50. Extortionate credit transactions.—
(1) Where the corporate debtor has been a party to an
extortionate credit transaction involving the receipt of financial or operational debt during the period
within two years preceding the insolvency commencement date, the liquidator or the resolution
professional as the case may be, may make an application for avoidance of such transaction to the
Adjudicating Authority if the terms of such transaction required exorbitant payments to be made by the
corporate debtor.
(2) The Board may specify the circumstances in which a transactions which shall be covered under
sub-section
(1).
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Explanation.—For the purpose of this section, it is clarified that any debt extended by any person
providing financial services which is in compliance with any law for the time being in force in relation to
such debt shall in no event be considered as an extortionate credit transaction.
51. Order of Adjudicating Authority in respect of extortionate credit transactions.—Where the
Adjudicating Authority after examining the application made under sub-section
(1) of section 50 is
satisfied that the terms of a credit transaction required exorbitant payments to be made by the corporate
debtor, it shall, by an order—
(a) restore the position as it existed prior to such transaction;
(b) set aside the whole or part of the debt created on account of the extortionate credit transaction;
(c) modify the terms of the transaction;
(d) require any person who is, or was, a party to the transaction to repay any amount received by
such person; or
(e) require any security interest that was created as part of the extortionate credit transaction to be
relinquished in favour of the liquidator or the resolution professional, as the case may be.
52. Second creditor in liquidation proceedings.—
(1) A secured creditor in the liquidation
proceedings may—
(a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of
assets by the liquidator in the manner specified in section 53; or
(b) realise its security interest in the manner specified in this section.
(2) Where the secured creditor realises security interest under clause
(b) of sub-section
(1), he shall
inform the liquidator of such security interest and identify the asset subject to such security interest to be
realised.
(3) Before any security interest is realised by the secured creditor under this section, the liquidator
shall verify such security interest and permit the secured creditor to realise only such security interest, the
existence of which may be proved either—
(a) by the records of such security interest maintained by an information utility; or
(b) by such other means as may be specified by the Board.
(4) A secured creditor may enforce, realise, settle, compromise or deal with the secured assets in
accordance with such law as applicable to the security interest being realised and to the secured creditor
and apply the proceeds to recover the debts due to it.
(5) If in the course of realising a secured asset, any secured creditor faces resistance from the
corporate debtor or any person connected therewith in taking possession of, selling or otherwise disposing
of the security, the secured creditor may make an application to the Adjudicating Authority to facilitate
the secured creditor to realise such security interest in accordance with law for the time being in force.
(6) The Adjudicating Authority, on the receipt of an application from a secured creditor under
sub-section
(5) may pass such order as may be necessary to permit a secured creditor to realise security
interest in accordance with law for the time being in force.
(7) Where the enforcement of the security interest under sub-section
(4) yields an amount by way of
proceeds which is in excess of the debts due to the secured creditor, the secured creditor shall—
(a) account to the liquidator for such surplus; and
(b) tender to the liquidator any surplus funds received from the enforcement of such secured
assets.
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(8) The amount of insolvency resolution process costs, due from secured creditors who realise their
security interests in the manner provided in this section, shall be deducted from the proceeds of any
realisation by such secured creditors, and they shall transfer such amounts to the liquidator to be included
in the liquidation estate.
(9) Where the proceeds of the realisation of the secured assets are not adequate to repay debts owed to
the secured creditor, the unpaid debts of such secured creditor shall be paid by the liquidator in the
manner specified in clause
(e) of sub-section
(1) of section 53.
53. Distribution of assets.—
(1) Notwithstanding anything to the contrary contained in any law
enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale
of the liquidation assets shall be distributed in the following order of priority and within such period and
in such manner as may be specified, namely:—
(a) the insolvency resolution process costs and the liquidation costs paid in full;
(b) the following debts which shall rank equally between and among the following:—
(i) workmen’s dues for the period of twenty-four months preceding the liquidation
commencement date; and
(ii) debts owed to a secured creditor in the event such secured creditor has relinquished
security in the manner set out in section 52;
(c) wages and any unpaid dues owed to employees other than workmen for the period of twelve
months preceding the liquidation commencement date;
(d) financial debts owed to unsecured creditors;
(e) the following dues shall rank equally between and among the following:—
(i) any amount due to the Central Government and the State Government including the
amount to be received on account of the Consolidated Fund of India and the Consolidated Fund
of a State, if any, in respect of the whole or any part of the period of two years preceding the
liquidation commencement date;
(ii) debts owed to a secured creditor for any amount unpaid following the enforcement of
security interest;
(f) any remaining debts and dues;
(g) preference shareholders, if any; and
(h) equity shareholders or partners, as the case may be.
(2) Any contractual arrangements between recipients under sub-section
(1) with equal ranking, if
disrupting the order of priority under that sub-section shall be disregarded by the liquidator.
(3) The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to
each class of recipients under sub-section
(1), and the proceeds to the relevant recipient shall be
distributed after such deduction.
Explanation.—For the purpose of this section—
(i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of
recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal
proportion within the same class of recipients, if the proceeds are insufficient to meet the debts in full;
and
(ii) the term “workmen’s dues” shall have the same meaning as assigned to it in section 326 of the
Companies Act, 2013 (18 of 2013).
54. Dissolution of corporate debtor.—
(1) Where the assets of the corporate debtor have been
completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the
dissolution of such corporate debtor.
(2) The Adjudicating Authority shall on application filed by the liquidator under sub-section
(1) order
that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be
dissolved accordingly.
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(3) A copy of an order under sub-section
(2) shall within seven days from the date of such order, be
forwarded to the authority with which the corporate debtor is registered.
1
[CHAPTER III-A
PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS
54A. Corporate debtors eligible for pre-packaged insolvency resolution process.—
(1) An
application for initiating pre-packaged insolvency resolution process may be made in respect of a
corporate debtor classified as a micro, small or medium enterprise under sub-section
(1) of section 7 of
the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006).
(2) Without prejudice to sub-section
(1), an application for initiating pre-packaged insolvency
resolution process may be made in respect of a corporate debtor, who commits a default referred to in
section 4, subject to the following conditions, that—
(a) it has not undergone pre-packaged insolvency resolution process or completed corporate
insolvency resolution process, as the case may be, during the period of three years preceding the
initiation date;
(b) it is not undergoing a corporate insolvency resolution process;
(c) no order requiring it to be liquidated is passed under section 33;
(d) it is eligible to submit a resolution plan under section 29A;
(e) the financial creditors of the corporate debtor, not being its related parties, representing such
number and in such manner as may be specified, have proposed the name of the insolvency
professional to be appointed as resolution professional for conducting the pre-packaged insolvency
resolution process of the corporate debtor, and the financial creditors of the corporate debtor, not
being its related parties, representing not less than sixty-six per cent. in value of the financial debt due
to such creditors, have approved such proposal in such form as may be specified:
Provided that where a corporate debtor does not have any financial creditors, not being its related
parties, the proposal and approval under this clause shall be provided by such persons as may be
specified;
(f) the majority of the directors or partners of the corporate debtor, as the case may be, have made
a declaration, in such form as may be specified, stating, inter alia, that—
(i) the corporate debtor shall file an application for initiating pre-packaged insolvency
resolution process within a definite time period not exceeding ninety days;
(ii) the pre-packaged insolvency resolution process is not being initiated to defraud any
person; and
(iii) the name of the insolvency professional proposed and approved to be appointed as
resolution professional under clause
(e);
1. Ins. by Act 26 of 2021, s. 8 (w.e.f. 4-4-2021).
56
(g) the members of the corporate debtor have passed a special resolution, or at least three-fourth
of the total number of partners, as the case may be, of the corporate debtor have passed a resolution,
approving the filing of an application for initiating pre-packaged insolvency resolution process.
(3) The corporate debtor shall obtain an approval from its financial creditors, not being its related
parties, representing not less than sixty-six per cent. in value of the financial debt due to such creditors,
for the filing of an application for initiating pre-packaged insolvency resolution process, in such form as
may be specified:
Provided that where a corporate debtor does not have any financial creditors, not being its related
parties, the approval under this sub-section shall be provided by such persons as may be specified.
(4) Prior to seeking approval from financial creditors under sub-section
(3), the corporate debtor shall
provide such financial creditors with—
(a) the declaration referred to in clause
(f) of sub-section
(2);
(b) the special resolution or resolution referred to in clause
(g) of sub-section
(2);
(c) a base resolution plan which conforms to the requirements referred to in section 54K, and
such other conditions as may be specified; and
(d) such other information and documents as may be specified.
54B. Duties of insolvency professional before initiation of pre-packaged insolvency resolution
process.—
(1) The insolvency professional, proposed to be appointed as the resolution professional, shall
have the following duties commencing from the date of the approval under clause
(e) of sub-section
(2) of
section 54A, namely:—
(a) prepare a report in such form as may be specified, confirming whether the corporate debtor
meets the requirements of section 54A, and the base resolution plan conforms to the requirements
referred to in clause
(c) of sub-section
(4) of section 54A;
(b) file such reports and other documents, with the Board, as may be specified; and
(c) perform such other duties as may be specified.
(2) The duties of the insolvency professional under sub-section
(1) shall cease, if,—
(a) the corporate debtor fails to file an application for initiating pre-packaged insolvency
resolution process within the time period as stated under the declaration referred to in clause
(f) of
sub-section
(2) of section 54A; or
(b) the application for initiating pre-packaged insolvency resolution process is admitted or
rejected by the Adjudicating Authority,
as the case may be.
(3) The fees payable to the insolvency professional in relation to the duties performed under
sub-section
(1) shall be determined and borne in such manner as may be specified and such fees shall
form part of the pre-packaged insolvency resolution process costs, if the application for initiation of pre-
packaged insolvency resolution process is admitted.
57
54C. Application to initiate pre-packaged insolvency resolution process.—
(1) Where a corporate
debtor meets the requirements of section 54A, a corporate applicant thereof may file an application with
the Adjudicating Authority for initiating pre-packaged insolvency resolution process.
(2) The application under sub-section
(1) shall be filed in such form, containing such particulars, in
such manner and accompanied with such fee as may be prescribed.
(3) The corporate applicant shall, along with the application, furnish—
(a) the declaration, special resolution or resolution, as the case may be, and the approval of
financial creditors for initiating pre-packaged insolvency resolution process in terms of section 54A;
(b) the name and written consent, in such form as may be specified, of the insolvency
professional proposed to be appointed as resolution professional, as approved under clause
(e) of
sub-section
(2) of section 54A, and his report as referred to in clause
(a) of sub-section
(1) of section
54B;
(c) a declaration regarding the existence of any transactions of the corporate debtor that may be
within the scope of provisions in respect of avoidance of transactions under Chapter III or fraudulent
or wrongful trading under Chapter VI, in such form as may be specified;
(d) information relating to books of account of the corporate debtor and such other documents
relating to such period as may be specified.
(4) The Adjudicating Authority shall, within a period of fourteen days of the receipt of the
application, by an order,—
(a) admit the application, if it is complete; or
(b) reject the application, if it is incomplete:
Provided that the Adjudicating Authority shall, before rejecting an application, give notice to the
applicant to rectify the defect in the application within seven days from the date of receipt of such notice
from the Adjudicating Authority.
(5) The pre-packaged insolvency resolution process shall commence from the date of admission of
the application under clause
(a) of sub-section
(4).
54D. Time-limit for completion of pre-packaged insolvency resolution process.—
(1) The pre-
packaged insolvency resolution process shall be completed within a period of one hundred and twenty
days from the pre-packaged insolvency commencement date.
(2) Without prejudice to sub-section
(1), the resolution professional shall submit the resolution plan,
as approved by the committee of creditors, to the Adjudicating Authority under sub-section
(4) or
sub-section
(12), as the case may be, of section 54K, within a period of ninety days from the pre-
packaged insolvency commencement date.
(3) Where no resolution plan is approved by the committee of creditors within the time period
referred to in sub-section
(2), the resolution professional shall, on the day after the expiry of such time
period, file an application with the Adjudicating Authority for termination of the pre-packaged insolvency
resolution process in such form and manner as may be specified.
58
54E. Declaration of moratorium and public announcement during prepackaged insolvency
resolution process.—
(1) The Adjudicating Authority shall, on the pre-packaged insolvency
commencement date, along with the order of admission under section 54C—
(a) declare a moratorium for the purposes referred to in sub-section
(1) read with sub-section
(3)
of section 14, which shall, mutatis mutandis apply, to the proceedings under this Chapter;
(b) appoint a resolution professional—
(i) as named in the application, if no disciplinary proceeding is pending against him; or
(ii) based on the recommendation made by the Board, if any disciplinary proceeding is
pending against the insolvency professional named in the application;
(c) cause a public announcement of the initiation of the pre-packaged insolvency resolution
process to be made by the resolution professional, in such form and manner as may be specified,
immediately after his appointment.
(2) The order of moratorium shall have effect from the date of such order till the date on which the
pre-packaged insolvency resolution process period comes to an end.
54F. Duties and powers of resolution professional during prepackaged insolvency resolution
process.—
(1) The resolution professional shall conduct the pre-packaged insolvency resolution process
of a corporate debtor during the pre-packaged insolvency resolution process period.
(2) The resolution professional shall perform the following duties, namely:—
(a) confirm the list of claims submitted by the corporate debtor under section 54G, in such
manner as may be specified;
(b) inform creditors regarding their claims as confirmed under clause
(a), in such manner as may
be specified;
(c) maintain an updated list of claims, in such manner as may be specified;
(d) monitor management of the affairs of the corporate debtor;
(e) inform the committee of creditors in the event of breach of any of the obligations of the Board
of Directors or partners, as the case may be, of the corporate debtor, under the provisions of this
Chapter and the rules and regulations made thereunder;
(f) constitute the committee of creditors and convene and attend all its meetings;
(g) prepare the information memorandum on the basis of the preliminary information
memorandum submitted under section 54G and any other relevant information, in such form and
manner as may be specified;
(h) file applications for avoidance of transactions under Chapter III or fraudulent or wrongful
trading under Chapter VI, if any; and
(i) such other duties as may be specified.
(3) The resolution professional shall exercise the following powers, namely:—
(a) access all books of account, records and information available with the corporate debtor;
59
(b) access the electronic records of the corporate debtor from an information utility having
financial information of the corporate debtor;
(c) access the books of account, records and other relevant documents of the corporate debtor
available with Government authorities, statutory auditors, accountants and such other persons as may
be specified;
(d) attend meetings of members, Board of Directors and committee of directors, or partners, as
the case may be, of the corporate debtor;
(e) appoint accountants, legal or other professionals in such manner as may be specified;
(f) collect all information relating to the assets, finances and operations of the corporate debtor for
determining the financial position of the corporate debtor and the existence of any transactions that
may be within the scope of provisions relating to avoidance of transactions under Chapter III or
fraudulent or wrongful trading under Chapter VI, including information relating to—
(i) business operations for the previous two years from the date of pre-packaged insolvency
commencement date;
(ii) financial and operational payments for the previous two years from the date of pre-
packaged insolvency commencement date;
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified;
(g) take such other actions in such manner as may be specified.
(4) From the date of appointment of the resolution professional, the financial institutions maintaining
accounts of the corporate debtor shall furnish all information relating to the corporate debtor available
with them to the resolution professional, as and when required by him.
(5) The personnel of the corporate debtor, its promoters and any other person associated with the
management of the corporate debtor shall extend all assistance and cooperation to the resolution
professional as may be required by him to perform his duties and exercise his powers, and for such
purposes, the provisions of sub-sections
(2) and
(3) of section 19 shall, mutatis mutandis apply, in relation
to the proceedings under this Chapter.
(6) The fees of the resolution professional and any expenses incurred by him for conducting the pre-
packaged insolvency resolution process shall be determined in such manner as may be specified:
Provided that the committee of creditors may impose limits and conditions on such fees and expenses:
Provided further that the fees and expenses for the period prior to the constitution of the committee of
creditors shall be subject to ratification by it.
(7) The fees and expenses referred to in sub-section
(6) shall be borne in such manner as may be
specified.
54G. List of claims and preliminary information memorandum.—
(1) The corporate debtor shall,
within two days of the pre-packaged insolvency commencement date, submit to the resolution
professional the following information, updated as on that date, in such form and manner as may be
specified, namely:—
60
(a) a list of claims, along with details of the respective creditors, their security interests and
guarantees, if any; and
(b) a preliminary information memorandum containing information relevant for formulating a
resolution plan.
(2) Where any person has sustained any loss or damage as a consequence of the omission of any
material information or inclusion of any misleading information in the list of claims or the preliminary
information memorandum submitted by the corporate debtor, every person who—
(a) is a promoter or director or partner of the corporate debtor, as the case may be, at the time of
submission of the list of claims or the preliminary information memorandum by the corporate debtor;
or
(b) has authorised the submission of the list of claims or the preliminary information
memorandum by the corporate debtor,
shall, without prejudice to section 77A, be liable to pay compensation to every person who has sustained
such loss or damage.
(3) No person shall be liable under sub-section
(2), if the list of claims or the preliminary information
memorandum was submitted by the corporate debtor without his knowledge or consent.
(4) Subject to section 54E, any person, who sustained any loss or damage as a consequence of
omission of material information or inclusion of any misleading information in the list of claims or the
preliminary information memorandum shall be entitled to move a court having jurisdiction for seeking
compensation for such loss or damage.
54H. Management of affairs of corporate debtor.—During the pre-packaged insolvency resolution
process period,—
(a) the management of the affairs of the corporate debtor shall continue to vest in the Board of
Directors or the partners, as the case may be, of the corporate debtor, subject to such conditions as
may be specified;
(b) the Board of Directors or the partners, as the case may be, of the corporate debtor, shall make
every endeavour to protect and preserve the value of the property of the corporate debtor, and manage
its operations as a going concern; and
(c) the promoters, members, personnel and partners, as the case may be, of the corporate debtor,
shall exercise and discharge their contractual or statutory rights and obligations in relation to the
corporate debtor, subject to the provisions of this Chapter and such other conditions and restrictions
as may be prescribed.
54-I. Committee of creditors.—
