Understanding the Framework of CIRP under NCLT
The Corporate Insolvency Resolution Process (CIRP) under the National Company Law Tribunal (NCLT) is designed with the intention of resolving insolvency in a time-bound and efficient manner. The process is enacted under the Insolvency and Bankruptcy Code, 2016 (IBC), which provides a legal framework for the resolution of insolvency cases in India. CIRP aims to maximize the value of assets of the insolvent entity, promote entrepreneurship, ensure availability of credit, and balance the interests of all stakeholders.
Under this robust framework, the process is initiated when a creditor or the corporate debtor itself files an application to the NCLT for initiating CIRP. If the application is accepted, the tribunal then appoints an Interim Resolution Professional (IRP) to take over the management of the corporate debtor and proceed with the process. The IRP is responsible for collating all claims from creditors and creating a committee known as the Committee of Creditors (CoC), which plays a pivotal role in the decision-making process during CIRP.
The CoC evaluates the financial state of the corporate debtor and decides whether to resurrect the company through a resolution plan or to liquidate its assets. During CIRP, all legal actions against the corporate debtor are put on hold, providing a moratorium period which allows for a thorough and feasible resolution plan to be formulated without the threat of asset dispersion through diverse litigation.
The framework ensures that the CIRP must be completed within a strict timeline of 180 days, extendable by 90 days with the approval of the NCLT, ensuring that the resolution process does not languish and cause further deterioration in the value of the debtor’s assets. Failure to approve a resolution plan within the stipulated time frame results in the company going into liquidation.
CIRP under NCLT is a transparent and participatory process that involves various stakeholders, such as financial and operational creditors, employees, shareholders, and regulatory authorities. Each of these parties is affected differently by insolvency proceedings and has different priorities, and the IBC ensures that the process is structured to be fair and equitable to all involved.
The success of CIRP rests on the pillars of speed, efficiency, and legality, which are imperative for maintaining confidence in the business ecosystem. The NCLT framework thus provides a structured approach to insolvency, paving the way for economic stability and growth by reorganizing financially distressed companies or liquidating them in a manner that is fair to all stakeholders.
Key Stages and Participants in the Corporate Insolvency Resolution Process
The Corporate Insolvency Resolution Process is composed of various key stages which are crucial for an organized approach to resolving the insolvency of a corporate entity. Each phase involves specific actions and participants who come together to ensure that the CIRP is conducted in a systematic and effective manner.
- Commencement of the CIRP: The process formally begins when an application for initiating the CIRP is submitted to the NCLT by either the financial creditor, the operational creditor, or the corporate debtor itself. Upon examining the application and ascertaining the default, the NCLT admits the application and declares the commencement of the CIRP, subsequently appointing the Interim Resolution Professional (IRP).
- Moratorium Announcement: With the initiation of CIRP, the NCLT orders a moratorium, which is a period during which no legal action for recovery, enforcement of security interest, sale, or transfer of assets, or termination of essential contracts can be instituted or continued against the corporate debtor.
- Public Announcement and Claims Collection: Following the appointment of the IRP, a public announcement is made to call for claims from creditors and to invite prospective resolution applicants to submit a resolution plan.
- Formation of the Committee of Creditors (CoC): The IRP constitutes a Committee of Creditors, primarily comprising financial creditors who are vested with the responsibility to take key decisions including the potential revival or liquidation of the corporate debtor. Operational creditors may also be included in the CoC if their aggregate dues are significant.
- Appointment of the Resolution Professional (RP): The CoC, in its first meeting, has the option to replace the IRP with a new Resolution Professional or retain them for the entire duration of the CIRP.
- Information Memorandum and Expression of Interest (EOI): The RP prepares an information memorandum containing relevant data to allow resolution applicants to formulate their resolution plans. Interested parties are invited to express their interest and present their plans for the corporate debtor.
- Evaluation and Selection of Resolution Plan: The RP vets and presents the resolution plans to the CoC, which evaluates them on various parameters. The CoC selects the most viable resolution plan that maximizes the value of the assets while also taking into account the interests of all stakeholders.
- Approval of the Resolution Plan: Once the CoC approves a resolution plan by the requisite majority, the plan is then placed before the NCLT for confirmation.
Throughout the CIRP, several participants play a crucial role, and their participation is necessary for the successful operation of the CIRP:
- Resolution Professional (RP): Acts as the facilitator of the entire CIRP, manages the affairs of the corporate debtor, and ensures compliance with statutory obligations.
- Committee of Creditors (CoC): Includes the financial creditors who have the ultimate authority in approving or rejecting resolution plans.
- Operational Creditors: While operational creditors may not always have voting rights within the CoC, they are essential to the business operations and submit claims to the RP.
- Resolution Applicants: Parties interested in reviving the corporate debtor submit resolution plans for consideration by the CoC.
- Regulatory Authorities: Various regulatory authorities may be involved in the CIRP to ensure legal compliance and to provide necessary approvals.
- NCLT: The adjudicating authority responsible for overseeing the CIRP, approving the resolution plan, and ensuring that the process is carried out in accordance with the provisions of IBC.
These stages and participants work in unison under the strict timelines imposed by the IBC to either rescue the corporate debtor through a viable resolution plan or, failing which, to proceed towards liquidation. The meticulously designed structure of the CIRP strives to efficiently rehabilitate the insolvent entity while protecting the rights and interests of all parties involved.