by NCLT and DRT are judicially constituted special bodies for adjudicating resolution of matters related to insolvency and bankruptcy. NCLT appeals lies to National Company Law Appellate Tribunal (NCLAT) and after NCLAT, the party can appeal to the Supreme court of India. Similarly, for DRT, appeals lie to the Debt Recovery Appellate Tribunal and then to the supreme court of India. NCLT and DRT are separate tribunals. NCLT is for companies and limited liability partnerships and DRT is for unlimited liability partnerships and sole proprietors.
Section 13 (Declaration of moratorium and public announcement) provides that the Adjudicating Authority shall:
(a) Declare a moratorium for the purposes referred to under Section 14.
(b) Cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15.
(c) Appoint an interim resolution professional in the manner as laid down in Section 16. A public announcement is to be made immediately after the appointment of the interim resolution professional.
Section 14 (Moratorium) provides that on the insolvency commencement date, the Adjudicating Authority shall declare a moratorium prohibiting
(a) The institution or continuation of suits or proceedings against the corporate debtor including execution of a judgment, decree, order, etc.
(b) Transferring, encumbering alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest.
(c) Any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
(d) Recovery of any property by an owner or lessor where such property is occupied by, or in the possession of the corporate debtor. Section 16 provides for the appointment and tenure of an interim resolution professional.
The resolution professional has to work under the broad guidelines of the committee of creditors (or “COC”- in terms of Section 21 of the Code). The CoC includes all the financial creditors of the corporate debtor, except all related parties and operational creditors. Further, Section 22 of the Code provides that the CoC has to appoint the resolution professional. This resolution professional can also be the interim resolution professional. A vote of 75% of the voting share shall determine the decisions of the committee to opt for either a revival or liquidation (Section 30). The decision of the CoC is binding not only on debtors, but also on all the other creditors. Different types of revival plans include fresh finance, sale of assets, haircuts (i.e. acceptance by creditors of amounts lower than what is due to them), change of management etc. The committee should approve the resolution plan forwarded by the creditor. Only upon approval does the resolution professional forward the plan to the adjudicating authority for final approval. The resolution plan has to be approved by the NCLT; while doing so, it can consider objections to the resolution plan by any party interested in voicing such objections (i.e. operational creditors, financial creditors, etc).
There can also be no enforcement of securities, sale or transfer of assets or termination of essential contracts against the debtor. The next step is appointment of an Interim Resolution Professional under Section 16 of the Code.
After the commencement of corporate insolvency resolution, the NCLT orders a moratorium on the debtor’s operations for the period of 180 days. This is termed as a ‘calm period’ during which no judicial proceedings for recovery, enforcement of security interest, sale or transfer of assets, or termination of essential contracts can take place against the debtor.
