Introduction

The most controversial provision of India’s corporate insolvency legislation is Section 32A of the Insolvency and Bankruptcy Code (IBC), 2016. It has largely been in the limelight since it discusses granting protection to companies against being prosecuted for crimes committed prior to the initiation of the insolvency process. The concept is that when a new management comes in and a revival plan is sanctioned by the National Company Law Tribunal (NCLT), the company is supposed to have a “clean slate” so that it may begin anew. But this protection has put numerous questions with regards to how to balance the need for company revival with the need for accountability for historic crimes.

What is Section 32A?

Section 32A was brought in by the IBC Amendment Act of 2020. The prime purpose of this provision is to ensure that investors or bidders don’t hesitate to take over a failing or ailing company due to criminal liabilities incurred by the previous management. If protection were not provided, the majority of investors would refrain from bidding, and revival of companies would cease to be an effective process. Meanwhile, Section 32A is very specific that the immunity and protection are only for the company as an entity itself, not for the individuals who perpetrated the wrongdoing. Thus, while the company is being accorded immunity from prosecution and protection against asset seizure, the individuals behind past malfeasance remain accountable under the law.

Constitutional Validation of Section 32A

The validity of Section 32A under the Constitution was tested in the Supreme Court in the renowned case of Manish Kumar v. Union of India. Most believed that the section infringed key rights under Articles 14, 19, 21, and 300A of the Constitution because it appeared to accord unequal protection even if assets were traceable to crimes involving the Prevention of Money Laundering Act (PMLA). However, the Supreme Court did uphold the provision, stating clearly that the immunity is not complete. The Court emphasized that the protection can be extended only if there is a real change of management and the new management is not involved in the previous wrongdoing. The ruling pointed out that Section 32A was meant to enable the revival of corporate entities, bring in investors, and preserve jobs, but not by acquitting the culpable individuals for their wrongdoing. The most challenging among the issues concerning Section 32A is the co-existence of Section 32A with the PMLA. The IBC is more about the revival of companies, while the PMLA addresses crimes like money laundering and asset seizure for assets held as proceeds of crime. Due to this, numerous disagreements have arisen on whether the enforcement agencies such as the Enforcement Directorate (ED) can proceed with their actions against company assets after an approved resolution plan. This conflict between the two laws’ goals has resulted in a string of contradictory judgments, illustrating how intricate this branch of law is.

The Complex PMLA-IBC Interface

One of the most significant cases in this regard is Dunar Foods Ltd. V. Enforcement Directorate, ruled upon by the NCLAT in July 2025. Dunar Foods, a business enterprise which engaged in rice exports, fell into insolvency after failing to repay huge loans. Just a few days after the insolvency process started, the ED seized properties worth more than ₹177 crore, alleging they were connected to criminal activities of an associate firm. The NCLAT, in a comprehensive order, held that the Section 14 moratorium under IBC does not put on hold attachment proceedings under PMLA, particularly since investigations had already commenced prior to the insolvency. It also stated that IBC and PMLA operate in various areas and ED is not akin to a creditor but a law enforcement authority. This judgment revealed that insolvency laws cannot supersede PMLA operations automatically.

In contrast, a different strategy was adopted in the case of Vantage Point Asset Pte. Ltd. V. Gaurav Misra (Alchemist Infra Realty) was delivered in August 2024. In this case, the successful resolution applicant requested release from assets frozen by the ED so they could implement the resolution plan successfully. Though the NCLT initially declined to interfere, the NCLAT subsequently ruled that Section 32A indeed shields the assets of the company once the resolution plan is approved and conditions of new management are fulfilled. The NCLAT further noted that the NCLT has an obligation under Section 31 of IBC to facilitate smooth execution of the resolution plan. This case then put greater significance on the IBC’s goal of company revival over that of the enforcement steps under PMLA.

These competing judgments demonstrate the continued dilemma of addressing two competing objectives: the revival of ailing companies and the stringent enforcement of criminal legislations. At one end, courts have opined that safeguarding the corporate debtor under Section 32A needs to be done in order to lure investors and rescue businesses. Conversely, they have also reminded that money laundering and financial crimes cannot be left out of sight, particularly as India has global commitments to combat such practices under treaties such as FATF and UN conventions. This tug-of-war continues to define the destiny of Section 32A.

Conclusion

In conclusion section 32A is a courageous move by legislators to promote corporate rehabilitation, but it also carries many complexities. Though the provision has been held to be constitutionally valid, its interaction with other legislation, particularly PMLA, is still unresolved. Judgments in Manish Kumar, Dunar Foods, and Alchemist Infra Realty indicate that courts are still attempting to find the correct balance. Whether or not Section 32A succeeds will depend upon whether it is able to assure certainty and protection to the investor and not let the wrongdoer go easily. As India’s insolvency regime develops, Section 32A will also continue to be refined through legislation and legal precedents.

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1. Introduction

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, is designed to strengthen India’s insolvency framework by formally addressing the complexities of corporate groups. It fills a critical gap exposed when several related firms collapsed together but had to undergo isolated insolvency proceedings. The Bill enables the government to frame rules for joint hearings, shared professionals, and consolidated creditor committees—seeking greater efficiency while ensuring creditors’ interests remain protected.

2. Meaning of “Group Insolvency”

The 2025 Bill proposes a dedicated legal structure (added as Chapter VA in Part II of the Code) to deal with situations where multiple debtors are connected as part of the same corporate group. Provisions allow tribunals to transfer matters to a single bench, appoint one Resolution Professional for the group, convene a unified Committee of Creditors, and align timelines for claim verification and resolution. The intention is to move away from fragmented, duplicative CIRPs and encourage group-level solutions, while still respecting each company’s separate legal identity and ensuring minority creditors are not unfairly disadvantaged.

3. Judicial pronouncements on Group Insolvency

Indian tribunals have already confronted this issue. In SBI v. Videocon, the NCLT consolidated several proceedings and “ordered substantive consolidation of the Corporate Insolvency Resolution Processes of 13 out of the 15 Videocon group companies.”

In Giriraj Enterprises v. Regen Powertech, the NCLAT clarified the limits of judicial intervention: “Adjudicating Authority correctly held that it lacks equity jurisdiction under the IBC to order consolidation of CIRPs.”

Similarly, in Edelweiss v. Sachet, the tribunal accepted joint proceedings, holding that “where two corporate debtors collaborate to develop land, CIRP can be initiated jointly against both.”

4. Opportunities: Advantages and Future Scope

The introduction of group insolvency brings multiple benefits. It allows creditors to recover more value by avoiding fragmented asset sales, simplifies resolution by enabling consolidated bids, and reduces administrative expenses through common professionals and proceedings. This framework also strengthens bargaining power in creditor negotiations and streamlines decision-making. Looking forward, India may attract global investors to handle complex restructurings, encourage better coordination in multinational insolvencies, and improve governance standards across corporate groups—provided safeguards ensure that the rights of smaller creditors within each entity remain intact.

5. Challenges: Complexities, Limitations

Bringing in group insolvency will not be easy. The first challenge is deciding when companies are so closely linked that they should be dealt with together. This requires looking carefully at how they share money, management, and assets. There could also be fights over valuation, objections from creditors, and fears that debts of one company may unfairly fall on another. Having one process for many companies might also create conflicts for professionals, put extra pressure on tribunals, and become more difficult when foreign subsidiaries are involved.

For this system to work, there must be clear rules on when group insolvency applies, strong checks like independent valuations and creditor choices, and proper training for tribunals and professionals. If introduced carefully, the law can turn messy, scattered cases into one organised process that saves value. But if rushed, it may only lead to confusion and disputes.

6. Conclusion

The IBC (Amendment) Bill, 2025, brings group insolvency into focus as a tool to tackle linked corporate collapses. If applied with care, it can save business value and build investor trust. But the law’s true success will rest on clear rules, fair treatment, and strong institutional support.

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The Insolvency and Bankruptcy Code (IBC) was introduced in 2016 which primarily aims at the resolution of corporate insolvency of corporate persons, partnership firms and individuals. The IBC framework is intended to facilitate the financially distressed corporate debtor and not as a mere recovery mechanism for creditors. Accordingly, proceedings before the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) are resolution centred and not recovery centred.

In the real estate sector, we see that developers’ insolvencies include a large group of stakeholders which includes financial creditors, operational creditors, homebuyers, and regulatory authorities. Homebuyers, who are included in the class of financial creditors are statutorily recognised under the IBC and are entitled to participate in the Committee of Creditors through authorized representatives (AR). However, this statutory recognition does not extend to all homebuyer related entities which in particular are Resident Welfare Associations (RWAs) or cooperative housing societies, unless they independently meet the Code requirements are left out.

RWAs play a role in running the day to day affairs of residential complexes. Their functions usually include management of common areas, collection of maintenance fees, interaction with local authorities on behalf of residents, and advocacy for public services. RWAs often act as representatives of residents in issues related to living conditions and administrative coordination. Their role is primarily managerial and welfare-oriented and arises through local housing and municipal regulations, not insolvency law.

When a Real Estate company goes into insolvency we see RWAs often attempt to step in on behalf of the residents, particularly on matters relating to maintenance, possession, or completion of the project. At a practical level such association may raise concerns before the authorities or seek to represent the collective interest of the occupant, however once proceedings commence under the Insolvency and Bankruptcy Code, the rights and obligations of parties are strictly governed by the framework of the code, The NCLT and NCLAT, being statutory insolvency tribunals, operate within a limited jurisdiction and cannot entertain such types of issues which fall outside the ambit of the IBC.

Most Importantly, RWAs, merely by virtue of being representative bodies, do not qualify as financial or operational creditors unless they independently satisfy the requirements laid down under the Insolvency Code. Therefore, while RWAs may initially voice the concerns of residents, they do not possess an automatic or independent right to participate or intervene in insolvency proceedings when they are not recognised stakeholder under the IBC.

Hon’ble Supreme Court of India has settled this issue by holding that Resident Associations and cooperative housing societies do not have a determinative role in insolvency proceeding initiated against real estate developers. In the case of Elegna Co-operative Housing and Commercial Society Ltd. versus Edelweiss Asset Reconstruction Company Limited (2026 INSC 58) the Court examined that whether RWAs had a right to get involved in proceedings under Section 7 of the IBC. The Court in this instance put forth that insolvency processes are for the recognized stakeholders as per the Code. Allowing RWAs into these proceedings would introduce into the process issues which the statute did not provide for. Also, the Court made it clear that the objective of the resolution process is not to expand beyond what is contemplated under the Code.

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In a recent decision, the National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising of Justice M. Venugopal, Justice Sharad Kumar Sharma, and Shri Jatindranath Swain, delivered a significant verdict regarding the jurisdiction of tribunals in recalling orders. The case in question, titled Adv. (CA) V. Venkata Sivakumar v Hari S. Hari Karthik & Ors., arose from an application seeking the inclusion of Rayagada property of the Corporate Debtor in the liquidation estate.

The background of the case involves the admission of the Jeypore Sugar Co. Ltd. (“Corporate Debtor”) into the Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. Subsequently, the NCLT ordered the liquidation of the Corporate Debtor and appointed Mr. V. Venkata Sivakumar as the Liquidator. An application was filed by secured creditors seeking the inclusion of certain properties in the liquidation estate, leading to a series of legal proceedings.

One of the pivotal moments in this legal saga occurred when the NCLT replaced Mr. V. Venkata Sivakumar with Mr. Hari S. Hari Karthik as the new Liquidator. Following this change, the new Liquidator withdrew an appeal filed by the erstwhile Liquidator before the NCLAT. In response, the erstwhile Liquidator filed a review application before the NCLAT, seeking the recall of the order allowing the withdrawal of the appeal.

However, the NCLAT Bench, in its judgment, made a crucial distinction between the power to recall an order and the power to review a judgment. It emphasized that the power to recall an order could only be exercised if there was a procedural error in pronouncing the earlier order. Furthermore, the Bench clarified that the power to recall an order is not tantamount to re-hearing the case de novo or examining the judicial propriety of the earlier decision.

The Bench’s ruling underscores the principle that the power of review is not inherent in the Tribunal under the Insolvency and Bankruptcy Code (IBC). Without express statutory provisions granting such power, the Tribunal cannot exercise the authority to review its own decisions. Additionally, the Bench held that the erstwhile Liquidator lacked locus standi to file a review/recall application in this case.

This decision has significant implications for the legal landscape surrounding insolvency proceedings and the jurisdiction of tribunals in recalling orders. It reaffirms the importance of adhering to procedural rules and statutory provisions while also delineating the boundaries of tribunal authority.

In conclusion, the NCLAT Chennai Bench’s dismissal of the review application seeking the recall of an order serves as a reminder of the limited circumstances under which a tribunal may revisit its own decisions. It highlights the need for parties to avail themselves of available legal remedies and the importance of clarity in the interpretation of statutory provisions governing insolvency proceedings.

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The distribution of the proceeds from the sale of the liquidation assets shall be distributed in the order of priority as per Section 53 of IBC, 2016. However, the Section 36 (4) of IBC, 2016 excludes from Liquidation Estate all the sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund.

The Apex Court i.e. Supreme Court has categorically held that Section 53(1) of the IBC shall not apply to PF, Gratuity and Pension dues, which are to be treated outside the liquidation process and liquidation estate assets under the IBC since Section 36(4) of the IBC has given outright protection to the workmen’s dues under the provident fund, the pension fund and the gratuity fund, which are not to be treated as liquidation estate assets and the liquidator shall have no claim over such dues.

In Jet Aircraft Maintenance Engineers Welfare Association vs. Ashish Chhawchharia Resolution Professional of Jet Airways, the hon’ble NCLAT harmoniously construed Section 36 and Section 18 of the Code to conclude that EPF dues do not fall under the scope of the term ‘assets’ even during the CIRP and, therefore, the IRP cannot alienate or transfer such assets. The NCLAT observed.

“…the said funds i.e., provident fund, pension fund and gratuity fund maintained by the corporate debtor, have to be utilized fully for payment of provident fund, pension fund and gratuity fund of the workmen and employees and thus, these assets cannot be included in the information memorandum as the assets of the corporate debtor, while inviting the resolution plan”

Further, the Hon’ble NCLAT in Tourism Finance Corporation of India Ltd. vs Rainbow Papers Ltd. has explicitly held that since no provisions of the Code and the EPF Act are in conflict, the application of Section 238 of the Code does not arise. The Apex court concurred with the reasoning set out by NCLAT and refrained from interfering with the judgment, ultimately dismissing the appeal.

Therefore, as the provisions of IBC do not override the EPF Act it becomes pertinent to note the relevance of Section 17B of the EPF Act. Section 17B of the EPF Act creates an obligation on the transferee to pay the contribution and other sums due from the employer whenever an establishment is transferred. Therefore, by operation of Section 17B of the EPF Act, the successful resolution applicant is made liable to pay the provident fund that the corporate debtor owes to its employees.

At this juncture, we can conclude that concludes that the dues of PF are not Assets of the Corporate Debtor, it is only held in trust and the beneficial owners are employees, hence the same cannot be included in the Liquidation Estate formed by the liquidator under Section 36.

It is further notable that the PF dues are to be treated as Secured as the Charge is created by operation of law as provided in Section 100 of the Transfer of Properties Act. So, the dues of PF should be given priority and be paid in full irrespective of the waterfall provided in section 53 of IBC.

Generally, the PF department prefers to submit its claim in 3 parts: One Dues of PF under Section 7A, Second interest on delayed payment under Section 7Q, and Third Penal Damages under Section 14B of EPF & MP Act,1952. Indeed, the dues under Section 7A and Section 7Q (Interest) will go to the account of the workman or employee, but the damages collected by the EPFO are only a penal provision and nothing will go to the workman and employees from the sum of damages. So harmonious reading of Section 11(2) of EPFMA and 36(4)(a)(iii) confirms that the Damages are not the dues to Workman or Employees and can be treated as Government Dues and should be categorized as Unsecured Operational Debt and be payable according to Section 53 of the IBC.

Further Section 14B Provided that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985, subject to such terms and conditions as may be specified in the Scheme.

However, after enforcement of IBC, the provisions of Board for Industrial and Financial Reconstruction and Sick Industrial Companies (Special Provisions) Act, 1985 were repealed and earlier statutory regime for rehabilitation is now substituted by Insolvency Regime as contained in IBC. Thus, when the Insolvency Resolution Process has been initiated against a Corporate Debtor and the Resolution plan has been approved under IBC, the power of the Central Board to reduce or waive the damages can be exercised about the damages imposed under Section 14B. Paragraph 32 of the 1952 Scheme as extracted above also contemplates a recommendation by Board for Industrial and Financial Reconstruction, 1985 Act being not in force and substituted by the Insolvency Regime there can be now no recommendation for waiver of the damages under Section 14B of the Board for Industrial and Financial Reconstruction. The power of recommendation as contemplated in paragraph 32B scheme can very well be exercised by the NCLT. Hence, SRA may make an application under Section 14B 2nd proviso for waiver of the damages under Section 14B.

Conclusion:

It can be concluded that the PF dues are to be paid in priority, but the treatment of dues under Section 14 B is conflicting as several judgments have different views and explanations and IRP/RP/Liquidator should admit EPFO dues in full including dues under 7A, 7Q, and 14B, and specify the same in the List of Creditors so the Prospective Resolution Applicant makes full provision of EPF dues and use the benefits of waiver of damages by making an application to Central Board.

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Any person aggrieved by the order of the Hon’ble Adjudicating Authority i.e. National Company Law Tribunal (“NCLT”) under Section 61(1) of the Insolvency & Bankruptcy Code, 2016 (“IBC, 2016”) may prefer an appeal before the Hon’ble National Company Law Appellate Tribunal (NCLAT).  As of date, there are two benches of NCLAT out of which the Principal Bench is in New Delhi and another bench is located in Chennai.

Now the question arises what is the jurisdiction of benches of NCLAT the jurisdiction is as under:

Another important question arises about the time limit of filing of appeal before the NCLAT, for which Section 61(2) provides that every appeal u/s 61(1) shall be filed within 30 days before the NCLAT; provided that the NCLAT may allow an Appeal even after 30 days on a sufficient cause, however the extended period allowed can not be more than 15 days. In simple words, if sufficient cause is there and that cause is approved by the NCLAT, then the appeal can be filed within 45 days.

Further, Section 238A of IBC, 2016 states that the provision of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings before the NCLT, NCLAT, DRT, or DRAT. As per Section 12 of the Limitation Act, 1963 the period taken by court to prepare the copy of the shall stands excluded from the limitation period.

As a constructive reading, we may say that the time taken by the NCLT to provide the copy of the order may be excluded from the period as specified in Section 61(2) of the IBC, 2016.

Orders which can be challenged on limited grounds only:

• An Appeal against the order for Approving the Resolution Plan can be filed on limited grounds as mentioned in Section 61(3) of IBC, 2016.
• An Appeal against the Liquidation order can only be filed on grounds of material irregularity or fraud committed about such a liquidation order.
• An appeal against an order for initiation of corporate insolvency resolution process passed under sub-section (2) of section 54-O, may be filed on grounds of material irregularity or fraud committed about such an order.

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The designation and subsequent empowerment of an Insolvency Professional (IP) within the framework of a Corporate Debtor entail an array of responsibilities primarily focused on the effective management of the corporate entity.

These responsibilities encompass a comprehensive oversight aimed at ensuring compliance with an array of statutory obligations, inclusive of but not limited to, the meticulous filing of Income Tax Returns and the submission of various requisite forms such as 15CA and TDS returns. Access to the Income Tax Portal emerges as an indispensable requirement crucial to the fulfillment of these compliance obligations.

Within the ambit of the Insolvency and Bankruptcy Code (IBC), there exists a prescribed mandate stipulating the imperative cooperation of the personnel associated with the Corporate Debtor towards the duly appointed Insolvency Professional. However, it is noteworthy that the application and universality of this privilege are subject to situational variance within the spectrum of proceedings governed by the IBC.

Instances characterized by non-cooperation demonstrated by the promoters or scenarios where the Corporate Debtor faces an inadequacy in personnel entrusted with attending to these vital compliance matters confer upon the Insolvency Professional the discretionary authority to petition for direct access to the Income Tax Portal of the Corporate Debtor from the esteemed precincts of the Income Tax Department.

The procedural delineations pertinent to the registration process on the Income Tax Portal for the aforementioned purpose are outlined herewith:

1. Commence by navigating to the official web domain of the Income Tax Department.
2. Employ the designated credentials earmarked for the Insolvency Professional to successfully log in to the portal.
3. Proceed to locate and access the segment denoted as “Authorised Partners” and subsequently opt for the pathway delineated as “Registering to act on behalf of another person.”
4. Explicitly specify and identify the category of assessee as “Company under Liquidation,” duly acknowledging and recognizing that this particular classification extends equivalently to companies ensconced within the purview of the Corporate Insolvency Resolution Process, notwithstanding the nomenclatural disparities.
5. Furnish and input the requisite particulars inclusive of the Permanent Account Number (PAN), Date of Appointment, and the unique IBBI Registration Number corresponding to the Insolvency Professional.
6. Complete the registration process by diligently uploading pertinent documentation, encompassing crucial artifacts such as the NCLT Order and the PAN Card attributed to the concerned Company.
7. Conclude the application process by initiating the submission of the aforementioned details.
8. Uphold the integrity and validity of the submission by successfully authenticating the transaction via the One-Time Password (OTP) dispatched to the registered Email and Mobile correspondences.
9. Await the ensuing confirmation, expectedly transmitted through electronic mail from the esteemed precincts of the Income Tax Department utilizing the designated communication channel at communication@cpc.incometax.gov.in.
10. Upon the consummation of the approval process, the hitherto sought-after access to the Income Tax Portal of the Corporate Debtor is duly granted. This facilitation is accomplished through the utilization of the login credentials allocated to the Insolvency Professional. After the successful login, the Dashboard will prominently exhibit an option nested within the ‘Official Liquidator/Resolution Professional’ tab, thereby seamlessly redirecting the user to the dedicated Portal attributed to the Corporate Debtor.

It is imperative to underscore that although this procedural elucidation ostensibly appears tailored to entities traversing the terrain of liquidation, its inherent relevance transcends the confines of such circumstances. The procedural elucidation delineated herein retains substantial applicability and relevance to companies navigating the intricate landscape of the Corporate Insolvency Resolution Process.

Through a meticulous adherence to these specified and enumerated steps, an Insolvency Professional is adeptly positioned to efficiently secure access to and navigate the intricate contours of the Income Tax Portal. This proficient navigation is instrumental in facilitating the fulfillment of imperative compliance obligations incumbent upon the Corporate Debtor. Such actions align impeccably with the regulatory dictates and stipulations embedded within the precincts of the Insolvency and Bankruptcy Code 2016 (IBC).

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Interim Finance

• any financial debt raised by the resolution professional during the insolvency resolution process period; or
• by the corporate debtor during the pre-packaged insolvency resolution process period, as the case may be; and
• and such other debt as may be notified (The Central Govt. vide notification dated 18.03.2020 notifies a debt raised from the Special Window for Affordable and Middle-Income Housing Investment Fund I will be covered under Interim Finance).
• (the expression “Special Window for Affordable and Middle-Income Housing Investment Fund I” shall mean the fund sponsored by the Central Government for providing priority debt financing for stalled housing projects, as an alternate investment fund and registered with the Securities and Exchange Board of India, established under sub-section (1) of section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), to provide financing for the completion of stalled housing projects that are in the affordable and middle-income housing sector.)

Why Interim Finance?

To manage the operations of the Corporate Debtor as a going concern the IRP under Section 20 of IBC, 2016, and RP under Section 25 of IBC, 2016 shall make every endeavor to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.

For the above-stated purpose the IRP/RP can raise interim finance provided that no security interest shall be created over any encumbered property of the corporate debtor without the prior consent of the creditors whose debt is secured over such encumbered property.

 Further, the NCLAT in the Company Appeal (AT) (Ins.) No. 887 of 2019 Edelweiss Asset Reconstruction vs. Sai Regency Power Corporation held that the Value of a going concern is much more than a non-functional plant or concern.

Further, Hon’ble NCLAT is not convinced by the argument that amended Sub-Section (4) of Section 30 requires only Secured Financial Creditors to contribute towards interim finance and not Unsecured Financial Creditors. No such interpretation can be drawn. We will not interfere in the collective decision of COC in this regard.

Who will bear the cost of Interim Finance?

The amount of Interim Finance and the Cost incurred in raising such finance

• shall constitute part of Insolvency Resolution Process Costs as defined under Section 5(13) of IBC, 2016 in the case of Corporate Insolvency Resolution Process (CIRP).
• shall constitute the part of Pre-packaged Insolvency Resolution Process Costs as defined under Section 5(23)(C) of IBC, 2016 in the case of the Pre-Packaged Insolvency Resolution Process (PPIRP).

Process of Raising the Interim Finance?

Specifically, no process has been described under the provisions of IBC, 2016 to raise the interim finance, as the Section 28 of IBC, 2016 the approval of the Committee of Creditors will be required to raise any interim finance in excess of the amount as may be decided by the committee of creditors in their meeting.

Further, the reporting of the Interim Finance must be reported to the Insolvency and Bankruptcy Board of India (“IBBI”) in Form CIRP-6 within 7 days from the raising of Interim Finance.

In short, Interim Finance can be raised in such a manner as may be approved by the COC in the meeting with at least 66% of the voting shares.

Whether the Fees payable to the IRP/RP be paid from Interim Finance?

While looking for the answer, we can refer to Regulation 34(B)(5) of IBBI (CIRP) Regulations, 2016 wherein it is clearly demonstrated that the Fees payable to the IRP/RP may be paid from the funds, available with the corporate debtor, contributed by the applicant or members of the committee and/or raised by way of interim finance and shall be included in the insolvency resolution process cost.

 What if the Liquidation of CD commences after raising Interim Finance?

If we refer to Regulation 2(ea) of IBBI (Liquidation Process) Regulations, 2016 the Liquidation Cost includes interest on Interim Finance for a period of twelve months or for the period from the liquidation commencement date till repayment of interim finance, whichever is lower.

Whether the Interim Finance be raised during the Liquidation of CD?

As per the provisions of IBC, 2016 and other laws for the time being in force the Interim Finance cannot be raised once the Liquidation commences, as under Liquidation the Corporate Debtor is no more a going concern and Liquidation is merely the proceedings to windup the Corporate Debtor.

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Status as on- 14/07/2023

Over the last few years, several cases of defaulting real estate companies, including major players like Amrapali, Jaypee Infratech, and Supertech, have been stuck at various stages of insolvency proceedings under the provisions of the Insolvency and Bankruptcy Code, 2016, as amended (“Code”). As per the data provided by the Insolvency and Bankruptcy Board of India (“IBBI”), a total of 344 corporate debtors engaged in construction and real estate activities have been admitted into the corporate insolvency resolution process (“CIRP”) as of September 2022.

The major challenges in the insolvency resolution of real estate companies arise from the peculiarities of this sector, especially since the divergent interests of the allottees of the real estate projects do not align with the scheme of the CIRP. The allottees’ interest lies in the ownership and possession of the unit, while the interest of the financial creditors lies in the repayment of the loan (usually with haircuts). Furthermore, one of the unique features is that due to the scale of the projects, the real estate allottees (who have been categorized as financial creditors having voting rights) usually form a majority in the committee of creditors (“CoC”); however, they do not possess the financial expertise or prudence to take decisions for assessing the feasibility and viability of the resolution plans for the revival of these companies.

Proposed Amendments in Insolvency and Bankruptcy Code (Amendment) Bill, 2023

While the courts have attempted to tailor the provisions of the Code for real estate companies, the Code itself is ill-equipped to regulate the same. Considering the need for a specialized framework to deal with such cases and the lack thereof, the Ministry of Corporate Affairs, by way of notice dated January 18, 2023, proposed introducing project-wise insolvency in cases of real estate companies. In this regard, the following amendments have been proposed:

(i) When an application is filed to initiate the CIRP in respect of a corporate debtor who is the promoter of a real estate project, and the default pertains to one or more of its real estate projects; the Adjudicating Authority, at its discretion, shall admit the case but apply the CIRP provisions only with respect to such real estate projects, which have defaulted. Accordingly, such projects shall be recognized as distinct from the larger entity for the limited purpose of resolution

(ii) The provisions of the Code as they apply to the CIRP of a corporate person shall, with necessary modifications, be made applicable to the CIRP of such real estate projects; and

(iii) Section 28 of the Code may be amended to enable the RP to transfer the ownership and possession of a plot, apartment, or building to the allottees with the consent of the CoC.

Challenges and Recommendations

The amendments have only been proposed for the introduction of project-wise CIRP and not reverse CIRP. While project-wise CIRP is a welcome move, it is recommended that the Code should provide a statutory framework for reverse CIRP as well. In cases such as Umang Realtech, the Hon’ble NCLAT had allowed both project-wise and reverse CIRP in order to ensure that the overall interests of the homebuyers and the financial institutions are served.

Further, it is imperative that the provisions enabling project-wise insolvency should be carefully worded. The legislature and the insolvency courts need to bear the following in mind in cases of project-wise insolvency:

(i) Since all the projects are still under one company, there may be challenges in having operational control through IRP on the projects undergoing CIRP e.g. clarity on whether the board of directors will remain suspended or IRP to run the entire Company, ability to bind the Company with the decisions of the CoC for the projects undergoing CIRP.

(ii) Complications may arise while analyzing avoidable transactions of the projects undergoing CIRP as such transactions may have a carry-over to the projects outside the CIRP.

(iii) Real Estate (Regulation and Development) Act, 2016 (“RERA”), which has been enacted in order to ensure efficiency and transparency in the real estate sector, envisages certain compliances to be followed by the real estate company such as 70% of the amounts collected for one project is utilized only for the cost of construction and towards the land cost. While the IRP may adhere to this requirement, no monitoring mechanism is in place to ensure that the ex-management complies with this requirement for the projects kept outside CIRP.

(iv) Clarity on bifurcation of creditors (for example operational creditors, employee dues) for each project.

Conclusion

Introducing a robust mechanism in the Code for project-wise CIRP and reverse CIRP is the most appropriate solution for the problems faced by real estate stakeholders, especially financial creditors and homebuyers. While an enabling provision for the Adjudicating Authority to initiate project-wise insolvency and/or reverse insolvency is important, it is equally imperative that the Code should have sufficient safeguards in order to ensure that the aim of the Code is not defeated and the interest of the allottees is preserved.

Disclaimer: The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinions before relying upon the article. For more information, please contact us at ibc@centrik.in

The post Real Solution for Real Estate Insolvencies appeared first on Centrik.

Status as on: 14/07/2023

Introduction-

The Insolvency and Bankruptcy Code, 2016 has been a significant step towards resolving the stressed assets and revival of companies in financial distress. It provides a framework for insolvency resolutions of corporate entities, partnership firms, and also individuals. The Code proposes two types of insolvency proceedings- Corporate Insolvency Resolution Process (CIRP) and Personal Guarantors’ Insolvency Resolution Process (PGIRP).

Part III of the Insolvency and Bankruptcy Code, 2016 brings in the concept of Interim Moratorium, which offers protection to individuals during the insolvency process.

What is an Interim Moratorium?

An interim moratorium has been introduced under section 96, under part III of IBC. It is a temporary protection period granted to a personal guarantor that has initiated an insolvency process under IBC. A personal guarantor is an individual who, in accordance with the Code, serves as the surety in a guarantee agreement with a corporate debtor. During this period, the personal guarantor is shielded from any legal proceedings, actions, or claims from its creditors or other stakeholders.

Duration of Interim Moratorium:

The interim moratorium begins from the date of admission of the insolvency application, filed under section 94 or section 95 of the Code, and remains in effect until the appointment of a resolution professional or the rejection of the application, whichever occurs earlier.

Implications of Interim Moratorium under Section 96 of IBC:

1. Stay on all pending and fresh legal proceedings, including any actions of recovery of debts, enforcement of security interests, initiation or arbitration, or legal suits.
2. Prevention of the disposal, transfer, or encumbrance of any asset without the consent of the Resolution Professional, safeguarding the value of assets.
3. No party can terminate, suspend, or modify any contract or agreement solely on the grounds of insolvency, promoting the continuity of essential contracts such as supply agreements, leases, or service contracts.

Judicial Precedents:

In the case of NUI Papers and Pulp and Papers Industries Pvt. Ltd. Vs. Roxel Trading GMBH, The Hon’ble NCLAT sustained an interim decision of the NCLT (Chennai) that barred the corporate debtor and its directors from alienating, encumbering, or creating third-party interests in its assets until the application was admitted or rejected. The creditors were concerned that the corporate debtor would transfer its assets, thus this injunction was issued. The NCLT determined that the fear was justified and imposed a pre-admission moratorium in accordance with Rule 11 of the NCLT Rules, 2016.

Also, in the case of Ashok Mahindru and Ors. Vs. Vivek Parti, NCLAT decoded that the interim moratorium under Section 96 of the Code applies solely to proceedings relating to liabilities or obligations that existed at the time the moratorium was imposed. As a result, any procedures concerning liabilities or obligations emerging after the commencement of the moratorium cannot be stayed under Section 96. The NCLAT determined that the Code does not envision providing a stay of proceedings under Sections 19(2), 66, and 67 in the case at hand, thereby avoiding abuse of the Code’s power.

Conclusion:

The Interim moratorium is a crucial element of the insolvency resolution process under the Insolvency and Bankruptcy Code, 2016, providing a breathing space for the personal guarantor to consider settling his/her debts with creditors or arranging a settlement plan. It shields the individual from any legal action and ensures the prevention of the assets during the critical phase of the resolution process. While it may temporarily restrict the rights of creditors, its objective is to facilitate the revival or orderly liquidation of the personal guarantor, ultimately benefitting all the stakeholders involved.

Disclaimer: The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinions before relying upon the article. For more information, please contact us at ibc@centrik.in.

The post Deciphering the Enigma of Interim Moratorium under IBC appeared first on Centrik.