Insolvency 2025

INDIA Law and Practice Contributed by: Shardul Shroff, Misha, Kritika Poddar and Aishwarya Satija, Shardul Amarchand Mangaldas & Co

the affairs, apply to the NCLT for dissolution of the corporate person. The CA 2013 The CA 2013 allows for restructuring by way of schemes of compromise and arrangements (the “Scheme”). On an application made by a creditor, member or liquidator of a company, the NCLT may order a meeting of creditors (or class of creditors) or of the members (or class of members). A notice of such a meeting is sent to all creditors, members (and classes thereof) and debenture holders of the com - pany, which is accompanied by details of the com - promise and arrangement and a copy of the valuation report (if any), explaining their effect on creditors, key managerial personnel, promoters and non-promoter members and the debenture holders and the effect of any material interests of the directors of the company or the debenture trustees. Notice of the meeting is also sent to the central gov - ernment, income tax authorities, the Securities and Exchange Board of India, the Registrar of Companies, the RBI and other sectoral regulators that are likely to be affected by the Scheme to enable them to make adequate representations. The Scheme is required to be approved by a majority of 75% of creditors or members in each class. Consequent approval of the Scheme by the NCLT binds the dissenting creditors and persons who did not vote. The CA 2013 also provides for winding up of com - panies by an order of the NCLT on various grounds except inability of the company to pay debts. See 1.1 Legal Framework . After the passing of the winding-up order by the court, the affairs of the company are entrusted to the liqui - dator. Creditors do not have any remedy against the property of the debtor in respect of the debt nor can such creditor commence any suit or legal proceed - ings in respect of the property except with the leave of the court and subject to such terms as the court may impose while winding-up proceedings are pend - ing. Pursuant to an order of winding-up, assets of the insolvent are distributed among the creditors in the order of priority specified under the CA 2013.

A secured creditor has the option not to prove its debt before a liquidator and may instead enforce its securi - ty in settlement of its claim, but the proceeds from the sale of the secured assets are subject to a pari passu charge in favour of the workmen of the company. RBI frameworks The RBI introduced a Prudential Framework for Resolution of Stressed Assets in June 2019 (the “RBI Framework”), which provides for a consensual restructuring process between the lenders and the debtor. Lenders recognise and classify accounts immediate - ly on default and are required to put in place board- approved policies for the resolution of the stressed asset including timelines for resolution. Furthermore, the lenders undertake a prima facie review of the borrower’s account within the first 30 days of default and decide on the resolution strategy (the “Review Period”). The lenders may also opt to initiate insolvency or recovery proceedings. For the implementation of the plan, the framework requires lenders to enter into intercreditor agreements during the Review Period which will provide that decisions of lenders repre - senting 75% by value of outstanding credit facilities and 60% of lenders in number will be binding on all lenders. A resolution plan must be implemented within 180 days from the end of the Review Period. Failure to adhere to the timelines may lead to additional pro - visioning requirements. In June 2023, the RBI released the Framework for Compromise Settlements and Technical Write-offs (the “Comprehensive Framework”) to provide further impetus to the RBI Framework and to harmonise the instructions provided to all entities regulated by the RBI. The Comprehensive Framework (which applies to a larger set of entities than the RBI Framework) allows all such regulated entities (REs), in accordance with board-approved policies, to undertake compromise settlements and technical write-offs in respect of bor - rowers classified as fraud or wilful defaulters without prejudice to any other provisions of any other statute in force.

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