The National Companies Law Tribunal (NCLT) was constituted under Section 408 of the Companies Act, 2013 (Companies Act) and has been recognized by the Insolvency and Bankruptcy Code 2016 (Code) as the Adjudicating Authority for the purpose of insolvency resolution as well as the liquidation of corporate persons.
Jurisdiction of NCLT
The Jurisdiction for insolvency resolution and/or liquidation
of corporate persons, corporate debtors and personal guarantors lies in that
place where the registered office of the corporate entity is situated. To
initiate an insolvency resolution process or liquidation of
corporate debtor, one must file an Application
for the same before having jurisdiction over such place. Likewise, one
can voluntarily file for a liquidation of corporate person in the same manner.
The
Code has also recognized Debt Recovery Tribunal (DRT) which has been constituted
under Section 3(1) of the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (DRT Act) as the Adjudicating Authority for the purpose
of insolvency resolution and bankruptcy of partnership firms and individuals.
However, in case of a corporate insolvency resolution process or liquidation
proceedings of a corporate debtor is pending before a NCLT wherein an
individual is a personal guarantor of such corporate debtor, then an
application relating to the insolvency resolution or bankruptcy of personal
guarantor of such corporate debtor shall also be filed before such NCLT and
such NCLT shall have the powers of DRT dealing with the insolvency resolution
or bankruptcy of individual.
Admission by NCLT
According
to Section 7(4) of the Code, after an application is filed by the Financial
Creditor, for insolvency NCLT has to ascertain the existence of default within
14 days from the receipt of such application. After the NCLT ascertains the
existence of a default and no disciplinary proceedings is pending before the
proposed IRP, then the Application will be accepted. It is to be noted that the
NCLT can reject an application as well, however, before doing so, the Tribunal
must serve a notice to the Applicant Creditor in order to rectify default in
his application within 7 days.
Declaration of Moratorium by NCLT
As
per Section 13 of the Code, for insolvency under NCLT after an Application has
been admitted by the NCLT, it must declare a moratorium in terms of Section 14
of the Code prohibiting the following:
1. The
institution of suits or continuation of pending suits or proceedings against
the corporate debtor that includes execution of any judgment, decree or order
in any court of law, tribunal, arbitration panel or other authority.
2. Transferring,
encumbering, alienating or disposing of by the corporate debtor any of its
assets or any legal right or beneficial interest therein;
3. 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
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (SARFAESI Act);
4. The
recovery of any property by an owner or lessor where such property is occupied
by or in the possession of the corporate debtor.
Power
to Extend the Time Limit for IRP
According
to Section 12(1) of the Code, the IRP has to be completed within 180 days and
in case of fast tracked IRP under Section 56, it has to be completed within 90
days. However, wherein the Resolution Professional has been instructed by the Committee
of Creditor for an extension of time beyond prescribed default maximum time, the
Resolution Professional has to file an Application before the NCLT for such
extension.
It is pertinent to note
that the NCLT can only grant one time extension beyond prescribed default
maximum time subject to the satisfaction of the NCLT that such IRP cannot be
completed within default maximum time. The extension can only be of maximum 90
days for a normal IRP, and maximum 45 days for fast tracked process.
Initiation of Liquidation by NCLT
process
According to Section 33(1) and (2) of the Code, In the event
of either of the following situations, the NCLT must pass an order requiring
the corporate debtor to be liquidated and initiate its liquidation process:
1.
Where a resolution plan has not been received within
the maximum time period allowed for resolution process.
2.
Where the resolution plan received has been rejected as
the said plan does not comply with the requirement specified under Section 31
of the Code.
3. Where
the Committee of Creditors through the Resolution Professional intimates the
NCLT about its decision to liquidate the corporate debtor during the IRP but
before confirmation of resolution plan
Dissolution of
Corporate Debtor by NCLT
According to Section 54 of the Code, in the event of complete
liquidation of the assets of the Corporate Debtor, the Liquidator has to make
an Application before the NCLT to pass an order for the dissolution of such
Corporate Debtor which shall come into effect from the date of that order and
the corporate debtor shall be dissolved accordingly.
The Dissolution Order
must be forwarded to the Authority with which the Corporate Debtor is
registered within 7 days from the date of such Order. In case of voluntary
liquidation, the time period is of 14 days.
Power in Case of Fraudulent or
Malicious Proceedings
Section
65 of the Code empowers the NCLT to deal with cases of fraudulent and malicious
initiation of proceedings to ensure proceedings are brought only for the
purpose of resolution of insolvency, or liquidation, as the case may be and not
for a malicious or fraudulent purpose. The NCLT may impose upon such person mentioned
below a penalty which may be between Rs 1, 00,000 to Rs. 1,00,00,000:
1.
Where any person initiates fraudulent or malicious
liquidation proceeding or insolvency resolution process
2. where
any person initiates voluntary liquidation proceeding with the intent to
defraud any person
Power in Case of
Fraudulent or Wrongful Trading
According to Section 66, if during the corporate insolvency
resolution process or a liquidation process, it is found that any business of
the corporate debtor has been carried on with intent to defraud creditors of
the corporate debtor or for any fraudulent purpose, the NCLT has been empowered
to pass an order on the application of the resolution professional that any
persons who were knowingly parties to the carrying on of the business in such
manner shall be liable to make such contributions to the assets of the
corporate debtor as it may deem fit.
Furthermore, in the following situations, the NCLT may by an
application by the Resolution Professional during the corporate IRP, pass an
order directing that such director or partner of the corporate debtor mentioned
below, shall be liable to make such contribution to the assets of the corporate
debtor as it may deem fit:
1.
If before the insolvency commencement date, such
director or partner knew or ought to have known that there was no reasonable
prospect of avoiding the commencement of a corporate insolvency resolution
process in respect of such corporate debtor; and
2.
If such director or partner did not exercise due
diligence in minimizing the potential loss to the creditors of the corporate
debtor.
