INDIA Trends and Developments Contributed by: Shardul Shroff, Misha, Aishwarya Satija and Kritika Poddar, Shardul Amarchand Mangaldas & Co
Advancing Group Insolvency and Asset Pooling Under India’s Insolvency Law India’s insolvency law, the Insolvency and Bankruptcy Code, 2016 (IBC) is fundamentally structured around the principle of one debtor – one proceeding. When a company defaults on its debt obligations, it is admit - ted into insolvency whereby a single proceeding is initiated that pertains exclusively to that company. The primary objective of the process is to resolve the financial distress of the corporate debtor through a mechanism known as the corporate insolvency reso - lution process (CIRP). Under the CIRP, bids are invited to acquire and revive the corporate debtor as a going concern. If no viable resolution plan is received, the company proceeds to liquidation. The IBC vests the National Company Law Tribunal (NCLT) with the jurisdiction to adjudicate all aspects under the IBC. The territorial jurisdiction of each NCLT bench is determined by the location of the corporate debtor’s registered office. At present, 15 benches of the NCLT exercise territorial jurisdiction over 28 states and 8 union territories across India. Once a CIRP is ini - tiated by the NCLT, an insolvency professional known as the resolution professional is appointed to man - age the affairs of the corporate debtor and ensure its continuity as a going concern during the CIRP. The resolution professional constitutes the committee of creditors (CoC) comprising unrelated financial credi - tors of the corporate debtor. The CoC exercises key commercial decision-making powers, including the selection of a resolution applicant or, where resolution is not feasible, the decision to liquidate the company. Shardul Amarchand Mangaldas & Co Amarchand Towers, 216 Okhla Phase III Okhla Industrial Estate Phase III New Delhi Delhi 110020 India Tel: +91 11 4060 6060 Email: shardul.shroff@amsshardul.com Web: www.amsshardul.com
In essence, the IBC framework is designed to operate on a single-entity basis. Each company undergoes its own insolvency proceedings before the appropriate NCLT bench, has its own CoC, and is managed by its own resolution professional. However, when multiple companies within the same corporate group are admit - ted into CIRP, each entity’s registered office may fall under a different NCLT’s territorial jurisdiction. Com - panies within a corporate group often register their offices in multiple states to take advantage of favour - able regulatory, tax or business environments specific to each region. Further, different group companies have separate resolution professionals appointed to manage their affairs and distinct CoCs constituted to make commercial decisions, even though some of the creditors may be common across entities. The only limited exception to the above summarised framework, however, is in the treatment of principal borrowers and guarantors under the IBC. Currently, proceedings against the corporate debtor and its guarantors may take place under the IBC concur - rently. The IBC envisages the co-ordination of such proceedings by providing that insolvency, liquidation or bankruptcy proceedings of a corporate debtor and its guarantor are required to be undertaken before the same judicial forum if they are ongoing simultaneous - ly. The law, however, does not have a mechanism for further consolidation and co-ordination. Further, no mechanism is currently provided in the law to enable realisation of a guarantor’s assets in the corporate debtor’s CIRP.
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