The IBC Amendment Ordinance 2018 received assent from the President of India on 6th June 2018. Here is an
attempt to decode the changes that have been brought in place.

The amendments have been analysed keeping in view changes to the Corporate Insolvency Process.

For ease of reference the summary has been kept as crisp as possible and author’s comments have been added
based on my understanding. In case of any defects / suggestions that the reader may wish to suggest to the author,
please do not hesitate to reach out on the following co- ordinates:
Email :
1. Replacement of the word “repaid” / “repayment” with “paid” / ”payment”
At many places especially concerning the operational / financial debt instead of the word “repaid”, “repayment”words “paid” , “payment” have been substituted.

2. Newly inserted Section 5A – Corporate Guarantor defined:

3. Section 5 (8)(f), Explanation has been inserted – Amounts raised from Home Buyers to have an effect of borrowing :

(i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the
commercial effect of a borrowing; and “allottee” and “real estate project” shall have the meanings respectively
assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016;’;

4. Related Party and relative Defined ( in relation to an individual) – Much awaited concept of Related
party has now been defined :
Section 5 (24A) now defines Related Party
An Explanation has been added which defines Relative as (which is very close to the definition under companies act 2013):
Anyone who is related to another, in the following manner, namely:-(i) members of a Hindu UndividedFamily,(ii) husband, (iii) wife,(iv) father,(v) mother, (vi) son,(vii) daughter,(viii) son’s daughter and son,(ix)daughter’s daughter and son,(x) grandson’S daughter and son,(xi) granddaughter’s daughter and son, (xii)
brother,(xiii) sister,(xiv) brother’s son and daughter,(xv) sister’s son and daughter (xvi) father’s father and
mother, (xvii) mother’s father and mother (xviii)father’s brother and sister, (xix) mother’s brother and sister;
and (b) wherever the relation is that of a son, daughter, sister or brother,their spousesshall also be included.

5. Section 7(1) – Financial Creditors may act in representative capacity. Government is expected to notify rules in this regard soon.

6. Section 8(2)(a) – Operational Creditors -Corporate Debtor may bring to the notice of the OC –Existence of Dispute OR Record of pendency of a suit or arbitration proceedings. Earlier , the existence of dispute was required to be backed by pending proceedings before Insolvency commencement date.

7. Section 9(3)( c) – Operational creditors were required to furnish certain documents to initiate Insolvency
Resolution Process which included – Certificate from financial institution of proof of non payment of the debt by the Corporate debtor.
Amended section 9 makes the certificate a non mandatory requirement. Amendments now make role of Information utilities crucial and Central Govt will soon clarify information required for the establishment of non payment of the debt.

8. Section 10 (3)( c) – shareholders 3/4th Majority approval required to initiate voluntary Corporate
Insolvency by Corporate Applicant.

9. Section 10(4) (i) and (ii) – For appointment of Resolution Professional in respect of voluntary CIR process of a corporate debtor, the Adjudicating authority shall admit the application if the application is complete AND no disciplinary proceeding is pending against the proposed resolution professional.

10. Decisions to be taken by COC – Major changes for recording Committee of Creditors majority for various matters has been brought into effect:

A) General COC approval by way of 51% voting majority other than below matter –
Section 21(8) except for the matters below, All decisions of the committee of creditors shall be taken by a vote of not less than fifty-one per cent. of voting share of the financial creditors.

B) 66 % voting majority required for the following matters
CIRP Extension for 90 days – 66% Voting Majority –
Section 12 (2) – For filing extension of the CIR Process application before Adjudicating Authority ( beyond
180 days ) – 66% COC Majority required.

Appointment from IRP to RP in the first COC Meeting – 66% Voting Majority –
Section 22 (2) – For appointment of RP in the first COC meeting – 66% COC Majority required.

Replacement of RP in the first COC Meeting – 66% Voting Majority –
Section 27 (2) – For replacement of RP in the COC meeting – 66% COC Majority required.

Approval of RP by COC voting – 66% Majority –
Section 30 (4) – For approval of RP in the COC meeting – 66% COC Majority required.

Liquidation during CIR process before confirmation of RP by COC voting – 66% Majority –
Section 33 (2) – For approval of liquidation during CIRP before receipt of Resolution Plan by the COC –
66% COC Majority required.

General matters require 66% voting majority – matters specified under section 28(1)
(a) raise any interim finance in excess of the amount as may be decided by the committee
of creditors in their meeting;
(b) create any security interest over the assets of the corporate debtor;
(c) change the capital structure of the corporate debtor, including by way of issuance of additional securities, creating a new class of securities or buying back or redemption of issued
securities in case the corporate debtor is a company;
(d) record any change in the ownership interest of the corporate debtor;
(e) give instructions to financial institutions maintaining accounts of the corporate debtor
for a debit transaction from any such accounts in excess of the amount as may be decided by the committee of creditors in their meeting;
(f) undertake any related party transaction;
(g) amend any constitutional documents of the corporate debtor;
(h) delegate its authority to any other person;
(i) dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their nominees to third parties;
(j) make any change in the management of the corporate debtor or its subsidiary;
(k) transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business;
(l) make changes in the appointment or terms of contract of such personnel as specified by the committee of creditors; or
(m) make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor.

It is pertinent to note that the RBI circular Dt. 12th Feb 2018 mandates 100% approval for the implementation of a resolution plan under the scheme detailed in the circular. The requirement of achieving 100% approval may essentially see the stressed accounts headed to NCLT. It is need of the hour for RBI to relax these norms so that approval of the schemes under the circular is made possible with 51% / 66%
voting of the resolution plan by the lenders. This way, the stressed borrowers would get some option to
restructure their unsustainable debt.

11. Withdrawal of CIR Process by 90% Vote of the creditors- Newly Section 12A. The Adjudicating Authority may allow the withdrawal of CIR application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent. voting share of the
committee of creditors.

12. Non applicability of Moratorium provisions- Section 14(3) Guarantees executed in favour of the corporate debtor shall not be protected by Moratorium anymore: For certain transactions including for a surety contract of guarantee to a Corporate debtor.

13. Tenor of IRP to continue till appointment of RP – Section 16(5) : Earlier the term of IRP was defined
for only 30 days, now a smooth transition from IRP to RP has been enshrined in the code itself by way of
this amendment.

14. IRP responsible for all the compliances during his tenor– Section 17(2)( e) : Duties of IRP now include
compliance with all the laws in force on behalf of the Corporate debtor. Earlier, RP was required to comply with all the requirements. Interestingly as per section 5(27) Resolution professional anyways included Interim Resolution Professional as well.

15. Related parties not to have a right of representation, participation or voting in the COC Meetings –
Section 21(2) – Financial creditors (FC) , Authorised Representatives (AR) of the Financial creditors (if
they are related parties of the Corporate debtor) not to have representation, participation or voting rights for the COC meetings. The FCs shall not be treated as relatives where the FCs become “relative” solely on
account of conversion or substitution of debt into equity shares or instruments convertible into equity shares, prior to the insolvency commencement date.

Newly inserted section 25A lays down the methodology and guidance for the authorised representative for taking prior authorisations from the creditors whom he represents. The AR has been cast with fiduciary responsibilities under the newly inserted provisions. The AR is also required to file his authorization with the COC so that his mandate can be verified for the counting of actual votes later on.

The representation of certain class of creditors by IPs/ Authorised representatives is a welcome move. The
govt. has recognised the fact that unless these enablers were granted, certain COC meetings were potentially
headed to football stadiums, due to recent amendments.

Section 25 A which lays down checks and balances for the AR would cause substantial delays in conclusion
of a COC meeting process, since the AR is required to issue notices to creditors, convene their meeting,
supervise the voting process and handover his mandate to the committee of creditors. The CIR process is a time bound process. The newly inserted provisions though welcome would result in elongation of turn around time for the coc meetings.

16. Newly inserted 21 ( 6A) puts in place mechanism for the representation and manner of inclusion and prior
authorisation for voting at the committee of creditors meeting pertaining to debt owed to – certain of class of creditors / Financial creditors in respect of financial securities / deposits.

IBBI is expected to come up with the manner of representation and voting for these newly included class of creditors which could also include representation through an insolvency Professional.

17. Consent of RP is a must – The forms in this regard shall be notified soon:
Section 22(3) makes it mandatory to:
a) Obtain prior consent of the IRP to continue to act as RP.
b) Obtain prior consent of the RP who would be replacing the existing IRP
Section 27 (2) requires prior consent of the incoming RP to replace the existing RP.
Section 34 (1) RP to be appointed as liquidator only where a prior written consent is furnished.
Section 34 (4) RPs failure to submit a written consent may trigger a liquidation order.
18. RP to act till receipt of NCLT order: Section 23(1) –
if the resolution plan under sub-section (6) of section 30 has been submitted to NCLT, the RP shall continue to manage the operations of the corporate debtor after the expiry of the corporate
insolvency resolution process period until an order is passed by the Adjudicating Authority under section 31.

It is interesting to note that in cases where COCs have not approved the plan, the code is yet to provide for mechanism of management of the Corporate Debtor after expiry of the CIRP period – till receipt of the liquidation order ( if any) considering the fact that, many corporate debtors may be headed to be liquidated as going concern in view of certain latest judgements.

19. Amendments to Section 29A:
A) Amendments to Section 29A(c ):
1. 29A(c): The ineligibility for Resolution Applicant (RA) has been clarified.
In order to call RA ineligible, The twin condition of RA having an NPA account at the time of submission of the Resolution Plan AND more than 1 year should have elapsed from the account being declared NPA as on Insolvency Commencement Date (ICD) has to be met.

2. Recognition to NPA norms from other financial sector regulators.
In view of recognition of various new classes of financial creditors, the difficulty of determination of NPA by each different regulator has been streamlined.

NPA can now be recognised for the above purpose as per requirements under Banking Regulation Act, Or guidelines issued by a financial sector regulator under any other law for the time being in force;

3. Rights of RA’s to bid for stressed assets protected – 3 year cooling off period for subsequent bidding for other stressed assets.

Where the RA has acquired certain assets under resolution plan approved by NCLT, then the provisions of 29A(c) shall not be applicable for any further bids submitted by RA for a period of 3 years from the date of approval of the Resolution Plan by NCLT.

RBI circular Dt. 12th Feb 2018 mandates direction of the accounts where Resolution plan is being implemented to NCLT within 15 days of default during the specified period – which is till
repayment of the 20% value of the restructured principal and FITL OR 1 year whichever is later ( 2 years for accounts where exposure is INR 100-2,000 Cr).

B) Amendments to Section 29A(d ): The revised 2/7 years test –
The ineligible RA should be convicted for any offence punishable with imprisonment for 2 years or more only for the offences specified under schedule XII OR 7 years or more under any other law.

The above shall not apply to a person after expiry of 2 years from the date of release from imprisonment.

C) Amendments to Section 29A(e ): Connected persons are no more required to be checked for 29A ineligibility in relation to disqualification to act as Director under Companies Act 2013.

D) Amendments to Section 29A(g ): RA’s acquisition of the CD ( where preferential / fraudulent/
undervalued/ extortionate transactions have been adjudicated) under NCLT approved plan not to disqualify the RA for subsequent bids:

In respect of CD under management or control of the RA or where the RA is a promoter where preferential / undervalued /extortionate/ fraudulent transactions have been adjudicated and an order has been passed by the NCLT.
However, it should be established that RA did not contribute to such transactions.

E) Amendments to Section 29A(h ):
A guarantee executed by the RA in favour of a CD where the CIR process has been admitted and the invoked guarantee amount remains unpaid in full or part shall disqualify the RA.

F) Amendments to Section 29A(i ): Only current disabilities under any laws in a jurisdiction outside India of the RA under amended section 29A (a to h) shall be considered instead of earlier provisions where even earlier disabilities were to be considered as ineligibility criteria.

G) Financial entities with Debt – Equity conversion / Instruments resulting in equity participation protected – only if these entities are not otherwise related parties of the Corporate Debtor:
Financial entities not related to Corporate debtor are protected from the rigors of Section 29A(c) and being termed as related parties solely on account of conversion of debt into equity OR any instruments that are convertible into Equity.

Financial entities expanded – Now shall include
a) Scheduled commercial banks
b)Any entity regulated by any entity regulated by a foreign central bank or a securities market regulator or other financial sector regulator of a jurisdiction outside India which jurisdiction is compliant with the Financial Action Task Force Standards and is a signatory to the International Organisation of Securities Commissions Multilateral Memorandum of Understanding;
(c) any investment vehicle, registered foreign institutional investor, registered foreign portfolio investor or a foreign venture capital investor, where the terms shall have the meaning assigned to them in regulation 2 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 made under the Foreign Exchange Management Act,1999;
(d) An asset reconstruction company registered with the Reserve Bank of India under section 3 of the SARFAESI Act 2002
(e) An alternate investment fund registered with SEBI
(f) Any such category of persons as may be notified by the central government
H) The amendments to section 30 (1)- The RA is required to submit the Resolution plan along with an affidavit stating that he is eligible under section 29A.
The 29A ineligibility continues to hound the CIR process for top 12IBC cases and many other accounts. The intent of the code is quite clear here where it has provided umpteen checks and balances so that promoters/ RAs with tainted background do not gain control of distressed assets. The amendment to section 30(1) here seems only procedural in nature.

20. Creditor may appeal against decision of the Liquidator to Accept or Reject claims within 14 days–Section 42.

21. Liquidation or bankruptcy of both the corporate guarantor and personal guarantor of the CD shall be filed before the same Adjudicating Authority.

22. Provisions of Limitation act shall apply to the proceedings or appeals before NCLT/ NCLAT / DRT/ DRAT.

23. Rules regarding determination of non payment of debt, proof of non payment to operational creditors, manner of withdrawl of the application by creditors , last date for claim submission , number of creditors for a class of creditors, remuneration of the authorised representative and manner of voting for financial debt which is issued in the form of securities shall follow.

24. Newly inserted Section 240A excludes applicability of the provisions under section 29A (c ) and (h) in respect of MSME sector. Since the turnover based classification of MSME is yet to attain shape as a law, the old position with respect to definition of MSME prevails , which is quite detrimental to the sector despite these welcome amendments.
Explanation to Section 240A states that “For the purpose of this section, the expression “micro, small and medium enterprises” means any class or classes of enterprises classified as such under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006”.

The press release issued by Ministry of Micro, Small and Medium Enterprises dated February 07, 2018 the MSMED (Amendment) Bill, 2015 referred to in the Press Release is yet to be notified, which grants much needed turnover based relaxations to the definition of the MSMEs.

In absence of the above being enacted as on date, As per the existing section 7(1) of the Mirco, Small and Medium Enterprises Development Act, 2006, the MSME have been defined as under:
(a) in the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951(65 of 1951), as–
(i) a micro enterprise, where the investment in plant and machinery does not exceed twenty-five lakh rupees;
(ii) a small enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; or
(iii) a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees;
(b) in the case of the enterprises engaged in providing or rendering of services, as-
(i) a micro enterprise, where the investment in equipment does not exceed ten lakh rupees;
(ii) a small enterprise, where the investment in equipment is more than ten lakh rupees but does not
exceed two crore rupees; or
(iii) a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.”

Source: CA Siddharth Mathur


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