INDIA Law and Practice Contributed by: Utsav Johri, Sucheta Bhattacharya and Nishal Makharia, JSA Advocates & Solicitors
the backlog of cases at the time of enforcement. How - ever, it may be possible to obtain interim relief, like restricting disposal of secured property, in a shorter timeframe.
• wages and any unpaid dues owed to employees other than workmen for the period of 12 months prior to commencement of liquidation; • debt owed to unsecured creditors; • any amount due to the central or state government, and pending debt owed to secured creditors who have enforced the security; • remaining debts and dues; • preference shareholders, if any; and • equity shareholders of a company or partners of a partnership firm. 7.3 Length of Insolvency Process and Recoveries A CIRP is required to be completed within 180 days from the date the application under the IBC is admit - ted by the National Company Law Tribunal (NCLT) having jurisdiction, but it may be extended by a further 90 days or in certain exceptional cases, based on the approval of the committee of creditors. However, in some cases, the CIRP process has taken much longer due to the complexities involved and multiple litiga - tions. Insolvency resolution under the IBC inevitably results in the sale of the company to a bidder, but the IBC stipulates debt restructuring (which is not a favoured option). In some cases, there are haircuts in the debt outstanding. For private credit players, the IBC is an effective mechanism. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency Outside the IBC, the stressed asset framework stipu - lated by the RBI allows for the rescue or reorganisa - tion of a borrowing entity. Each entity regulated by the RBI is required to ensure compliance with such stressed asset framework as made applicable to such entity by the RBI. A scheme or arrangement is also available but is not widely used due to the time it takes to effect in Indian courts. 7.5 Risk Areas for Lenders When a borrower is admitted into a CIRP, a morato - rium is imposed on the borrower and its assets. Fol - lowing this, all financial creditors are required to par - ticipate in the CIRP as per the provisions of the IBC.
7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes
The type of insolvency and restructuring process in India depends on the type of incorporation of the debtor. If the borrower is a company or a limited liability part - nership, the insolvency regime prescribed under the IBC will apply. Under the IBC, the secured lenders have an option to relinquish the security provided to them by the borrower. Depending on the exercise of the option of relinquishment of security, the priority of payments to the lenders may differ. On the initiation of a corporate insolvency resolution process (CIRP), which can be initiated by a finan - cial creditor, by an operational creditor (ie, sundry creditors) or by the borrower itself, a moratorium is imposed, during which secured creditors are not allowed to enforce/sell the relevant assets given as security and seek the repayment of monies due and payable. The insolvency process is a creditor-controlled regime. An insolvency resolution professional (IRP) adminis - ters the process and acts on the instructions of the financial creditors. 7.2 Waterfall of Payments The payment of creditors is determined under Section 53 of the IBC. The priority will depend on whether the creditor is secured or unsecured (as set out below), with the payment waterfall under the IBC being as follows: • cost of the CIRP; • workmen dues (pending for a period of 24 months prior to commencement of liquidation) and debts owed to secured creditors who have relinquished their security;
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