I INSOLVENCY LAW, POLICY AND PROCEDURE

i Statutory framework and substantive law

The extant legal framework pertaining to bankruptcy and insolvency in India comprises several statutes.

The World Bank report on Doing Business ranks India as 136 out of 189 countries on resolving insolvency.2 The report also notes that resolving insolvency takes about 4.3 years and costs 9 per cent of the debtor’s estate with the most likely outcome being a piecemeal sale of assets. The average recovery is 25.7 cents per dollar.

In October 2014, the Ministry of Finance established the Bankruptcy Law Reforms Committee (BLRC) to review the law and suggest improvements.

The BLRC’s report resulted in the Insolvency and Bankruptcy Code 2016 (Insolvency Code) approved by Parliament on 12 May 2016. However, the operative provisions of the Insolvency Code are yet to be notified3 and media reports indicate that the Insolvency Code will not be effective until 2017–18.

Individuals and partnership firms

Pending operation of the Insolvency Code, insolvency for individuals and partnerships is dealt with by the Presidency Towns Insolvency Act 1909 in the presidency towns of Chennai, Kolkata and Mumbai. Insolvency for individuals (including proprietors) in areas other than the presidency towns is dealt with by the Provincial Insolvency Act 1920. Some states have made small amendments to each act.

Companies

Several statutes address company insolvency:

  • a The Companies Act 1956: this Act deals with winding up of companies. No separate provisions for restructuring except through mergers and acquisitions and voluntary compromise. Adjudication is by the High Court.4
  • b The Companies Act 2013: the chapter on collective insolvency resolution by way of restructuring, rehabilitation and reorganisation has yet to be notified. Adjudication will be by the National Company Law Tribunal (NCLT).
  • c The Sick Industrial Companies (Special Provisions) Act 1985 (SICA): this Act deals with restructuring of distressed ‘industrial’ companies. A sick industrial company is an industrial company5 (registered for not less than five years) that has at the end of any financial year accumulated losses equal to or exceeding its entire net worth.6 The Board of Industrial and Financial Reconstruction (BIFR) assesses the viability of the industrial company and refers an unviable company to the High Court for liquidation. While Parliament has approved repeal of the SICA, the repealing enactment remains to be notified.
Insolvency Code

The Insolvency Code applies to companies, limited liability partnerships (LLPs), partnership firms and individuals. A separate framework is being proposed for financial firms.

The Insolvency Code first provides an insolvency resolution process and, if resolution fails, liquidation. Separate procedures have been detailed for corporate persons (i.e., companies and LLPs) and separate procedures for partnership firms and individuals.

The Insolvency Code also provides for insolvency professionals, to be registered under the Insolvency Code, who shall be responsible for implementing the resolution and liquidation processes stipulated under the Insolvency Code.

Resolution and enforcement processes prescribed by the Reserve Bank of India (RBI)

The RBI has prescribed certain mechanisms for debt restructuring and recovery.

Corporate debt restructuring

Corporate debt restructuring (CDR) facilitates the restructuring of debts of viable corporate entities.

Joint lenders’ forum

The joint lenders’ forum (JLF) allows lenders to resolve the stress in the account with the intention of arriving at an early and feasible solution to preserve the economic value of the underlying assets including the lenders’ loans. Options include restructuring of the account if it is prima facie viable and the borrower is not a wilful defaulter, and recovery if the restructuring procedure does not appear feasible.

Strategic debt restructuring

Strategic debt restructuring applies where a consortium of lenders believe that an outstanding account can be revived by a change in the ownership and management of the borrower company. The JLF may convert all or part of the outstanding loan amount into equity of the borrower and change management.

Rehabilitation of sick micro and small enterprises

The RBI Guidelines for Rehabilitation of Sick Micro and Small Enterprises (RBI Guidelines) provide for the early detection of incipient sickness and prescribes the procedure for resolution of distress.

Sustainable structuring of stressed assets

The RBI has also recently promulgated a scheme for sustainable structuring of stressed assets (S4A Scheme), which mandates that the JLF engage the services of credible professional agencies to formulate a resolution plan that may involve: the current promoters of the borrower continuing in control; or the current promoters being replaced either by the JLF or third parties, including professionals, approved by the JLF.

ii Policy

Refreshingly, policy on insolvency is well developed in India but, not unusually, there seems to be a dichotomy as to the preferred mechanism:

  • a the recovery imperative: the Securitisation and Asset Reconstruction and Enforcement of Security Interest Act 2002 (SARFAESI) permits secured creditors to enforce their security interest without the intervention of courts. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill 2016 (Security Bill) approved by Parliament on 9 August 2016 simplifies the recovery process by, inter alia, minimising court intervention. Together with the RBI Guidelines these statutes allow for relatively expeditious enforcement; and
  • b the route to resolution: the Insolvency Code and the provisions of SICA, which allow for potentially sick industrial companies and sick industrial companies to make a reference before the BIFR for revival.7

At present, court rulings indicate secured creditors’ recovery taking precedence8 but it is likely that will be revisited once the Insolvency Code is in force.

iii Insolvency procedures
Winding up under the Companies Act 1956
Compulsory winding up

Section 433 of the Companies Act 1956 sets out certain specific circumstances under which a company may compulsorily be wound up by the NCLT. One of the grounds set out under Section 433 is if the company is unable to pay its debts.

Inability to pay debts

A company is deemed to be unable to pay its debts:9

  • a if a creditor has served on the company a demand requiring the company to pay the sum so due and the company has, for three weeks thereafter, neglected to pay or to secure or compound the sum to the reasonable satisfaction of the creditor;
  • b if execution or other process issued on an order of any court or tribunal in favour of a creditor of the company is returned unsatisfied; or
  • c if it is proved to the satisfaction of the court that the company is unable to pay its debts based on the contingent and prospective liabilities of the company.

A ‘debt’ is a determined or definite sum and excludes: a claim for unliquidated damages or a sum that is not capable of being ascertained; and damages for breach of statutory provisions.10

To compel winding up, the company should have omitted to pay without reasonable cause. The creditor needs to prove the existence of a debt and the company’s inability to pay the debt, without any reasonable cause, despite service of the statutory notice.11

Procedure

The procedure to be followed is outlined below.

A statement of affairs along with the petition for winding up will be filed with the court. Such statement will be accompanied by:

  • a the last known addresses of all directors and company secretary of such company;
  • b the details of location of assets of the company and their value;
  • c the detail of all debtors and creditors with their complete addresses;
  • d the details of workmen and other employees and any amount outstanding to them; and
  • e such other details as the NCLT may direct.

Every contributory or creditor of the company will be furnished with a copy of the petition within 24 hours of requisition. The petition is advertised in the Official Gazette of the state and in one issue of a newspaper in the English language and in the regional language circulating in that state.

An application is made to the High Court12 or the NCLT13 with an affidavit showing sufficient grounds for the appointment of the provisional liquidator.

On receipt of the winding-up order, it should be advertised in the same manner as the application seeking winding up.

Voluntary winding up

In terms of the Companies Act 1956, a company can be voluntarily wound up if, inter alia, the shareholders of the company, in a general meeting, pass a special resolution that the company be wound up voluntarily.

Procedure

A minimum of five weeks prior to the special resolution, the directors of the company must issue a declaration14 supported by an affidavit to the effect that they have made a full inquiry into the affairs of the company and are of the opinion that the company has no debts or that it will be able to repay its debts within three years from the date of commencement of winding up. This declaration of solvency is submitted to the Registrar of Companies (RoC) with a confirmatory report from the auditors of the company. A false declaration is punishable by imprisonment for a term of up to six months or a fine of up to 5,000 rupees, or both.

Thereafter, the shareholders must, in a general meeting, appoint a liquidator15 and set out the terms and conditions of that liquidator’s appointment all of which must be filed with the RoC. Unless the shareholders at a general meeting, or the liquidator in his or her sole and absolute discretion decides otherwise, the powers of the board of directors of the company cease on the liquidator being appointed.

The liquidator may, if authorised by a special resolution passed in a general meeting, receive shares, or other like interests in the purchaser company as compensation for the transfer or sale of its business and, or, property. If any shareholders dissent to the special resolution, the liquidator can purchase the dissenting shareholder’s share in the company and dispose off the liability of the dissenting shareholder before the company is dissolved.

The liquidator is mandated by Section 496 of the Companies Act 1956 to call a general meeting of the members after every year of the commencement of the winding up until it is complete. In each general meeting, the liquidator presents an account of the preceding year. The final report of the liquidator is approved by the shareholders and then submitted to the RoC and the Official Liquidator.

The Official Liquidator scrutinises that report and, after making inquiries, reports to the High Court stating either that: the affairs of the company have been conducted appropriately, in which case the company will stand dissolved from the date of submission of such report to the Court; or the affairs of the company have been conducted in a manner prejudicial to the interests of the members or the public, in which case the High Court will order the Official Liquidator to make further inquiry into the matters of the company.

On being satisfied by the order of the Official Liquidator the High Court will order the company to be wound up. Generally, voluntary winding up may take three to four years.

Once the Insolvency Code is notified, provisions relating to revival and rehabilitation of sick companies and relating to voluntary winding up in the Companies Act 201316 will be repealed and the relevant stipulations of the Insolvency Code will operate.

References to the BIFR by sick industrial companies
Obligation

The board of directors of a sick industrial company must make a reference to the BIFR within 60 days from the date of finalisation of the duly audited accounts of the company for the financial year at the end of which the company has become sick. No reference is made if financial assets have been acquired by any securitisation or reconstruction company.

A reference may also be made by the central or state government, a public financial institution or a scheduled bank.

Inquiry

The BIFR completes its inquiry within 60 days of the report and may appoint a special director to the board of the company.

Suitable order

If found practical, the BIFR may give the company some time to make its net worth exceed the accumulated losses.

If not, the BIFR may direct an operating agency to prepare a scheme providing for such measures specified under Section 18 of SICA (Preparation and Sanction of Scheme). Section 18 suggests measure like financial reconstruction, takeover of the management, amalgamation, sale or lease of a part or whole of the industrial undertaking, etc.

The draft scheme is published in newspapers and, after considering any objections, is modified as appropriate and sanctioned by the BIFR.

The BIFR will review the operation of the Scheme and if appropriate recommend that the company be wound up.

Proceedings under the Insolvency Code

As set out in Section I.i, supra, the Insolvency Code sets out a two-stage process: an insolvency resolution process; and in the event that such resolution process is unsuccessful, a liquidation or bankruptcy process as the case may be. Separate procedures have been detailed for corporate persons (i.e., companies and LLPs) and for individuals.

Insolvency resolution process

For corporate persons, the insolvency resolution process may be initiated by a creditor or a group of creditors or by the corporate person itself. The application is submitted to the adjudicating authority, which will admit the application if appropriate. Once admitted the following actions are prohibited:

  • a any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under SARFAESI;
  • b transferring, encumbering, alienating or disposing the debtor’s assets or legal rights or interest therein; and
  • c institution of any suits or continuation pending suits or proceedings; and
  • d an interim insolvency professional takes charge of the company.

The interim insolvency professional17 manages the company and, inter alia, constitutes a committee of creditors and formulates an information memorandum as to the prospects of the company18. A resolution plan is drafted based on the information memorandum and must provide for, inter alia, repayment of debts and management of the company. The resolution plan, if then to be approved by 75 per cent of creditors,19 is submitted to the adjudicating authority. The adjudicating authority approves or rejects the resolution plan.

The entire resolution process is to be completed within 180 days and only one extension of up to 90 days to such timeline may be provided by the adjudicating authority.

Liquidation

If the creditors or the adjudicating authority reject the resolution plan the adjudicating authority must pass a liquidation order. The insolvency professional, acting as liquidator, will collect all claims from creditors, verify such claims and thereafter distribute the assets of the debtor in this order of priority:20

  • a costs relating to the insolvency resolution process and liquidation;
  • b workmen’s dues and a secured creditor who has relinquished his or her security to be treated equally;
  • c unpaid dues to employees;
  • d unsecured creditors;
  • e amounts owed to the government and debts due to a secured creditor for unpaid amounts post the enforcement of security interest;
  • f preference shareholders; and
  • g equity shareholders.

Thereafter, the liquidator will apply to the adjudicating authority for a dissolution order in respect of the debtor.

Enforcement of security interest

In liquidation proceedings, a secured creditor may opt to either realise his or her security interest or relinquish it, in accordance with the provisions of the Insolvency Code. The moratorium during the resolution process precludes the exercise of this right at that time, and such enforcement is possible only if the resolution plan fails or is rejected by the adjudicating authority, both of which lead to the commencement of liquidation proceedings under the Code. Dissenting creditors (i.e., those who vote against the resolution plan) are nonetheless bound by that plan if it is duly approved.

In order for a secured creditor to realise its security interest, the secured creditor must inform the liquidator of the security interest and the relevant asset subject to which the security interest will be realised. The liquidator will verify this, and thereafter, the secured creditor may realise the security interest in accordance with applicable laws. In the event the enforcement of security interest yields an amount exceeding the debts due to the secured creditor, the secured creditor must tender such excess amount to the liquidator. Alternatively, if the amount yielded is inadequate, the remaining unpaid debts of the secured creditor will be paid by the liquidator in accordance with the order of priority described above.21

Individuals and partnership firms

The Insolvency Code provides for three mechanisms: the fresh start process, the insolvency resolution process and the bankruptcy process.

While the insolvency resolution process and the bankruptcy process for individuals and partnership firms is largely the same as for corporate persons, the fresh start process is unique to individuals and partnership firms. Note that, in real terms, the thresholds to be eligible for a fresh start are fairly low22 and, effectively, the remedy may be availed of only by those at the bottom of the pyramid.23

Compulsory winding up

An application to the High Court24 or to the NCLT25 for winding up may be presented by:

  • a the company;
  • b any creditor or creditors, including any contingent or prospective creditor or creditors;
  • c any contributory or contributories; or
  • d all or any of the above.
iv Control of insolvency proceedings
Voluntary winding up

The appointed liquidator and the Official Liquidator control voluntary winding up. See Section I.iii, supra (voluntary winding up).

Compulsory winding up

Once the proceedings are initiated by a party eligible to do so, compulsory winding-up proceedings are controlled, in the initial stages, by the High Court26 or NCLT.27 Once initiated, the board of directors has no significant role in or control over the compulsory winding-up proceedings.

Proceedings under the Insolvency Code

The Insolvency Code provides that the NCLT is the adjudicating authority for matters pertaining to companies and LLPs, while appellate jurisdiction is exercised by the National Company Law Appellate Tribunal (NCLAT). As far as concerns individuals and unlimited partnerships, the adjudicating authority is the Debt Recovery Tribunal (DRT), while appellate jurisdiction is exercised by the Debts Recovery Appellate Tribunal (DRAT). Appeals against orders passed by the NCLAT and the DRAT will lie before the Supreme Court.

As per the relevant stipulations set out in the Insolvency Code, control of insolvency proceedings, once initiated, shall lie with the relevant adjudicating authority and the appellate authority.

Once initiated, the board of directors has no significant role in or control over the insolvency proceedings.

v Special regimes

The Insolvency Code permits the government to stipulate a separate framework regulating insolvency for financial services firms and such a framework is being proposed. The promulgation of this framework is expected in due course.

vi Cross-border issues

The Insolvency Code does not adopt the UNCITRAL model of cross-border insolvency. However, it permits the central government to enter into an agreement with the government of any other foreign country to enforce the provisions of the Insolvency Code. Further:

  • a the government may direct that the application of provisions of the Insolvency Code in relation to assets or property of corporate debtor or debtor, including a personal guarantor of a corporate debtor situated at any place in a country outside India, with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified;
  • b while applying the provisions of the Insolvency Code on assets situated outside India, the adjudicating authority may issue a ‘letter of request’ to a competent court of the foreign country where the asset is located;28 and
  • c the insolvency professional appointed, while taking custody of the assets of the bankrupt, shall also take control over assets of a corporate debtor that may be located in a foreign country29. However, this does not include assets of a foreign subsidiary of the corporate debtor.30

II INSOLVENCY METRICS

Presently, the banking sector in India is faced with a large number of non-performing assets (NPAs) and stressed accounts. According to the Financial Stability Report released by the RBI in June 2016, the gross non-performing advances ratio increased from 5.1 per cent to 7.6 per cent between September 2015 and March 2016. According to a press release dated 12 May 2015 by CRISIL Limited (CRISIL), one of the leading credit rating agencies in India, the NPAs in the banking sector amount to approximately to 4,000 billion rupees. CRISIL, in a report released in March 2016, has forecast that additional large exposure corporate accounts amounting to approximately to 2,100 billion rupees may slip into the NPA category by March 2017.

In some cases, adverse business circumstances with respect to certain specific sectors, for example, iron and steel, may be identified as having contributed to this predicament. However, issues relating to mismanagement of borrower entities as well as lack of sound and proactive lending and recovery policies on the part of the lenders are equally responsible.

The RBI has, in the past few years brought about various schemes aimed at addressing the issue of NPAs and stressed assets. While these schemes have succeeded in providing stakeholders with multiple alternatives to deal with NPAs and stressed assets, in our view, the inconsistencies and overlapping of regimes with other statutory frameworks have somewhat hampered their effectiveness, especially in the context of resolution and restructuring. The Insolvency Code, once operative, is expected to redress these inconsistencies. As far as concerns lenders’ recovery, there is presently a serious issue as to the timelines involved to achieve recovery. The Security Bill, in its statement of objects and reasons, points out that there are at present approximately 70,000 cases pending before the various DRTs pertaining to recovery. While there is an appreciable shortfall in terms of existing resolution infrastructure, the lack of cogent and coherent procedural stipulations in the regulatory framework has also contributed significantly to this issue. However, the Security Bill, passed by Parliament on 9 August 2016, seeks to ensure expeditious resolution of cases involving enforcement of security interest.

III PLENARY INSOLVENCY PROCEEDINGS

The resolution process that has been made available under the Insolvency Code is plenary in the sense that it requires consent from the majority of all persons concerned. The RBI regulations are, necessarily, lender-centric.

Equally, voluntary winding-up is also a plenary process.

IV ANCILLARY INSOLVENCY PROCEEDINGS

There have been no significant recent or pending ancillary insolvency proceedings in India in the past year.

V TRENDS

While discussing recent trends with respect to insolvency proceedings at Indian law, the ongoing proceedings in relation to the Kingfisher Airlines Limited (Kingfisher) bankruptcy controversy is relevant. Vijay Mallya is under investigation in connection with sums owed to a consortium of lenders led by the State Bank of India, amounting to approximately 90 billion rupees by Kingfisher. The consortium has initiated action under SARFAESI and taken physical possession of Kingfisher House, the headquarters of Kingfisher, valued at 1 billion rupees.

United Breweries (Holdings) Limited (UB Holdings), the ultimate parent of Kingfisher, had provided corporate guarantees to secure contractual payments due from Kingfisher, inter alia, in connection with sale and maintenance of aircrafts and other operations. However, Kingfisher defaulted in making these payments in or around 2010 and 2011, and consequently, the corporate guarantees were invoked. UB Holdings in turn defaulted on the payments to be made consequent to the invocation of the corporate guarantees. Accordingly, several winding-up petitions were filed against UB Holdings between March and November 2012. While UB Holdings opposed the winding-up petitions, it simultaneously filed an application before the Karnataka High Court pursuant to Section 536(2) of the Companies Act 1956,31 for leave to sell certain shares held in its subsidiary United Spirits Limited (USL) to Diageo PLC (Diageo).

The Karnataka High Court granted its leave and Diageo purchased shares of USL. Diageo acquired a 55 per cent stake in USL during the course of 2012 and 2013. However, in February 2016, Vijay Mallya was asked to step down from USL’s board of directors, pursuant to an internal forensic audit enquiry, whereby various legal contraventions were discovered in relation to loans given by USL to the United Breweries Group companies.

Kingfisher has also defaulted in payment of its taxes, and accordingly, the service tax department has seized several of Kingfisher’s assets, including aircrafts and helicopters. Additionally, since Vijay Mallya is not presently in India, and is reportedly in London, the service tax department has initiated proceedings to impound his passport and compel him to return to India. In April 2016, the government revoked his passport and requested the UK government to deport him. However, the UK government informed the Indian government that while they could not deport Vijay Mallya, they are willing to assist and cooperate with the government in exploring other alternatives such as extradition and mutual legal assistance.

It is expected that there will be a state of regulatory flux until the Insolvency Code is notified, and consequently, until then, we do not foresee a significant change in the present insolvency metrics.

However, once the Insolvency Code is notified and implemented, there may well be an increase in insolvency proceedings being initiated by the debtors themselves, since the Insolvency Code is geared primarily towards revival and rehabilitation of insolvents. The insolvency resolution process may be effective, especially where debtors are facing genuine stress on account of, inter alia, market conditions, unfavourable changes in regulatory policies, etc. The resolution process and the subsequent resolution plan (if implemented well) will allow stressed businesses to recover, and the extent of financial distress32 makes this a particularly relevant development for the Indian economy.

Footnotes

1 Justin Bharucha is a partner and Priya Makhijani is an associate at Bharucha & Partners.

2 www.doingbusiness.org/rankings.

3 The government of India vide Gazette Notification No. S.O. 2618(E) dated 5 August 2016 notified Sections 188 to 194 of the Insolvency Code, thereby establishing the Insolvency and Bankruptcy Board of India.

4 Until recently, winding-up proceedings under the Companies Act 1956 were adjudicated by the High Courts, since the NCLT had not been established. However, on 1 June 2016, the government vide a notification in the Official Gazette, constituted 11 benches of the NCLT in various states and notified certain provisions of the Companies Act 2013 in relation to the NCLT. However, the said notification is silent on the manner in which the transition is to be effected.

5 An industrial company is a company which owns one or more industrial undertakings – and industrial undertakings include undertakings pertaining to industries such as inter alia telecom, metallurgy, boilers and steam generating plants, electrical equipment, chemicals and transportation.

6 Net worth has been defined under SICA to mean paid-up capital and free reserves.

7 The Sick Industrial Companies (Special Provisions) Repeal Act 2003 (SICA Repeal Act) was passed on 1 January 2004 and is yet to be notified by the government. The SICA Repeal Act was passed to repeal the SICA. The notification of the SICA Repeal Act would also lead to the dissolution of the BIFR and the Appellate Authority for Industrial and Financial Reconstruction.

8 Section 22 of SICA stipulates that no proceedings for execution, distress or the like against any of the properties of the industrial company and no suit for the recovery of money or for the enforcement of any security against the sick industrial company shall lie or be proceeded with further, except with the consent of the BIFR, pending a reference before the BIFR. However, an exception to Section 22 has been carved out under Section 15 of SICA, which stipulates that where a reference is pending before BIFR, such reference shall abate if the secured creditors, representing not less than three-quarters of the amount of outstanding loan, have taken any measures to recover their secured debt under subsection (4) of Section 13 of SARFAES. In Madras Petrochem Ltd & Anr. v. BIFR & Ors AIR 2016 SC 898, the Supreme Court held that where a secured creditor of sick industrial company seeks to recover its debt in the manner provided by Section 13(2) of SARFAESI, such secured creditor may realise such secured debt under Section 13(4) SARFAESI, notwithstanding the provisions of Section 22 of SICA, provided, however, that the proceedings under SICA shall abate only where secured creditors representing not less than 75 per cent in value of the amount outstanding against financial assistance decide to enforce their security under SARFAESI.

9 Section 434 of the Companies Act 1956.

10 Mysore Sales International Limited v. United Breweries Limited (2002 51 CLA Snr 7 Kant.)

11 Guide to the Companies Act, Part 3, A Ramaiya, page nos. 4625 and 4821.

12 At present, pending notification of the relevant stipulations of the Companies Act 2013.

13 In terms of the Companies Act 2013.

14 The declaration of solvency must be made by the directors in a physical meeting of the board of directors.

15 Either the Official Liquidator or a firm of chartered accountants. Note the absence of insolvency professionals as set out in the Insolvency Code.

16 The confusing position is: these stipulations of the Companies Act 2013, are yet to be notified and so the prevalent law is the Companies Act 1956, the Insolvency Code expressly repeals relevant stipulations of the Companies Act 2013 but is silent as to the Companies Act 1956. We assume and hope that the government will separately repeal the relevant stipulations of the Companies Act 1956 before the Insolvency Code comes into operation.

17 The committee of creditors may either confirm the appointment of the interim insolvency professional or replace the interim insolvency professional with a different insolvency professional.

18 Members of the suspended board of directors or the partners of the corporate person, as well as operational creditors (if the amount of their aggregate dues is not less than 10 per cent of the debt) are entitled to attend the meetings of the committee of creditors; however, they cannot vote at such meetings.

19 A creditor’s vote is determined pro rata to that creditor’s share of the total debt of the company. Note that debt is classified as ‘operating debt’ and ‘financial debt’ and the creditor’s pro rata share is calculated based on this classification.

20 Section 53 of the Insolvency Code.

21 Section 52 of the Insolvency Code.

22 The eligibility criteria includes, inter alia, a gross annual income not exceeding 60,000 rupees; no ownership of a dwelling unit; and the aggregate value of assets should not exceed 20,000 rupees.

23 Illustratively, for the Startup India programme, thus far out of 728 applications for start-up recognition, 180 are recognised as start-ups; however, only 16 of these have been incorporated post 1 April 2016 and are therefore eligible for tax benefits. See www.thehindubusinessline.com/info-tech/16-startups-considered-for-benefits-under-finance-act/article8876630.ece.

24 At present, pending notification of the relevant stipulations of the Companies Act 2013.

25 In terms of the Companies Act 2013.

26 At present, pending notification of the relevant stipulations of the Companies Act 2013.

27 In terms of the Companies Act 2013.

28 Sections 234 and 235 of the Insolvency Code.

29 Section 18 of the Insolvency Code.

30 Section 36 of the Insolvency Code.

31 Section 536(2) of the Companies Act 1956 states, inter alia, that any transfer of shares in the company or alteration in the status of its members made after the commencement of the winding up, shall, unless the court otherwise orders, be void.

32 Measured in terms of stressed and non-performing assets on lenders’ portfolios.