Practical FAQ on IBC

1. Is appointment of IRP/RP, a contractual appointment?

No. It appears that appointment of IRP/RP is statutory appointment since IPR/RP is appointed by Adjudicating Authority. On 31 Jan 2018, National Company Law tribunal (NCLAT) in Mr. Devendra Padamchand Jain, Resolution Professional, C/o VNR Infrastructure Limited V/s State Bank of India and Others observed that NCLT (Adjudicating Authority) has jurisdictional to remove RP if it is not satisfied with its functioning as RP. NCLAT while hearing an appeal by Mr. Devendra Padamchand Jain, the RP for VNR Infrastructures, against his removal by the Hyderabad bench of the NCLT observed as follows “We hold that the adjudicating authority has jurisdiction to remove the resolution professional if it is not satisfied with its functioning of the resolution professional, which amounts to non-compliance of sub-section (2) of Section 30 of the I & B Code,”.

2. What shall be treatment of first and second charge holder in relation to waterfall mechanism as provided under Section 53 of the Code?

Section 53 (1)(b)(ii) of the Code provides that debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in Section 52 shall rank equally between and among them. In view of aforesaid, all the secured creditors whether first charge or second
charge will rank equally for the purposes of distribution of assets under the waterfall mechanism provided under Section 53 (1) (b) (ii) of the Code.

3. Can proceedings under Section 138 of Negotiable Instruments Act continue even after initiation of CIRP?

The proceedings under Section 138 of NI Act are of different nature and liability occurs when a cheque is dishonoured. The proceedings under Section 138 NI act can thus continue even after initiation of CIRP. [M/s. R G Shaw & Sons Private Limited v. Naviplast Traders Private Ltd. & Ors. (Company Appeal (AT) Insolvency No. 63 of 2017)– NCLT, Kolkata Bench]

4. Can Banks proceed against a debtor under IBC when matter is already pending before DRT?

There is no bar for Banks to proceed against a debtor even though the matter is already pending before DRT.

5. How an IRP/RP treat a charge which is not registered with Registrar of Companies (ROC) while evaluating claims and its treatment under Section 53 of the Code?

Section 77 (3) of the Companies Act, 2013 provides that no charge created by a company shall be taken into account by the liquidator appointed under this Act or the Insolvency and Bankruptcy Code,
2016, as the case may be or any other creditor unless it is duly registered. In view of the aforesaid position, it appears that a charge which is not registered with Registrar of Companies (ROC) while evaluating claims may not be treated as valid claim. Further, as a result, the creditor may not be treated as secured creditor by the RP and will fall lower in order of priority under Section 53 (1) (d) of the Code for the purposes of distribution of assets.

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