Insolvency

Section 224(3) of the IBC, 2016, allows a contributor to the Insolvency and Bankruptcy Fund to withdraw up to their contributed amount during insolvency proceedings if they are subject to such proceedings. This withdrawal is authorized by the Adjudicating Authority (NCLT) specifically for critical needs like paying workmen, protecting assets, or meeting incidental costs etc. The Adjudicating Authority, upon verification of the contribution and the necessity of the payment, permits the withdrawal. This provision ensures that companies in distress, which have previously supported the fund, can use those funds to maintain asset value and pay workers during insolvency.

Section 224 (2) of the IBC provides that the following amounts shall be credited to the Insolvency and Bankruptcy Fund: -

•the grants made by the Central Government for the purposes of the Fund;

•the amount deposited by persons as contribution to the Fund;

•the amount received in the Fund from any other source; and

•the interest or other income received out of the investment made from the Fund.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 5(a) (Syllabus 2022).

The Insolvency and bankruptcy Code, 2016 is one of the biggest economic reforms which provides a uniform and comprehensive insolvency legislation covering corporates, partnerships and individuals (other than financial firms). The Code gives both the creditors and debtors the power to initiate proceeding. It has helped India achieve a historic jump in the ease of doing business rankings by consolidating the law and providing for resolution of insolvencies in a time-bound manner.

The objects clause of the Insolvency and Bankruptcy Code lays down the following key objectives:

1.To consolidate and amend the laws relating to re-organisation and insolvency resolution of corporate

persons, partnership firms and individuals to provide for a time bound insolvency resolution mechanism.

2.To ensure maximisation of value of assets,

3.To promote entrepreneurship,

4.To increase availability of credit,

5.To balance the interests of all the stakeholders including alteration in the order of priority of payment of

Government dues, and

6.To establish an Insolvency and Bankruptcy Board of India as a regulatory body,

7.To provide procedure for connected and incidental matters.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 4(c) (Syllabus 2017).

The Insolvency and Bankruptcy Code, 2016 amended the following 11 Acts:

•The Indian Partnership Act, 1932,

•The Central Excise Act, 1944,

•The Income-Tax Act, 1961,

•The Customs Act, 1962,

•The Recovery of Debts Due to Banks and Financial Institutions Act, 1993,

•The Finance Act, 1994,

•The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,

•The Sick Industrial Companies (Special Provisions) Repeal Act, 2003,

•The Payment and Settlement Systems Act, 2007,

•The Limited Liability Partnership Act, 2008, and

•The Companies Act, 2013

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 4(a) (Syllabus 2017).

American bankruptcy procedures enable sick companies to restructure its debt obligations even while remaining operational. In this context, one must recognise that in the US the well-known Chapter 11 bankruptcy proceedings are considered as reorganization/ resurrection process for corporates.

Many companies are known to have revived under Chapter 11. Further, Chapter 11 ensures the emergence of companies with sustainable debt levels and profitable working. Chapter 11 bankruptcy proceedings are available to every business, whether organized as a corporation, partnership or sole proprietorship, and to individuals, although it is most prominently used by corporate entities.

Salient features of Chapter 11 are as under:

•Chapter 11 is not a declaration of insolvency.

•Companies don’t file under Chapter 11 to liquidate; they do so in order to continue operating and to take the necessary steps to emerge as a financially stronger business, reorganizing their operations or balance sheet or in some cases by selling substantially all its assets.

•Management remains in control of the business during the chapter 11 rehabilitative process. Trustees, administrators and monitors typically are not appointed.

•Chapter 11 normally does not cause interruption to business operations.

•The company is given breathing room during the process - an “automatic stay” generally prevents parties from taking legal action against the company or taking the company’s assets.

•Most publicly-held companies prefer to file under Chapter 11 rather than Chapter 7 because they can still run their business and control the bankruptcy process. Chapter 11 provides a process for rehabilitating the business of the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 6(c) (Syllabus 2017).

The words "Insolvency" and "Bankruptcy" are generally used interchangeably in common parlance but here is a marked distinction between the two. Insolvency and Bankruptcy are not synonymous.

The term "insolvency" notes the state of one whose assets are insufficient to pay his debts; or his general inability to pay his debts. The term "insolvency" is used in a restricted sense to express the inability of a party to pay his debts as they become due in the ordinary course of business.

The word "bankruptcy" is the condition of insolvency. It is a legal status of a person or an entity who cannot repay debts to creditors. The bankruptcy process begins with filing of a petition in a court or before an appropriate authority designated for this purpose. The debtor's assets are then evaluated and used to pay the creditors in accordance with law.

Therefore, while insolvency is the inability of debtors to repay their debts, the bankruptcy, on the other hand, is a formal declaration of insolvency in accordance with law of the land. Insolvency describes a situation where the debtor is unable to meet his/ her obligations and bankruptcy occurs when a court determines insolvency, and gives legal orders for it to be resolved. Thus insolvency is a state and bankruptcy is the conclusion.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 5(a) (Syllabus 2017).

The statement today is a forgotten perception. First Bankruptcy Law enacted in England in 1542 wherein debtor was looked upon as if an offender, and the Law was mainly for the benefit of creditors. The erstwhile law was providing equal distribution of debtor’s assets among creditors yet not relieving the debtor from punishment. However, at present, UK Insolvency Act, 1986 is prevalent to deal with insolvencies of individuals and companies. Opportunity is given to revive the company to emulate the ‘rescue’ culture that characterised the Corporate Sector in U.S.A.

Early bankruptcy laws in USA were draconian as were in England. Bankruptcy Abuse Prevention & Consumer Protection Act, 2005 in USA attempts to overhaul earlier Codes with specific reference to consumer protection, restoring personal responsibilities and integrity in the Bankruptcy system.

In USA, Chapter 11 bankruptcy proceedings are considered as re-organisation/ resurrection process for corporates. Companies, while remaining operational, are permitted to restructure their debt obligations.

In India also with promulgation of Insolvency and Bankruptcy Code, 2016, debtor is given revival opportunity before liquidation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6(a) (Old syllabus).

The terms ‘Insolvency’ and ‘Bankruptcy’ are generally used interchangeably in common parlance but there is a marked distinction between the two. Insolvency and bankruptcy are not synonymous.

The term ‘insolvency’ denotes the state of one whose assets are insufficient to pay his debts; or his general inability to pay his debts. The term ‘insolvency’ is used in a restricted sense to express the inability of a person or an entity to pay his debts as they become due in the ordinary course of business.

‘Bankruptcy’ is a legal status of a person or an entity who cannot repay debts to creditors. The bankruptcy process begins with filing of a petition in a court or before an appropriate authority designated for this purpose. The debtor’s assets are then evaluated and used to pay the creditors in accordance with law.

Thus insolvency is a state and bankruptcy is the conclusion. The term insolvency is used for individuals as well as organisations/ corporates. If insolvency is not resolved, it leads to bankruptcy in case of individuals and liquidation in case of corporates.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 4(b) (Syllabus 2017).

Every stakeholder especially investors and creditors chose to get early return on their investments for sustenance. Hence, policy makers constantly reform law relating to insolvency for ease of doing business that includes easy exit also. During last two and half decades, Indian financial system has undergone tremendous transformation. Several financial reforms have been initiated to promote an efficient, well diversified and competitive financial system with ultimate objective of improving the allocative efficiency of resources so as to accelerate economic development. There are reforms in laws and systems to be at par with International Standards and to incentivise the foreign investors to invest in the Indian economy. Committees were formed to find ways to improve the law relating to Insolvency resulting into framing of Insolvency and Bankruptcy Code, 2016.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6(a) (Old syllabus).

As per Section 3(20) of the Insolvency and Bankruptcy Code, 2016, Insolvency Professional Agency” means any person registered with the Board under section 201 as an insolvency professional agency.

Insolvency Professional Agencies are designated to regulate Insolvency Professionals. These agencies enroll Insolvency Professionals, provide pre-registration educational course to its enrolled members and enforce a code of conduct for their functioning. They also issue ‘authorisation for assignment’ to the IPs enrolled with them.

In exercise of powers conferred by the Insolvency and Bankruptcy Code, 2016, the Insolvency and Bankruptcy Board of India (IBBI) has framed the following regulations to regulate the working of Insolvency Professional Agencies (IPAs):

•The Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016, and

•The Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations. 2016.

According to Section 204 of the Code, insolvency professional agencies perform the following functions, namely:

a)grant membership to persons who fulfil all requirements set out in its byelaws on payment of membership fee:

b)lay down standards of professional conduct for its members;

c)monitor the performance of its members;

d)safeguard the rights, privileges and interests o I insolvency professionals who are its members;

e)suspend or cancel the membership of insolvency professionals who are its members on the grounds set out in its bye-laws:

f)redress the grievances of consumers against insolvency professionals who are its members; and

g)publish information about its functions, list of its members, performance of its members and such other information as may be specified by regulations.

***

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6A(iii) (Syllabus 2017).

Section 3(21) of the Insolvency and Bankruptcy Code, 2016 defines an “information utility” as a person who is registered with the Board as an information utility under section 210.

Obligation of Information Utilities are created pursuant to Section 214 of the Insolvency and Bankruptcy Code, 2016. Accordingly, the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 have been framed.

In short, Information Utility is a depository to create and store financial information through electronic means from financial or operational creditors on payment of prescribed fee. Section 215 made it obligatory for financial creditor and optional for operational creditor to submit the details to Information Utility.

All prescribed precautions are taken before storing information that is accessible to anyone on payment of fee. Further it is obliged to publish statistical data as required by Regulations. There needs to be inter-operability with other information Utilities so that the person accessing the data make sure as to authenticity. Section 216 enables the person who has fed original data to approach with reasons the Information Utility to update or modify the information.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 4(a) (Syllabus 2017).

Section 240 of the Insolvency and Bankruptcy Code enables Insolvency and Bankruptcy Board of India (IBBI) to formulate and enforce regulations broadly covering the following matters:

1.Regulating all matters related to insolvency and bankruptcy process.

2.Setting out eligibility requirements of insolvency intermediaries i.e., Insolvency Professionals, Insolvency Professional Agencies and Information Utilities.

3.Regulating entry, registration and exit of insolvency intermediaries.

4.Making model bye laws for Insolvency Professional Agencies.

5.Setting out regulatory standards for Insolvency Professionals.

6.Specifying the manners in which information utilities can collect and store data.

Similarly, powers and functions of IBBI are detailed in Section 196 of the of the Insolvency and Bankruptcy Code empowering the IBBI with same powers as vested in a civil court under Code of Civil Procedure 1908 (CPC) for discovery, summoning, examination of witnesses or documents.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6A(ii) (Old syllabus).

Insolvency and Bankruptcy Board of India (IBBI), Insolvency Professional Agencies (IPA), Insolvency Professionals (IP) and Information Utilities (IU) are the four pillars for the progress and implementation of Insolvency and Bankruptcy Code, 2016. Adjudicating Authorities are National Company Law Tribunal (NCLT) in case of Companies and Limited Liability Partnerships and Debt Recovery Tribunal (DRT) in case of Individuals and Partnerships firms.

IBBI functions with a Chairman, 3 Central Government Officials, 1 RBI ex-officio and five members including 3 whole-time members as nominated by Central Government. IBBI is entrusted with framing regulations for Insolvency and Bankruptcy matters, setting eligibility and registering intermediaries i.e. IPA, IP and IU as well as monitoring those intermediaries.

IPAs are registered bodies to enrol Insolvency Professionals (IPs) before registration with IBBI. IP is entrusted with Corporate Debtor to frame Resolution Plan for revival through Committee of Creditors. IU is to keep records of liabilities relating to debtors, creditors electronically.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6(b) (Old syllabus).

Section 217 of the Insolvency and Bankruptcy Code, 2016 deals with complaints against insolvency professional agency or its member or information utility. It states that,

“Any person aggrieved by the functioning of an insolvency professional agency or insolvency professional or an information utility may file a complaint to the Board in such form, within such time and in such manner as may be specified.”

Further, Model Bye Laws of Insolvency Professional Agencies also have Grievance Redressal Mechanism for redressing grievances against the agency or any member of the agency.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5(c) (Syllabus 2017).

Regulation 37 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides that a resolution plan shall provide for the measures for maximisation of value of assets. Thus, one of the best methods of corporate debt restructuring is debt-equity swap where specified shareholders shall have right to exchange stock for a predetermined amount of debt in the same company. In debt-equity swap debt/bonds are exchanged with shares/stock of the company. However, the resolution plan needs to be placed before Committee of Creditors for approval before the same is placed for sanction by the NCLT.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 5(b) (Syllabus 2017).

Role of the Insolvency and Bankruptcy Board of India (IBBI) is as under:

1.Regulating all matters related to insolvency and bankruptcy process.

2.Setting out eligibility requirements of insolvency intermediaries i.e., Insolvency Professionals, Insolvency Professional Agencies and Information Utilities.

3.Regulating entry, registration and exit of insolvency intermediaries.

4.Making model bye laws for Insolvency Professional Agencies.

5.Setting our regulatory standards for Insolvency Professionals.

6.Specifying the manners in which information utilities can collect and store data.

***

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6A(iv) (Old syllabus).

According to Section 5(12) of the Insolvency & Bankruptcy Code, “Insolvency Commencement Date” means the date of admission of an application for initiating corporate insolvency resolution process by the Adjudicating Authority under sections 7, 9 or section 10, as the case may be.

Section 14(1) of the Insolvency & Bankruptcy Code provides for moratorium. It provides that subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:

(a)the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority,

(b)transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein,

(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 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 4(b) (Syllabus 2017).

According to Section 3(10) of the Insolvency & Bankruptcy Code, “Creditor’” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder.

A financial creditor’ has been defined at Section 5(7) of the Insolvency & Bankruptcy Code as follows:

“Any person to whom a financial debt is owed and includes any person to whom such debt has been legally assigned or transferred.” (Emphasis supplied)

An ‘operational creditor’ has been defined at Section 5(20) of the of the Insolvency & Bankruptcy Code as follows:

“a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.”

Section 3 is in Part I of I&B Code. Part II of I&B Code deals with “Insolvency Resolution and Liquidation for Corporate Person” & has its own definitions in Section 5.

Section 3 (10) of the Insolvency & Bankruptcy Code definition of “Creditor” includes “financial creditor”, “operational creditor” “decree-holder” etc. But Section 7 or Section 9 dealing with “Financial Creditor” and “operational creditor” do not include “decree-holder” to initiate CIRP in Part II.” In the matter of Digamber Bhondwe Vs. JM Financial Asset Reconstruction [CA(AT)(Ins) No. 1379 of 2019] it was held “...... We further reject the submission that because in Section 3(10) of I&B Code in definition of “Creditor” the “decree holder” is included it shows that decree gives cause to initiate application under Section 7 of IBC

Sh. Sushil Ansal Vs Ashok Tripathi and Ors, the National Company Law Appellate Tribunal, Delhi (NCLAT) held that no decree holder who is covered within the definitions of creditor given under Section 3(10) of the Insolvency and Bankruptcy Code (IBC) can come within the ambit of the class of a financial creditor. The Tribunal has opined as follows:

We further reject the submission that because in Section 3(10) of I&B Code in definition of “Creditor” the “decree holder” is included it shows that decree gives cause to initiate application under Section 7 of I&B Code. Section 3 is in Part I of I&B Code. Part II of I&B Code deals with “Insolvency Resolution and Liquidation for Corporate Person”, & has its own set of definitions in Section 5. But Section 7 or Section 9 dealing with “Financial Creditor” and “operational creditor” do not include “decree-holder” to initiate CIRP in Part II.

This implies that a decree holder is not permitted to initiate any corporate insolvency resolution process (CIRP) against any corporate debtor with the objective of executing a decree under it.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6A(i) (Syllabus 2022).

According to section 5(24) of the Insolvency & Bankruptcy Code, a “related party”, in relation to a corporate debtor, means

a)a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor;

b)key managerial personnel of the corporate debtor or a relative of key managerial personnel of the corporate debtor;

c)a limited liability partnership or a partnership firm in which a director, partner, or manager of the corporate debtor or his relative is a partner,

d)a private company in which a director, partner or manager of the corporate debtor is a director and holds along with his relatives, more than two per cent. of its share capital;

e)a public company in which a director, partner or manager of the corporate debtor is a director and holds along with relatives, more than two per cent. of its paid-up share capital;

f)anybody corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor;

g)any limited liability partnership or a partnership firm whose partners or employees in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor;

h)any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act;

i)a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary;

j)any person who controls more than twenty per cent. of voting rights in the corporate debtor on account of ownership or a voting agreement,

k)any person in whom the corporate debtor controls more than twenty per cent. of voting rights on account of ownership or a voting agreement;

l)any person who can control the composition of the board of directors or corresponding governing body of the corporate debtor,

m)any person who is associated with the corporate debtor on account of-

i)participation in policy making processes of the corporate debtor; or

ii)having more than two directors in common between the corporate debtor and such person;

iii)interchange of managerial personnel between the corporate debtor and such person; or

iv)provision of essential technical information to, or from, the corporate debtor

Explanation to section 5(24A) of the Insolvency & Bankruptcy Code provides

(a)“relative”, with reference to any person, means anyone who is related to another, in the following manner, namely: - (iv) father,

In light of definition of relative and clause (e) above, ABC Limited is a “related party” of HRK Limited as Mr. X is a director in HRK Limited and Mr. X together with Mr. Y (father) holds more than 2 percent of the equity share capital of ABC Limited.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 4(b) (Syllabus 2017).

As per Section 5(8) of Insolvency & Bankruptcy Code, 2016 “Financial Debt” means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes —

(a)money borrowed against the payment of interest;

(b)any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent;

(c)any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

(d)the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;

(e)Receivables sold or discounted other than any receivables sold on nonrecourse basis,

(f)any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing:

In view of definition “Financial Debt” and as per the Insolvency & Bankruptcy Code receivables discounted other than any receivables on non-recourse basis is only covered has financial debt, hence the contention of the CFO is not correct in the given case as the receivables are sold on non-recourse basis.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 5(b) (Syllabus 2017).

As per section 5(8) of the Insolvency and Bankruptcy Code, 2016 “Financial Debt” means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes:

(a)money borrowed against the payment of interest;

(b)any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent:

(c)any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures. loan stock or any similar instrument:

(d)the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;

(e)receivables sold or discounted other than any receivables sold on nonrecourse basis:

(f)any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;

(g)any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction. only the market value of such transaction shall be taken into account;

(h)any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution:

(i)the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 4(b) (Syllabus 2017).

Hon’ble Supreme Court in the case of Ramesh Kymal vs. M/s Siemens Gamesa Renewable Power Pvt Ltd judgement dated February 9, 2021 observed that the date of the initiation of the CIRP is the date on which a financial creditor, operational creditor or corporate applicant makes an application to the adjudicating authority for initiating the process.

On the other hand, the insolvency commencement date is the date of admission of the application. This distinction is also evident from the provisions of sub-section (6) of Section 7, sub-section (6) of Section 9 and sub-section (5) of Section 10. Section 7 deals with the initiation of the CIRP by a financial creditor; Section 8 provides for the insolvency resolution by an operational creditor; Section 9 provides for the application for initiation of the CIRP by an operational creditor; and Section 10 provides for the initiation of the CIRP by a corporate applicant.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 5(d) (Syllabus 2017).

The terms 'person' and 'corporate person' have been used differently at different places in the Insolvency and Bankruptcy Code, 2016.

Though the definitions of 'person', are wide, it will have to be read in context in which the word ‘person' has been used. The following definition of 'person' may not apply at each place, where the word person has been used. "Person includes individual, HUF, Company, Trust, Partnership, LLP and any other entity established under the Statutes. It also includes a person resident outside India (Section 3(23) of the Insolvency and Bankruptcy Code, 2016).

"Corporate Person” means a company as defined in section 2(20) of the Companies Act, 2013, a limited liability partnership as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2009, or any other persons incorporated with limited liability under any law for the time being in force but shall not include any financial service provider vide section 3(7) of Insolvency and Bankruptcy Code, 2016.

In the definition of 'person' the word individual has been used but in the word ‘corporate person’ such word has not been used. Corporate person, includes person, as has been included in the word person with limited liabilities excluding financial service provider, as defined in section 3(7) of the Code.

Definition of Corporate Person completely excludes financial service providers. The reasons are that they are regulated by specialized agency. Thus, the Code does not cover Banks, Financial Institutions, Insurance Companies, ARCs, Mutual Funds or Pension Funds, etc.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(a) (Old syllabus).

Qualifying Debt means amount due, including interest or any other sum due in respect of the amounts owed under any contract, by the debtor. However, qualified debt does not include -

•an excluded debt;

•a secured debt; and

•any debt, which is incurred 3 months before the date of application for Fresh Start Process {Section 79(19) of the IBC}.

Excluded Debt means

•liability to pay fine/penalty imposed by a Court or Tribunal;

•liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal obligation;

•liability to pay maintenance to any person under any law for the time being in force;

•liability in relation to a student loan;

•any other debt as may be prescribed {Section 79(15) of the IBC}.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 4(d) (Syllabus 2017).

As per Section 79(14) of Insolvency & Bankruptcy Code, “excluded assets” includes –

(a)unencumbered tools, books, vehicles and other equipment as are necessary to the debtor or bankrupt for his personal use or for the purpose of his employment, business or vocation,

(b)unencumbered furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his immediate family;

(c)any unencumbered personal ornaments of such value, as may be prescribed, of the debtor or his immediate family which cannot be parted with, in accordance with religious usage;

(d)any unencumbered life insurance policy or pension plan taken in the name of debtor or his immediate family; and

(e)an unencumbered single dwelling unit owned by the debtor of such value as may be prescribed;

As per aforesaid provisions of the Insolvency & Bankruptcy Code the pension plan in the name of spouse, who is the immediate family of the personal guarantor falls within the list of excluded assets and hence, the same cannot be included in the list of assets of the personal guarantor.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 5(c) (Syllabus 2017).

According to Section 79(15) of the Insolvency and Bankruptcy Code, 2016, an "Excluded debt" means –

a.liability to pay fine imposed by a court or tribunal;

b.liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal obligation;

c.liability to pay maintenance to any person under any law for the time being in force;

d.liability in relation to a student loan; and

e.any other debt as may be prescribed.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 5(d) (Syllabus 2017).

Section 79(4) of the Insolvency and Bankruptcy Code, 2016 defines the term ‘bankruptcy’ as the state of being bankrupt. According to section 79(3) of the Insolvency and Bankruptcy Code, 2016 ‘bankrupt’ means:

(a)a debtor who has been adjudged as bankrupt by a bankruptcy order under section 126;

(b)each of the partners of a firm, where a bankruptcy order under section 126 has been made against a firm; or

(c)any person adjudged as an undischarged insolvent.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 5(c) (Syllabus 2017).