I OVERVIEW OF RESTRUCTURING AND INSOLVENCY ACTIVITY

The Indian economy is growing at a fast pace and studies suggest that India will remain the fastest-growing G20 economy. Despite the shock of demonetization, the real GDP growth of India has been projected to be between 6.75-7.5 per cent in financial year 2017-2018 as against a real GDP growth of about 7 per cent in 2016-17. Though the cash squeeze created due to demonetization impacted the growth of India's GDP, reducing it by 0.25 to 0.5 per cent during 2016-17, reports state that these effects will disappear once the currency circulation normalises. The government is also coming up with mechanisms and key reforms, including the effective implementation of a goods and services tax (GST) with effect from 1 July 2017, which would bring in a unified tax for the entire nation, thereby replacing multiple indirect taxes such as VAT, service tax, luxury tax etc. Implementation of the GST would cascade the effect of tax on tax, thereby improving the competitiveness of the goods and services, which would result in improving the GDP rate of the economy. The GST would also decrease unhealthy competition among the states, which arose due to multiple taxes and would improve the ease of doing business in India.

On the banking front, a recent report by the Reserve Bank of India (RBI) which is India's central banking institution, states that the Indian banking sector is well regulated and the financial and economic conditions of India are currently on a par with the rest of the world. The Indian banking system consists of 27 public sector banks, 26 private sector banks, 46 foreign banks, 56 regional rural banks, 1,574 urban cooperative banks and 93,913 rural cooperative banks, in addition to cooperative credit institutions. A report from ICRA (a leading rating agency) estimates that the sector's credit growth will increase by 7-8 per cent in financial year 2017-18. The report also states that Indian banks have withstood the global downturn and are generally resilient. Furthermore, in line with international banking standards the majority of the banks have complied with the capital requirements of Basel III, while most banks have put in place the framework for asset-liability match, credit and derivatives risk management. According to a report published by the India Brand Equity Foundation (IBEF), the total assets in the banking sector have increased at a compound annual growth rate of 7.61 per cent from financial year 2013-ß16, from US$1.57 billion in 2013 to US$1.957 billion in 2016. Though the asset base of the banks has increased, one of the major problems being faced by the banking sector is the rising number of non-performing assets (NPAs), which is a result of continued deterioration in the quality and resulting profitability of the assets. Maintaining a high asset quality ratio (AQR) has always been essential for the banks. However, over the past year it has been difficult, owing to a special inspection made by the RBI, whereby it noticed that some of the banks were under-reporting their NPAs and their asset classification practices were insufficient. The NPA level has gone up drastically from 2618.43 billion rupees from FY 2014-15 to 6974.09 billion rupees by 31 December 2016. Further, the RBI noticed that the banks were hiding bad assets as part of forbearance (the temporary postponement of mortgage payments). As a result, the RBI has come up with stricter norms for asset provision.

i Liquidity and state of financial markets

After the RBI inspection, the disclosure and standard assets provisioning requirements were tightened by the RBI as part of a proactive approach in resolving stressed assets, which is presently a huge challenge to the banking sector.

Due to the deterioration in asset quality and profitability, the risk to Indian banks has increased and the banking stability indicator (BSI) has gone down drastically, resulting in the introduction of Basel norms pertaining to NPAs, forbearance, disclosures and adoption of IFRS 9.

The dip in the BSI acts as a warning to the banks against an increase in the number of non-performing assets. Further, the substantial transition in Indian accounting standards is posing challenges for Indian banks to maintain a higher amount of provisioning in case of non-performing and stressed assets.

ii Impact of specific regional and global events

The growth and profitability of domestic Indian entities is being affected by the volatility in global markets, fluctuations in prices of commodities such as agricultural produce, oil and metal, etc. Apart from these factors, geopolitical factors, such as the slowdown in China, the debt crisis in Europe, and ‘Brexit' have also affected the Indian markets.

Brexit, which decided the exit of UK from European Union in June 2016, has come more as a surprise to the markets than the setback for growth prospect and has led to speculation that other Member States may follow the same path as that of the UK. Brexit has already moved the foreign exchange markets towards a stronger euro whereas the pound has fallen by slightly more than 10 per cent against the rupee.

While Indian companies with heavy UK investments have started to be affected by the weakening of the UK economy, manufacturing set-ups in the UK are worried about possible restrictions that may be imposed on the free movement of goods and services to and from the UK and the EU. The data provided by the Ministry of Commerce and Industry shows that India's bilateral trade with the UK was worth US$14.02 billion in the financial year 2015-2016, of which US$8.83 billion was exports and US$5.19 billion was imports. With Brexit the trade position of India with UK would strengthen as the EU will have to rework its negotiation strategy to gain access to the UK market.

iii Market trends in restructuring procedures and techniques

The continued deterioration in the asset quality and profitability has led to the rise of restructuring of corporate loans in India, which is a cause of concern for the banking sector and for the economy as a whole.

Over the past few years the RBI's approach has been to strengthen the banking sector by undertaking measures aimed at enhancing credit discipline, improving asset quality issues, encouraging market access, adopting a proactive approach for recognising stressed assets and devising a mechanism for taking appropriate actions. In order to tackle the challenges faced by the commercial banks with respect to stressed assets, the RBI came up with a corporate debt restructuring (CDR) mechanism with the objective of amicably and collectively evolving policies and guidelines for working out debt restructuring plans in the interests of all concerned.

The RBI also issued guidelines for restructuring of debts by way of constituting a joint lenders forum (JLF) and formulating a corrective action plan (CAP) with the consent of the majority of the JLF members. In addition, it introduced a flexible financing scheme that allowed banks to extend long-term loans of up to 25 years in line with the cash flows of projects while refinancing them every five or seven years (the 5:25 scheme).

The RBI also promulgated the strategic debt restructuring mechanism (SDR), which permitted lenders to convert their debt into equity and take a controlling stake in the borrower company. The bank also came up with a new concept of sustainable restructuring by slightly modifying the concept of the SDR and the guidelines for this new concept are commonly known as the ‘scheme for sustainable structuring of stresses assets' (S4A).

The most recent development in the Indian restructuring regime has been the enactment of the Insolvency and Bankruptcy Code 2016 (the IBC 2016). The IBC 2016 came into effect from 1 December 2016 and provides for the maximisation of the value of assets, promotes entrepreneurship, the availability of credit, and balances the interests of all stakeholders by consolidating and amending the laws relating to the reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a timely manner.

iv Number of restructuring procedures entered into or exited

As per the latest performance report of the CDR cell, as at 31 May, 2017, the data pertaining to the number of references received, approved and rejected has been provided below:

No. of cases

Aggregate debt (billion rupees)

Total references received

656

4,743.51

Rejected before approval

125

709.98

Total approved

531

4,033.53

Successfully exited

103

823.28

Implemented

150

1,810.01

Under-implementation

-

-

Withdrawn on package failure

278

1,400.25

The CDR mechanism has not yielded the desired level of success, as is evident from the increasing number of failed cases seen above.

A total of 10 cases have been filed under the S4A mechanism of which two proposals have been approved while the remaining cases are under scrutiny.

From the date of enactment of the IBC 2016, a total of approximately 150 cases have been submitted by the respective adjudicating authority (AA) and more and more new cases continue to be filed each day.

II GENERAL INTRODUCTION TO THE FORMAL INSOLVENCY AND RESTRUCTURING PROCEDURES

Prior to the commencement of the IBC 2016, the legislative framework in India to deal with the insolvency and restructuring procedures of corporate entities, partnership firms and individuals was comprised of multiple laws, namely, the Companies Act 1956 (substituted by Companies Act 2013), the Sick Industrial Companies (Special Provisions) Act 1985, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act), and the Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI Act) 1993, etc. The presence of multiple forums and complexities resulted in delays in the timely resolution of the distressed entities, partnership firms or individuals, which further led to the devaluation of the assets of the borrower, making insolvency negotiations redundant.

The enactment of the IBC 2016 paves the way for the complete overhaul of the insolvency and bankruptcy mechanism in India by integrating the laws dealing with insolvency and bankruptcy, thereby providing greater clarity.

i Formal procedures
The Companies Act 2013

Chapter XV of the Companies Act 2013 provides for various measures, including schemes of reconstruction, takeovers, mergers, demergers, transfer of undertakings and restructuring of debts by way of which the liabilities of the distressed companies can be restructured. The Act contains the relevant provisions for the compromises, arrangements and amalgamations between a company and its creditors or members. Salient provisions of Chapter XV are summarised below.

Where a compromise or arrangement is proposed between a company and its creditors, or between a company and its members, the National Company Law Tribunal2 (Tribunal) has jurisdiction and may, on an application filed by the company or any of its creditor or member (or in the case of a company that is being wound up, of the liquidator appointed under this Act or the IBC 2016, as the case may be) order a meeting of the creditors, or of the members (as the case may be) to be called, held and conducted in such manner as the Tribunal directs. If a proposal is agreed to by 75 per cent or more of the value of the creditors or members and if the same is sanctioned by the Tribunal, it shall be binding on the company, all the creditors or members or in case of a company being wound up, on the liquidator.

The Tribunal would, however, not sanction any scheme of compromise or arrangement unless such scheme is accompanied with a certificate from the company's auditor stating that the scheme conforms with the applicable accounting standards and unless it is satisfied that all material facts relating to the company and the scheme have been disclosed and all other procedural requirements, such as convening a creditors meeting, have been complied with.

If the Tribunal reaches the conclusion that the compromise or arrangement cannot be implemented in toto and the company will not be able to pay its debts as per the scheme sanctioned, it may order that the company be liquidated.

Further, in the case of fast-track mergers, which involves the merger of two or more small companies, or between a holding and its wholly owned subsidiary or such other company as may be prescribed, the approval of the Tribunal is not required and the scheme needs to be approved by 90 per cent of shareholders and 90 per cent of creditors in value.

The IBC 2016

The IBC 2016 has brought a paradigm shift in the legal framework of dealing with the insolvency and bankruptcy situation in India. The code has consolidated the laws relating to the insolvency and bankruptcy of companies, limited liability entities, unlimited liability partnerships and individuals.

Prior to the enactment of the IBC 2016, the legislations stated in Section II, supra were largely in favour of the debtor as the debtors remained in possession and control of the assets they provided as security to its lenders, with restrictions on the disposal of such assets.

The IBC 2016 has shifted the focus from the ‘debtor in possession' to a ‘creditor in possession' regime, wherein the creditors of the corporate debtor, through their appointed interim resolution professional or resolution professional (IRP or RP), remain in control of the assets of the corporate debtor from when the application is submitted by the AA until such time as the resolution plan is sanctioned by the AA. Further, until the approval of a resolution plan by the AA, the company is run and controlled by the RP whereas any decision to be made during the corporate insolvency resolution process (CIRP) of the corporate debtor should be agreed by 75 per cent or more of the members of the committee of creditors (COC) constituted under the provisions of the IBC 2016.

The IBC 2016, empowers any creditor of a corporate debtor, irrespective of it being a financial or operational creditor or secured or unsecured creditor, or the corporate debtor itself, to make an application before the AA to initiate a CIRP against a corporate debtor, at their discretion, in the event of there being a default by the corporate debtor in payment of their dues for an amount of 100,000 rupees or more.

The CIRP process is initiated immediately upon submission of the application by the AA and an IRP is appointed, who acts on behalf of the creditors of the corporate debtor. The IRP or RP is required to manage and run the entire CIRP, which involves the following major steps:

  • a making a public announcement inviting claims from the stakeholders of the corporate debtor;
  • b making an appointment for two registered valuers to carry out the valuation to determine the liquidation value of the assets of the corporate debtor;
  • c verifying the claims and constitution of the COC;
  • d calling for a meeting of the COC and subsequently submitting an information memorandum along with the valuation reports to invite expressions of interest from potential resolution applicants;
  • e analysing the resolution plan submitted by resolution applicants and presenting the same before the COC for obtaining their necessary approval; and
  • f submitting the approved resolution plan before the AA for its approval, prior to completion of the CIRP period.

In addition, the IRP or RP would undertake the following tasks:

  • a managing the affairs of the corporate debtor on a going concern basis;
  • b collecting information relating to the assets, finances and operations of the corporate debtor in order to determine its financial position;
  • c taking control and custody of the assets of the corporate debtor;
  • d receiving and collating all the claims submitted by the creditors;
  • e constituting a COC; and
  • f running the complete CIRP and, if any discrepancy or difficulty is encountered due to any action or inaction of the corporate debtor or any key personnel of the corporate debtor, approaching the AA with an application seeking the appropriate direction.

The CIRP, as detailed above, shall be completed within a period of 180 days from the date of submission of the application by the AA to initiate such process. However, if the AA is satisfied that in a particular case the CIRP cannot be completed within the specified time of 180 days, the AA may extend the time period by not more than 90 days, which shall not be granted more than once during the CIRP.

If the CIRP is not completed within a period of 180 days (extendable by 90 days), the AA shall order the corporate debtor's liquidation wherein the RP shall become the liquidator and shall continue to run the liquidation process. Apart from liquidation under the circumstances mentioned herein, the AA may also call for the liquidation of the corporate debtor if the RP communicates the decision of the COC to liquidate the corporate debtor even during the CIRP to the AA.

Immediately upon submission of an application by the AA under the provisions of IBC 2016, a moratorium is declared thereby restraining continuation of the following against the corporate debtor:

  • a coercive recovery proceedings, including: suits; execution of any judgments, decrees or orders in any court of law, tribunal or other authority against the corporate debtor;
  • b restriction on transfer, encumbrance, alienation or disposal by the corporate debtor of any of its assets or any legal right or beneficial interest therein; and
  • c prohibition on any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the SARFAESI Act.

The CIRP proceedings also helps lenders to recognise the need for a corporate debtor's operational and financial restructuring, which is supported by all stakeholders leading to minimisation of losses in recovering the dues. The immediate impacts of initiating CIRP under the IBC 2016 are as follows:

  • a the business operations of the corporate debtor are not affected and are continued on a going concern basis even during the CIRP by the IRP or RP;
  • b the appointment of an insolvency professional (IP), an independent professional, to oversee the CIRP brings a transparency to the whole process that is not subject to scrutiny or investigation by the lenders;
  • c since the IP would invite resolution plans from prospective resolution applicants, better restructuring options may emerge that would maximise the value for creditors and would revive the corporate debtor in a better way; and
  • d the moratorium from proceedings under any other law during the CIRP would provide more time to refine the resolution plan on the basis of views from various stakeholders.

ii Winding up

Section 271 of the Companies Act 2013, states the circumstances under which a corporate debtor can be wound up by the Tribunal, on grounds apart from its inability to pay debts, and these are as follows:

  • a the company has, by a special resolution, resolved that the company be wound up by the Tribunal;
  • b if the company has acted against the interests of the sovereignty and integrity of India, security of the state, friendly relations with foreign states, public order, decency or morality;
  • c if on an application made by the registrar or any other person authorised by the central government by notification under the act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up;
  • d if the company has failed to file its financial statement or annual returns with the registrar for the five consecutive financial years immediately preceding; or
  • e if the Tribunal is of the opinion that it is just and equitable that the company be wound up.

Further, the IBC 2016 also provides for the voluntary liquidation of a solvent corporate debtor, subject to the following:

  • a a declaration is provided by a majority of individuals constituting the governing body of the corporate, or by a majority of designated partners in case of a limited liability partnership for the liquidation;
  • b an affidavit is provided along with the declaration, verified by such majority of persons as stated above and stating that:

• a full inquiry has been made into the affairs of the corporate person and they have formed an opinion that either the corporate person has no debt or that it will be able to pay its debt in full from the proceeds of the assets sold in liquidation; and

• the liquidation is not in order to defraud any person.

The SARFAESI Act

Apart from the above-stated legislation, the provisions regarding resolution of debt through an asset reconstruction company are contained under the SARFAESI Act, which also deals with foreclosure and aims to enable secured lenders to realise long-term assets, manage problems of liquidity, asset liability mismatches and improve recoveries by exercising powers to take possession of securities, sell them without the intervention of the court, and reduce NPAs by adopting measures for their recovery or reconstruction.

Under the SARFAESI Act, any secured creditor may enforce the security interest created in its favour without the intervention of a court by following the provisions of the said Act. Upon event of default by the borrower and its consequent classification of the account, maintained with the secured creditor, as NPA, the secured creditor may require the borrower to discharge its liabilities in full within 60 days by giving a notice to that effect, failing which the creditor is entitled to exercise all or any rights as conferred under Section 133 of the said Act.

Upon receipt of the notice, the borrower is restrained from selling, transferring, or leasing the secured assets mentioned in the notice without the consent of the secured lender. However, where a CIRP has been initiated against the borrower, a moratorium restraining all proceedings under the SARFAESI would apply immediately upon submission of an application by the AA to initiate a CIRP against the borrower.

The RDDBFI Act

The provisions of RDDBFI are solely directed to enable the banks and financial institutions to recover their debt quickly and efficiently, through the debt recovery tribunals (DRTs) under the aegis of the RDDBFI Act.

Under Section 19 of the RDDBFI Act, banks and financial institutions can file suits for recovery of their dues, known as original applications. After the evidence is presented and recorded, final arguments are heard and if all is in order, a decree is passed in favour of the banks and financial institutions.

iii Informal procedures

There are several non-statutory informal mechanisms promulgated by the RBI that provide guidelines for carrying out the restructuring of debts, namely: bilateral restructuring; CDR; the JLF; a flexible restructuring scheme; an SDR; change of management outside of an SDR; and the S4A.

The stressed entity may enter into a bilateral restructuring agreement with the lender bank or may undergo CDR, a non-statutory and voluntary mechanism that allows a financially distressed company with two or more lenders and a minimum debt size of 100 million rupees the option to restructure its debts with the consent of 75 per cent or more (of the value of the debt) and 60 per cent consent in terms of the number of lenders. The legal basis for the CDR mechanism is comprised of debtor-creditor agreements (DCAs) and inter-creditor agreements (ICAs) wherein debtors are required to execute a DCA and abide by the terms of such DCA and the lenders are required to execute an ICA that is legally binding on all the lenders.

Another tool in the RBI's armoury for restructuring of debts is the formation of a JLF wherein the lenders are mandatorily required to constitute a JLF, if the repayment of the principal or interest of an account reported to the central repository of information on large credits (CRILC) is overdue by 61-90 days and the aggregate exposure of the lenders in that account is 1 billion rupees and above. The lenders can also constitute a JLF, if the aggregate exposure in an account is less than 1 billion rupees, provided the principal or interest payment is overdue for a period not exceeding 61-90 days.

If a JLF is constituted, a credible and independent scrutiny of the expected future cash flows is conducted and if the cash flows are found not to support the current level of debt, schemes such as an SDR, recovery or rectification process are initiated as an early measure to save the account from turning into a NPA.

The flexible restructuring scheme enables banks to lend and restructure the debt extended to infrastructure and core industries for a longer period of, for example, 25 years with an option of refinancing the same every five years.

With the objective that the shareholders should bear the first loss instead of the lenders, the RBI has come up with another restructuring tool called ‘strategic debt restructuring', by which the lenders are able to convert the entire or a portion of their debt into the borrower's equity and, thereafter, transfer the same in favour of a ‘new promoter' within a specified period.

The S4A provides for the restructuring of a sustainable loan from an unsustainable loan. A sustainable level of debt is one that, according to the banks, can be serviced by the borrower with its current cash flows. However, the sustainable level of debt should not be less than half the loans or funded liabilities of the borrower. The unsustainable portion of debt can be converted by the banks into equity or equity-related instruments, which are expected to yield an increase in their investments in the future.

iv Clawback actions

With regard to preferential, undervalued or extortionate credit transactions or any other transactions that have the effect of defrauding the creditors, if entered into by the corporate debtor during the relevant time (a period of two years in the case of a transaction with related parties and a period of one year in other cases), the RP may file an application before the AA for appropriate orders, including reversal of such transactions.

The IBC 2016 defines ‘transactions' as: a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor that have the impact of putting such creditor or a surety or a guarantor in a more beneficial position than it would have been in the event of a distribution of assets; gifts to a person; undervalued transactions and extortionate credit transactions.

The provisions of the SARFAESI Act provide that once a secured creditor has issued a notice under Section 13(2), a suo moto restraint becomes applicable on the transfer of the secured assets by sale, lease or otherwise and any attempt to enter into transactions in respect of such secured assets of the company can be annulled by the appropriate court of law.

However, any other transaction entered into by a company in financial distress in the normal course of business or activities is otherwise not susceptible to any limitation, unless there is a restraining order to that effect.

III RECENT LEGAL DEVELOPMENTS

Sections 7, 9 and 10 of the IBC 2016 provide for the submission or rejection of an application by the AA within 14 days of the date of receipt of application. However in JK Jute Mills Company Limited v. Surendra Trading Company vide its order dated 1 May 2017 the Tribunal held that the time limit of 14 days is advisory and not mandatory.

Recently, the amendment in the Banking Regulation Act 1949 has empowered the RBI to issue directions to the commercial banks in regard to the resolution of stressed assets. Pursuant to this amendment, the RBI identified 12 big corporate defaulters and issued directions to the concerned tribunals to take them up as a priority. The said amendment was, however, challenged in one of the cases before the Gujarat High Court, and subsequently, the RBI has modified the amendment to the extent that it can only empower itself to identify the major defaulters.

Further, to make the procedure under the IBC 2016 more effective, the regulations for the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 were notified on 16 June 2017 to expedite the resolution process of default in cases of small companies or start-ups or unlisted companies with total assets not exceeding 10 million rupees in the preceding financial year, within 90 days (as compared to 180 days in case of a normal CIRP), which may be extended by 45 days once during the CIRP is fast-tracked, if the AA is satisfied.

Under the fast-track process, a creditor or a corporate debtor may file an application (along with the proof of existence of default) with the AA for initiating the fast-track resolution process. After the application is submitted, an IRP is appointed, who, if based on the records of the corporate debtor, is of the opinion that the fast-track process is not applicable to the corporate debtor, shall file an application before 21 days have expired from the date of his or her appointment with the AA requesting for an order to convert the fast-track process into a normal CIRP.

On 1 April 2017 the Ministry of Corporate Affairs notified the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations 2017 pertaining to the establishment and role of information utilities. The Regulations state that the main role of an information utility is as follows:

  • a acts as a data storage entity that collects information from various sources and stores it in an electronic format in a safe and secure manner;
  • b ensures that when information is uploaded about the (pending) financial liabilities of registered users, such information is verified by all necessary parties to ensure its authenticity. Once verified, the information utility shall provide the status of the information to its registered user, which shall assist the user in completing the process under the IBC 2016 on time; and
  • c solves the problem of discovering and disclosing the true nature of the borrower's financial liabilities to its various creditors.

The Regulations provided further information on the person or persons eligible for registration as an information utility:

  • • a publicly limited company with a minimum net worth of 500 million rupees;
  • • control should not be with any person resident outside India;
  • • no person resident outside India should hold more than 49 per cent of its voting power or paid-up equity capital; and
  • • promoters, directors, key managerial personnel and persons holding more than 5 per cent paid-up equity share capital or total voting power must be fit and proper.

IV SIGNIFICANT TRANSACTIONS, KEY DEVELOPMENTS AND MOST ACTIVE INDUSTRIES

Upon coming into force, more than 240 cases have been submitted by the AA for initiation of a CIRP and more and more cases continue to be filed each day. Of the cases submitted for initiation of a CIRP, most are within the iron and steel sector, followed by the power and infrastructure sector and hospitality sector. However, it is expected that cases referred for CIRP under the IBC 2016 would get resolved within the timeline stipulated, which would result in a healthy restructuring of the corporate debtors with genuine business viability, and compulsory liquidation where restructuring is not possible, while maximising the value of the security of the creditors involved.

One of the key developments in the IBC 2016 has been the withdrawal of the cases from the AA pursuant to the settlement between the corporate debtor and its creditors. The provisions of the IBC 2016 envisage resolution of the debt of the corporate debtor during the CIRP and do not provide for withdrawal of the application once the application is submitted by the AA. However, in Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment Managers LLP the Supreme Court vide its judgment dated 24 July 2017 exercised its power under Article 142 of the Constitution and permitted a withdrawal of the case while recording the consent terms between the corporate debtor and its creditors. The said judgment has set a new precedent as it overrides the provisions of the IBC 2016, which do not provide for withdrawal of a case after it has been submitted by the AA.

V INTERNATIONAL

India has not adopted the UNCITRAL model law. However, a company incorporated in a foreign country and with its office and assets in India may be wound up as an unregistered company under the provisions of Sections 375-376 of the Companies Act 2013, and, while foreign liquidation is pending, would not affect the jurisdiction making winding-up orders. Further an Indian company may enter into restructuring of its foreign debts with foreign lenders on a bilateral basis, provided the provisions relating to Foreign Exchange Management Act 1999 have been complied with along with any other RBI procedures.

The law for the recognition of foreign judgments and proceedings is contained in Sections 13 and 44A of the Code of Civil Procedure (CPC), which consider foreign judgments in reciprocating territories as conclusive, barring certain exceptions, such as fraud or the judgment not being based on the merits of the case. However, a judgment-debtor can only resist the decree-holder by raising any of the grounds under Section 13 of the CPC.

If the decree is from a court in a non-reciprocating foreign territory, a party has to file a fresh civil action suit on that foreign decree, or on the original underlying cause of action, or both, in a domestic Indian court of competent jurisdiction and, at the same time, ensure that the parameters of Section 13 of the CPC are met. If a foreign decree falls under the limitations subscribed by Section 13 of the CPC, it is not regarded as conclusive as to the matter thereby adjudicated upon. A decree, whether from reciprocating or non-reciprocating territory, that follows a judgment that is not on merits cannot be enforced in India.

Though the provisions of the IBC 2016 do not have any extraterritorial jurisdiction and are not applicable to companies incorporated outside India, Section 234 states that the central government may enter into an agreement with the government of any country outside India for enforcing the provisions of the IBC 2016. The IBC 2016 further states that the central government may, by way of notification in the official gazette, apply its provisions against a corporate debtor in respect to assets or property, including the personal guarantor of a corporate debtor, situated at any place outside India with which reciprocal arrangements have been made, subject to such conditions as may be specified. In such a case the AA may issue a letter of request to a court or any competent authority of such country to deal with its request.

VI FUTURE DEVELOPMENTS

To date, the nodal agency for implementing the insolvency and bankruptcy law has notified the regulations pertaining to insolvency and bankruptcy of companies and it proposes to notify and implement the regulations pertaining to the insolvency and bankruptcy of individuals and partnership firms by the end of fiscal year 2017-18.

The provisions for insolvency and bankruptcy of individuals and partnership firms would apply where the amount of default is not less than 1000 rupees or such other amount as specified by the central government but not exceeding 100,000 rupees. An insolvency resolution process against a debtor may be initiated by the debtor, either personally or through a resolution professional, or by the creditor (either personally or jointly with other creditors) by applying to the AA (which is the debt recovery tribunal in case of insolvency for individuals or partnership firms).

The debtor shall prepare a repayment plan in consultation with the RP that would be approved by a three-quarters majority of the creditors in value. The repayment plan would authorise the RP to: (1) carry on the debtor's business or trade on his or her behalf or in his or her name; (2) realise the assets of the debtor; or (3) administer or dispose of any funds of the debtor and would be implemented under the supervision of the RP.

However, a debtor or a creditor (either individually or jointly) may make an application for bankruptcy of a debtor in case the application for insolvency is rejected by the AA or the repayment plan is rejected by the AA or the repayment plan ends prematurely.

In order to have a comprehensive insolvency and bankruptcy regime in India, the Ministry of Corporate Affairs has come up with the Financial Resolution and Deposit Insurance (FRDI) Bill 2017, which provides for a framework to deal with the bankruptcy of financial sector entities such as banks and insurance companies.

The enactment of the IBC 2016 will prove to be a milestone in the Indian legal framework. Even though the law is in its initial stages, it has provided fresh impetus to the insolvency and reorganisation of financially distressed companies. The IBC 2016 would be better aligned with the best international practices with the introduction of provisions relating to insolvency and bankruptcy for individuals and partnership firms.

1 Alok Dhir is the managing partner of Dhir & Dhir Associates.

2 The tribunal of the state in which the registered office of the company is situated.

3 The lender may take possession of the secured assets or the management of the borrower's business and also have the right to transfer same by way of lease, assignment or sale.