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Important legal provisions for bankruptcy proceeding of a company under Insolvency and Bankruptcy Code (IBC)

The Insolvency and Bankruptcy Code (IBC), 2016 has been a significant progress in the Indian corporate legal system, with aims to provide a time-bound resolution process for insolvency and bankruptcy proceedings of corporate entities. The IBC has improved the ease of doing business in India by facilitating the quick resolution of bad debts. The IBC provides for the initiation of insolvency proceedings against companies and individuals, the appointment of insolvency professionals and the formation of insolvency resolution plans. The NCLT (National Company Law Tribunal) & NCLAT (National Company Law Appellate Tribunal) constituted under sections 408 and 410 respectively of the new Companies Act, 2013, are quasi-judicial bodies in India that adjudicate issue related to companies.  In the case of Swiss Ribbons Pvt. Ltd. vs. Union of India, the Supreme Court held that the IBC is a complete code in itself which provides a time-bound resolution process. The court also held that the Preamble of the IBC does not attempt to liquidate a corporate debtor’s assets therefore the objective of the IBC is to ensure the revival of the corporate debtor and not the recovery of dues, asset liquidation as a last resort.In this blog, we will discuss the important legal provisions illustrated with judicial precedents under the IBC for the bankruptcy proceedings of a company.

Important Legal Provisions for Insolvency and Bankruptcy filing in India:

  1. Initiation of Insolvency Proceedings:

Under the IBC, a creditor under section 4 of IBC can initiate insolvency proceedings against a corporate debtor if there is a default of at least one crore rupees. Section 7 of the IBC deals with the initiation of insolvency proceedings by a financial creditor, Section 9 deals with the initiation of insolvency proceedings by an operational creditor, and Section 10 deals with the initiation of insolvency proceedings by the corporate debtor itself.

Section 7(5)(a) of the IBC reads: “Where the Adjudicating Authority is satisfied that— a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application.“

It must be noted that the Supreme Court in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. applied the literal interpretation test and held that the use of the word “may” in Section 7(5)(a) of the IBC gives the NCLT the discretion to admit the application, however, the Section 9(5) uses the word “shall” for the application made by an operational creditor, thereby highlighting a deliberate legislative intent to differentiate between financial creditors and operational creditors.

  1. Appointment of Insolvency Professional:

The Insolvency Professional is a crucial component of the insolvency resolution process to ensure a fair and unbiased resolution process. After admission of the application for insolvency resolution process the NCLT under Section 16 of the IBC appoints an Interim Resolution Professional (IRP) or a Resolution Professional (RP). It must be noted that IRP/RP has only administrative powers. Section 27 of the IBC provides that in the case the Committee of Creditors (CoC) wants to replace a resolution professional appointed under Section 22 (Appointment of resolution professional) of the IBC, it may replace RP with another resolution professional.

  1. Moratorium:

Upon the appointment of an IRP, a moratorium period comes into effect prohibiting the initiation or continuation of any legal proceedings or the enforcement of any security interest against the corporate debtor that is no judicial proceedings for recovery, enforcement of security interest, sale or transfer of assets, or termination of essential contracts can be instituted or continued against the Corporate Debtor. Section 14 is clear and the moratorium in favor of the Corporate Debtor is also absolute and the moratorium period lasts for 180 days plus a one-time extension of up to 90 days, which can be extended up to maximum of 330 days. However, in exceptional cases, the said time limit for Corporate Insolvency Resolution Process (CIRP) can be extended even beyond 330 days.

  1. Insolvency Resolution Plan:

The RP (Resolution Professional) prepares the resolution plan, which is then submitted to the Committee of Creditors (CoC) for approval once the resolution plan is approved adjudicating authority shall not entertain any claim. Section 30 of the IBC deals with the submission and approval of the resolution plan which must be approved by a minimum of 66% of the voting share of the CoC.

  1. Liquidation:

If the insolvency resolution plan is not approved, or if the corporate debtor defaults during the implementation of the resolution plan, the company goes into liquidation, Section 33 of the IBC deals with the liquidation of the corporate debtor. In such cases, the liquidator is appointed, who is responsible for the sale of the assets of the corporate debtor and distribution of the proceeds to the creditors. It was again reiterated in Mohan Gems & Jewels Pvt. Ltd. vs Vijay Verma by the NCLAT, that “that the Liquidation of the Company is to be seen only as a last resort and every attempt should be made to revive the Company and to continue it as a ‘going concern’.”.

Conclusion and future trends at NCLT to deal with IBC matters:

The IBC provides for comprehensive time-bound resolution process for insolvency and bankruptcy proceedings of corporate entities in India. The apex court also held in catena of judgements that the ultimate objective of the IBC is to maximize the value of the assets of the corporate debtor. The latest judgments by the Supreme Court have further clarified the intent and objective of the IBC.

In the landmark judgment of Essar Steel India Ltd vs. Satish Kumar Gupta & Others, the Supreme Court held that the NCLT and NCLAT cannot interfere in any commercial decisions and matters tackled by the CoC and first consideration should be given to the financial creditors rather than the operational creditors.


In recent updates, the government is planning to draft rules for NCLT to deal with IBC, and also planning to fill all the vacant posts at various NCLT benches. It is also expect new IT enabled with AI will be used for case management in future. The rules under consideration would act as guidelines, to ensure certain matters are expedited.

— Ravindra Vikram

Advocate

Significance of Intellectual Property Rights (IPR) for Startups and Businesses: Trademarks, Copyrights and Patents

In today’s fast-paced digital business world, intellectual property rights (IPR) have become increasingly important for startups to protect their innovative ideas and creations and to stand out in the crowded marketplace. IPR refers to the legal rights granted to individuals or businesses over their intellectual property, including patents, trademarks, copyrights, and trade secrets. Protecting their innovative ideas, brands and creations is crucial for startups to gain a competitive advantage and succeed in the long run. It saves businesses from legal disputes and protects their interests. Intellectual property rights (IPR) are vital to safeguarding a startup’s intellectual property, including patents, trademarks, copyrights, and trade secrets. In this blog, we will discuss the importance of IPR for startups and businesses.

The protection of ideas, Brands and innovation is the most critical aspect of IPR for startups. It is crucial for startups to apply for Trademarks, Copyrights and Patents to protect intangibles at the same time publicly providing notice to other businesses or individuals to avoid copying or infringing on your intellectual property rights. It is important that the application for obtaining Trademarks, Copyrights and Patents must be properly made and applied. Businesses rely heavily on innovation to create unique products and services that differentiate them from their competitors. Therefore, protecting their innovative ideas and creations with IPR can prevent others from copying or stealing them, allowing businesses to maintain innovation and brand value. The recent judgment by the Delhi High Court in the case of Koninklijke Philips Electronics N.V. vs. Rajesh Bansal & Ors. and Koninklijke Philips Electronics N.V. vs. Bhagirathi Electronics & Ors., highlights this importance. Being one of the first Standard Essential Patent (SEP) holders, the Koninklijke Philips Electronics N.V. (Philips) initiated SEP litigation in India, and secured a major victory claimed to be the first ever ‘post-trial’ judgment in such litigations. The court held that the defendants had infringed Philips’ patent on a “unique electrical connector” used in LED lights. The court found that the defendants had copied the design without obtaining the necessary license from Philips, leading to a violation of Philips ‘intellectual property rights’.

The importance of IPR for startups is not limited to protecting their intellectual property but also adding value to their business. In array of judgments across India, it has been held by various courts that trademarks have immense commercial value and contribute significantly to the goodwill of a business. In many instances, the courts have ordered the defendant to pay a substantial amount in damages to the plaintiff for infringing their trademark, which emphasizes the value of trademarks in establishing and growing a business. Businesses and startups having IPR can add significant value to their organization, especially when seeking funding from investors or potential buyers. Investors and buyers are more likely to invest in or acquire startups that have protected their intellectual property, as it provides them with a sense of security and protection.

In addition to securing rights and providing safeguards against infringement, the Startups and Businesses can monetize their intellectual property by licensing or selling their patents, trademarks, and copyrights to others. This will generate revenue for the startup, helping them to grow and expand their business. The courts have recognized that a businesses’ trademark is a valuable asset that can be monetized by licensing it to third parties. In some instance the courts have also ordered the defendant to pay a royalty to the plaintiff for using their trademark, emphasizing the commercial value of intellectual property rights. At this time of intense global debate, India is in the process of forming the jurisprudence on FRAND disputes that is Reasonable and non-discriminatory (RAND) terms, also known as fair, reasonable, and non-discriminatory (FRAND) terms. Likewise some critical issues, pertaining to an IPR litigations like F/RAND, End-User Licensing Agreement (EULA) are yet to be well defined and become industry norm.

Protection of Ideas, Brands, and Innovation:

IPR can provide startups with legal recourse in the event of infringement. If a business’s intellectual property is infringed upon, they can take legal action against the infringing party, seeking damages and/or an injunction to prevent further infringement. In various recent judgments, the Courts have even held that an online marketplace can be held liable for trademark infringement if it fails to take down infringing content after receiving a complaint from the trademark owner. The court held that the marketplace has a duty to ensure that infringing content is not displayed on their platform, highlighting the importance of IPR in protecting a startup’s intellectual property.

Businesses having well protected intellectual property can provide safeguards with a competitive advantage in the marketplace. It can prevent competitors from copying or stealing their ideas, allowing the startup to differentiate itself from others and attract customers. In a judgment of Seven Towns Ltd & Anr vs M/S Kiddiland & Anr, the Delhi High Court held that the defendant’s use of a similar trade dress to the plaintiff’s was likely to cause confusion among customers and dilute the plaintiff’s trademark. The courts have emphasized the importance of protecting a startup’s intellectual property to maintain a competitive advantage and avoid confusion among customers especially when pertaining to similar or identical labels, packaging, or offering, in the case of passing off or infringement. In conclusion, protecting intellectual property is crucial for startups to succeed in today’s competitive business environment. It can help startups to maintain their competitive advantage, add value to their business, monetize their intellectual property, provide legal recourse in the event of infringement, and provide a competitive advantage. Therefore, startups and businesses should prioritize protecting their intellectual property through IPR to ensure their long-term success.