INDIA Law and Practice Contributed by: Shardul Shroff, Misha, Kritika Poddar and Aishwarya Satija, Shardul Amarchand Mangaldas & Co
Act are only available to institutional secured creditors and can be availed upon fulfilment of certain condi - tions. Under the Code, the moratorium imposed on the insol - vency commencement date prohibits the enforcement of security provided by the CD until the completion of the CIRP. 2.4 Unsecured Creditors Under the Code, unsecured trade creditors are cat - egorised as OCs. A resolution plan approved for the CD must provide for priority payments to OCs, which will not be less than the liquidation value of the OCs’ claim. Under a PPIRP, if a CD proposes a base resolution plan that impairs the claims of the OC, the CoC may require the promoters of the CD to dilute their share - holding or voting or control rights in the CD. Scheme Approval by a 75% majority of each class is required for approval of the Scheme under the CA 2013. There - fore, if unsecured creditors form a class, then such creditors can disrupt or delay the process by not pro - Pre-judgment attachments may be granted in recov - ery actions initiated under civil law and other special - ised legislation such as the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, where the court believes that the debtor may frustrate or obstruct the execution of a decree for recovery of debt by the creditor. However, this remedy is sparingly used by the courts. viding requisite approvals. Pre-Judgment Attachments Under the Code, there is no formal process to grant interim or final relief prior to admission of CIRP appli - cations and, therefore, pre-judgement attachments
proof of claim to the IRP. Such retention continues to be governed by the contractual terms between the parties during the CIRP. Set-Off Rights of set-off may be allowed at the stage of fil - ing proof of claims with the IRP but have been disal - lowed by courts after the commencement of the CIRP in view of the moratorium imposed on the insolvency commencement date and further to facilitate collec - tive resolution of debts of the CD. The CA 2013 is silent on the right of set-off or retention of title under a Scheme. 3. Out-of-Court Restructuring 3.1 Out-of-Court Restructuring Process See 1.2 Types of Insolvency (RBI frameworks). The RBI Framework does not specify any standard of care or the consequences for obstructing the conclusion of a restructuring plan or agreement. Although proceedings under the Code are time- bound, there are delays often on account of pending litigations and the low capacity of the NCLT. Therefore, creditors though not obligated or mandated by the law, prefer to engage in informal negotiations with the debtor prior to commencing a formal CIRP. This has the possibility of securing timely payments and bet - ter financial outcomes for the individual creditor than a resolution plan or payouts in a liquidation scenario. This is particularly true for OCs as the payouts they receive in a CIRP or liquidation proceedings are often nominal or nil and they therefore prefer to settle their claims without judicial intervention. If the debtor does not abide by the terms of the restructuring agreement or settlement, the creditor can file a CIRP provided the prerequisite conditions are met. Since these are informal negotiations, the terms of the restructuring agreement cannot bind any dissenting creditor. For FCs certain other considerations come into play. In India, as most FCs are strictly regulated by the RBI, they prefer to adopt formal and statutory forms of debt
are not common. Retention of Title
Operational creditors (excluding workmen and employees) are required to submit details of any reten - tion of title agreement in respect of goods or proper - ties to which the claim refers while submitting their
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