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Resolution Process in NCLT

Resolution Process in NCLT

  • 18 Sep 2020

Resolution Process in NCLT

With regards to corporate credits, debt collection used to be a tricky process in India. However, after the implementation of Insolvency and Bankruptcy Code (“IBC”), in 2016, now the creditors have the advantage to file a Corporate Insolvency Resolution application in the National Company Law Tribunal (NCLT).

Let's now understand the whole process of debt resolution through NCLT under the IBC in India.

Resolution Process in NCLT

Under IBC, 2016, an Insolvency proceeding can be instituted against a Corporate Debtor by the following:

  1. A Financial Creditor to whom the Corporate Debtor owes Financial Debt. 'Financial Debt' is essentially a debt which is disbursed against consideration for time value of money

  2. An Operational Creditor to whom the Corporate Debtor owes Operational Debt.. ‘Operational debt’ refers to a claim against the provision of goods or services including employment or debt in respect of payment arising under any law and is payable to the Central or State Government or any other local authority.

    Advantage of Recovery under IBC, 2016: 

IBC ensures time-bound and effective resolution of debts within 180 days and if required an extension of 90 days can be provided by the NCLT. This saves the trouble of creditors of going through lengthy court-proceedings to recover their dues.  

Resolution Process: 

  1. A Financial Creditor can file an Insolvency Application in the NCLT, to initiate Corporate Insolvency Resolution Process (“CIRP”), on a default of Rs. 1 Crore or above  by the Corporate Debtor 

  2. Whereas, an Operational Creditor shall serve a demand notice to the Corporate Debtor asking for the repayment of debt which shall be at least Rs. 1 crore. .

  3. If no payment is made by the Corporate Debtor, then the Operational Creditor shall file an Insolvency Application in the NCLT to initiate CIRP.

  4. NCLT after admitting application will commence CIRP and impose the moratorium till the completion of CIRP

  5. Appointment of Interim Resolution Professional (“IRP”)

  6. IRP shall take over the management of the Company and constitute Committee of Creditors (“CoC”). IRP shall be replaced by a Resolution Professional (“RP”).

  7.  CoC shall review the Resolution Plan submitted by Resolution Applicants. CoC shall approve one Resolution Plan according to their commercial wisdom.

  8. NCLT shall sanction the Resolution Plan approved by the CoC.

    YouTube link - SLP Admission in the  Supreme Court.