the Creditor to the NCLT, within 14 days of rejection of claim.

BIFR forwards its opinion to HC

HC to order Winding up

HC to appoint any officer of the operating agency which shall act as official Liquidator

Operating agency to prepare complete inventory.

Distribution of assets and dissolution of CD

Liquidator to scrutinise Preferential, under-valued and extortionate credit transaction

Sale of Assets of Sick Unit

[email protected]

NCLT to appoint liquidator after passing of order of liquidation

ResolutionProfessionalcan beappointed asliquidator

NCLT has power to replaceresolution professional in theevent resolution plansubmitted is rejected or theIBBI recommends anotherprofessional for reasons to berecorded in writing

High Court may appoint any officer of theoperating agency, if the operating agency gives itsconsent as the liquidator of the sick industrialcompany and the officer so appointed shall for thepurposes of the winding up of the sick industrialcompany be deemed to be, and have all the powersof, the official liquidator under the Companies Act,1956


Appointment of Liquidator

Liquidator assumes all duties and powersgoverning liquidation.

High Court to appoint Liquidator after passing of order of winding up

SICA, 1985

[email protected]

ASSETS TO BE INCLUDED Assets of the CD as evidenced in the B/s; Investments of the CD; Encumbered Assets; Tangible; whether movable or immovable; Intangible assets i.e. IPR, insurance policies

and contractual rights; Assets subject to determination of ownership

by the court; Assets in respect of which secured creditor has

relinquished security interest; All proceeds of liquidation.

.ASSETS NOT TO BE INCLUDED

Assets owned by third party i.e. assets held intrust, bailment contracts, sums due to anyworkmen or employee, other contractualarrangements for use of assets, other assets asmay be notified by CG;

Personal assets of any shareholder; Assets of any Indian or Foreign Subsidiary; Assets in security collateral held by financial

services providers; Any other assets as may be specified by the

Board.


Liquidation Estate No Such Provision

[email protected]


Procedure for Claims

Liquidator to collect claims within 30 days from the date of commencement of liquidation

FC shall provide a record of such claim with an information utility and/or OC shall submit claim

with the supporting documents and in the manner provided by the Board

Creditor may withdraw claim within 14 days

Liquidator can ask for additional documents

Liquidator may admit or reject the claims

Liquidator to communicate decision to creditor and CD within 7 days

Creditor may appeal to the NCLT within 14 days after rejection by the liquidator

No Such Provision

[email protected]

When such transferof assets has theeffect of putting suchcreditor/ surety/guarantor in abeneficial positionthan it would havebeen in the event ofa distribution ofassets

When there is atransfer of property oran interest thereof forthe benefit of creditor/surety/ guarantor onaccount of antecedentdebt or operationaldebt or other liabilitiesowed by corporatedebtor.

When it is given to arelated party (read withsection 5(24) of the Code)during the period of 2years preceding theinsolvency date

When it is given to aperson other thanrelated party duringthe period of 1 yearpreceding theinsolvency date


Broad Concepts – Preferential Transactions

A preference shall be deemed to be given at a relevant time, if

No Such Provision

SICA, 1985

[email protected]


Preferential Transactions shall not include

a) transfer made in the ordinary courseof the business or financial affairs ofthe CD or the transferee;

b) any transfer creating a securityinterest in property acquired by theCD to the extent that—i) such security interest secures new

value and was given at the time ofor after the signing of a securityagreement that contains adescription of such property assecurity interest and was used byCD to acquire such property; and

ii) such transfer was registered withan information utility on or beforethirty days after the CD receivespossession of such property:

Provided that any transfer made inpursuance of the order of a court shallnot, preclude such transfer to be deemedas giving of preference by the CD

No Such Provision

[email protected]


No Such ProvisionNCLT, in cases of Preferential Transactions may

order as follows

Require any property transferred tobe vested with CD

Require proceeds received to bevested with CD

Direct for providing security orcharge on any property for thedischarge of debt to have the samepriority before it was released

Release or discharge of any securityinterest created by CD

Require any person to pay such sumin respect of benefits received

Direct any guarantor whose debtswere released by giving preference

Direct for providing the extent towhich any person whose property isso vested in CD, or on whom financialdebts or operational debts areimposed by the order, are to beproved in the liquidation or the CIRPfor financial debts or operationaldebts which arose from, or werereleased or discharged wholly or inpart by the giving of the preference

SICA, 1985

[email protected]


No Such Provision

A transaction shall be consideredundervalued where the CD— makes a gift to a person; or enters into a transaction with a person

which involves the transfer of one ormore assets by the CD for aconsideration the value of which issignificantly less than the value of theconsideration provided by the CD

and such transaction has not taken place inthe ordinary course of business of the CD.

If the liquidator or the resolutionprofessional, as the case may be, on anexamination of the transactions of the CDreferred to in sub-section (2) of section 43determines that certain transactions weremade during the relevant period undersection 46, which were undervalued, heshall make an application to the NCLT todeclare such transactions as void andreverse the effect of such transaction.

Avoidance of undervalued transactions (“UVT”)

SICA, 1985

[email protected]

Relevant period for not regarding a transaction as a UVT

The NCLT may require an independentexpert to assess evidence relating to the valueof the transactions as specified in the section46 of the Code.

In an application for avoiding a transactionas undervalued, the liquidator or theresolution professional, as the case may be,shall demonstrate that— such transaction was made with any

person within the period of one yearpreceding the insolvencycommencement date; or

such transaction was made with arelated party within the period of twoyears preceding the insolvencycommencement date.

.

No Such Provision


[email protected]

The order of NCLT under sub-section (1)of section 45 may provide for thefollowing:—

require any property transferred aspart of the transaction, to be vested inthe CD;

release or discharge (in whole or inpart) any security interest granted bythe CD;

require any person to pay such sums,in respect of benefits received by suchperson, to the liquidator or theresolution professional as the casemay be, as the NCLT may direct; or

require the payment of suchconsideration for the transaction asmay be determined by anindependent expert.


Order of NCLT in cases of UVT No Such Provision

[email protected]

Where an UVT has taken place and theliquidator/ resolution professional, has notreported it to NCLT, a creditor, member or apartner of a corporate debtor, may make anapplication to NCLT to declare suchtransactions void and reverse their effect inaccordance with Chapter III.

NCLT, after examination of theapplication, is satisfied that— UVT had occurred; and Liquidator/resolution professional,

after having sufficient information oropportunity to avail information of suchtransactions did not report suchtransaction, NCLT may pass an order:

restoring the position as it existedbefore such transactions and reversingthe effects thereof in the manner as laiddown in section 45 and section 48;

requiring the IBBI to initiatedisciplinary proceedings against theliquidator/ resolution professional


Application by creditor in cases of UVT No Such Provision

[email protected]

Then NCLT shall make an order— restoring the position as it existed before

such UVT; andprotecting the interests of persons who

are victims of such UVTProvided that an order— shall not affect any int. in a prop. which

was acquired from a person other thanCD and was acquired in good faith, forvalue and without notice of the relevantcircumstances, or affect any interestderiving from such an interest; &

shall not require a person who received abenefit from such UVT in good faith, forvalue and without notice of the relevantcircumstances to pay any sum unless hewas a party to UVT

Where the CD has entered into a UVT andNCLT is satisfied that such transaction wasdeliberately entered into by such CD— for keeping assets of the CD beyond the

reach of any person who is entitled to makea claim against the CD; or

in order to adversely affect the interests ofsuch a person in relation to the claim


Transactions defrauding creditors No Such Provision

[email protected]

Where CD has been a party to an ECTinvolving the receipt of financial oroperational debt during the period within 2years preceding the insolvencycommencement date, the liquidator or theresolution professional as the case may be,may make an application for avoidance ofsuch transaction to the NCLT, if the terms ofsuch transaction required exorbitantpayments to be made by CD.

restore the position as it existed prior tosuch ECT;

set aside the whole or part of the debtcreated on account of the ECT;

modify the terms of the transaction; require any person who is, or was, a party

to the transaction to repay any amountreceived by such person; or

require any security interest that wascreated as part of ECT to be relinquishedin favor of the liquidator/ resolutionprofessional, as the case may be


Extortionate credit transactions (“ECT”) No Such Provision

Orders of NCLT in ECT

[email protected]

Order of Priority for distribution of liquidated assets

Insolvency resolution process costs and liquidations costs paid in full

Workmen dues for 24 months & debts of secured creditor has relinquished security in the manner set

out in section 52

Wages & unpaid dues owed to employees other than workmen for 12 months

Financial debts owed to unsecured creditors

Any amount due to Govt. and debts owed to secured creditor for any amount unpaid following

the enforcement of security interest

Any remaining debts and dues

Preference shareholders, if any

Equity shareholders

Board may sell the assets of the sick industrialcompany in such manner as it may deem fit andforward the sale proceeds to the High Court fororders for distribution in accordance with theprovisions of section 529A, and other provisions ofthe Companies Act, 1956.


[email protected]

* Subject to conditions for voluntary liquidationproceedings under section 59 of the Code.


Corporate person can initiate voluntary liquidation*

Declaration by majority of directors verified by anaffidavit

Special resolution of the members, as the case maybe

Creditors resolution approved by 2/3rd creditors

Company to inform ROC & Board within 7 days ofpassing of resolution

Liquidation commencement date is the date ofapproval by creditors

Same process as explained under liquidation processin slide 13 above

Voluntary Liquidation Process No Such Provision

[email protected]


Major Amendments to the Companies Act, 2013

Eleventh Schedule provides for the consequential changes in the Companies Act, 2013. Some ofthe key changes are as follows:

• The definition of ‘Company Liquidator’ is amended to provide that he shall be appointed bythe Tribunal amongst the insolvency professionals under the Insolvency and Bankruptcy Code,2016.

• Chapter-XIX, consisting of Section 253 to 269, pertaining to Revival and Rehabilitation of SickCompanies- omitted

• Section 270 (Modes of winding up) under Part-I amended- to include only winding up byTribunal

• Provisions governing voluntary winding up- omitted and corresponding changes made in therelevant provisions

• Section 271 (Part-I): Circumstances concerning winding up in case to ‘inability to pay debt’ andwinding up under Chapter XIX- omitted

• Winding up by creditors omitted from Companies Act, 2013 and brought under Insolvency andBankruptcy Code, 2016; Consequential amendments made in Section 272 and other relevantprovisions

[email protected]


Major Amendments to the Companies Act, 2013

• Section 289: Power of Tribunal on application for stay of winding up for rehabilitation purposes-omitted

• Section 326: Changes made with respect to overriding preferential payments and preferentialpayments

a) in addition to workmen dues, secured creditor who has realized a secured asset, so much ofthe debts due to such secured creditor as could not be realized by him or the amount of theworkmen's portion in his security (if payable under the law), whichever is less, shall rankpari passu with the workmen's dues for the priority of debt over all other debts; and

b) Explanation inserted providing definition of workmen, workmen dues and workmen’sportion as given under section 325.

• Reference to Insolvency and Bankruptcy Code, 2016 added in appropriate sections of CompaniesAct, 2013

40

[email protected]

THANK YOU

Disclaimer: Please note that this presentation is based on the limited information / documentationavailable with us and is subject to review of further documentation to be received in this regard.While every care has been taken to ensure accuracy of this presentation, Vaish Associates Advocatesshall not assume any liability / responsibility for any errors that might creep in. The material hereindoes not constitute / substitute professional advice that may be required before acting on any matter.

New Delhi

1st , 9th & 11th Floor, Mohan Dev Building b13, Tolstoy MargNew Delhi-110001Tel: 91 11 49292525Fax: 91 11 23320484E-mail: [email protected]

Mumbai106 Peninsula Centre(Behid Piramal Chambers , Income tax OfficeDr. S.S. Rao Road, ParelMumbai-400012Tel: 91 22 42134101Fax: 91 22 42134102E-mail: [email protected]

Bangalore305, 3rd Floor, Prestige Meridian-II,Building No. 30, M.G. Road,Bengaluru - 560001Tel: 91 80 40903588/89Fax: 91 80 [email protected]

For any further clarifications, please contact: SATWINDER SINGH, Partner, VaishAssociates ([email protected]).

41

Documents

Transitional Provisions under Companies Act, 2013 and ...Transitional Provisions under Companies Act, 2013 and Insolvency and Bankruptcy Code, 2016 ... investigation or inquiry ordered