Initiation of CIRP by corporate applicant under Section 10 of the Insolvency and Bankruptcy Code 2016 (IBC)

CIRP
CIRP Application and withdrawal

Initiation of CIRP by corporate applicant under Section 10 of the IBC

While sections 7 and 9 of the Code, allow creditors of a defaulting company to file application before adjudicating authoriyty(NCLT), Section 10 provides where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency resolution process with the Adjudicating Authority. The special resolution passed by shareholders of the corporate debtor or the resolution passed by at least three-fourth of the total number of partners of the corporate debtor is required for filing of the application under Section 10 before NCLT. NCLAT in the matter of Mr. Umesh Aggarwal Vs. RICOH India Ltd. held that prior approval of shareholders in AGM/EGM has been substituted by amendment made on 06.06.18, which is not applicable in case of where application was admitted before that date.

Hon’ble Supreme Court in the matter of Sunrise 14 A/S Denmark Vs. Ravi Mahajan 61(IBC)01/2018 held that petition filed by an advocate would be maintainable. NCLAT in the matter of Palogix Infrastructure Private Limited Vs. ICICI Bank Limited held that a Power of Attorney holder cannot file any application u/s 7 or Sec. 9 or Sec. 10 of Code.

Minimum amount of default:

A corporate applicant can file application before NCLT where the minimum amount of the default is one lakh rupees.[Sec. 4]

Note: Vide Notification No. S.O. 1205(E) dated 24.03.2020, the default limit has been increased to 1 crore rupees.

1. Persons not entitled to make application

As per Sec. 11 of the Code, a Corporate Debtor(include Corporate Applicant) shall not entitle to make an application to initiate CIRP where the Corporate Debtor:

  • Undergoing a CIRP
  • having completed CIRP 12 months preceding the date of making of the application
  • who has violated any of the terms of resolution plan which was approved 12 months before the date of making of an application
  • in respect of whom a liquidation order has been made.

A corporate debtor referred in above points shall not be prevented from initiating CIRP against another corporate debtor.

2. Who is Corporate Applicant

Read more about the Corporate Applicant.

3. Form and documents require for filing the application

The corporate applicant shall, along with the application in Form 6, furnish:

(a) the information relating to its books of account and such other documents for such period as may be specified;

(b) the information relating to the resolution professional proposed to be appointed as an interim resolution professional; and

(c) the special resolution passed by shareholders of the corporate debtor or the resolution passed by at least 3/4 of the total number of partners of the corporate debtor, as the case may be, approving filing of the application.

The applicant shall dispatch forthwith, a copy of the application filed with the Adjudicating Authority, by registered post or speed post to the registered office of the corporate debtor.

4. Acceptance or rejection of the application

The Adjudicating Authority shall, within a period of 14 days of the receipt of the application, by an order:

(a) admit the application, if it is complete and no disciplinary proceeding is pending against the proposed resolution professional; or

(b) reject the application, if it is incomplete or any disciplinary proceeding is pending against the proposed resolution professional:

The Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within 7 days from the date of receipt of such notice from the Adjudicating Authority.

NCLAT in re Vyomit Shares Stock & Investments Pvt. Ltd. Vs. SEBI held that application u/s 10 can be rejected on the ground that the Corporate Debtor is earning sufficient income.

5. Initiation & Commencement of CIRP

Initiation date of CIRP means the date on which a financial creditor, corporate applicant or operational creditor, as the case may be, makes an application to the Adjudicating Authority for initiating CIRP[Sec. 5(11)] and the CIRP shall commence from the date of admission of the application.

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