MODULE 2.

1 : Stage 1- Basics and Application

for CIRP
1. What is Corporate Insolvency Resolution Process (‘CIRP’)?

 The Corporate Insolvency Resolution Process (CIRP) is a legal mechanism

under the Insolvency and Bankruptcy Code, 2016 to resolve the insolvency
of a Corporate Debtor (CD).

 To resolve means to restore the financial health of a CD by reorganizing

its loan structure, operations, or ownership through an approved
Resolution Plan.

 It begins when a creditor or the defaulting company itself applies to the

Adjudicating Authority (AA) after a payment default.

 Outcomes of CIRP:

In Binani Industries Ltd Vs. Bank of Baroda & Another [CA (AT) (Ins)
82/2018 & Others], the NCLAT observed that the first order objective of
the IBC is resolution, the second order objective is maximization of the
value of assets of the firm, and the third order objectives are promoting
entrepreneurship, availability of credit, and balancing the interests of
stakeholders. This order of objectives is sacrosanct.

Thus, unlike older laws (e.g., Companies Act, 1956 and 2013), CIRP
prioritizes revival before liquidation.

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 Causes of
Insolvency

Loss of key
Poor cash Economic Increased Legal disputes Unexpected
clients or
management downturns competition and liabilities expenses
contracts

2. Commencement of CIRP

2.1. Default as the trigger

a. Default is the trigger event for initiating CIRP under the IBC, 2016.

b. Definition of Default (Section 3(12)):

A default occurs when a debt (in full, part, or installment) becomes due and
payable but is not paid by the Corporate Debtor (CD) or borrower.

c. Minimum Default Amount (Section 4):

▪ Originally set at ₹1,00,000 (1 lakh).

▪ Revised Limit (March 24, 2020): Increased to ₹10 million (1 crore) to reduce
stress during COVID-19.

2.2. Who Can Initiate CIRP After Default? (Section 6):

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3. Initiation of CIRP by Financial Creditor (FC)

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Essentials for an application under section 7.

A Financial Creditor (FC) can apply to initiate a CIRP against a Corporate Debtor
(CD) under Section 7 of the Insolvency and Bankruptcy Code (IBC) by submitting
Form 1 as per the Application to Adjudicating Authority (AA) Rules.

Form 1 Structure

1. Part I: Applicant (FC) Details: Name, date of incorporation, and

identification number of each FC making the application.
2. Part II: Corporate Debtor (CD) Details: Name, identification number,
nominal share capital, and paid-up share capital of the CD.
3. Part III: Proposed Interim Resolution Professional (IRP) Details: Name,
address, email, and registration number of the proposed IRP.
4. Part IV: Financial Debt Details: Total debt amount, disbursement dates,
amount in default, and date of default.
5. Part V: Evidence and Documentation: Records and documents supporting
the claim of debt and default.

Mandatory Attachments (As per Section 7(3))

1. Proof of Default: Record from an Information Utility (IU) or other specified

evidence.
2. Proposed IRP Details: Name of the Insolvency Professional (IP) proposed to
act as IRP.
3. Other Relevant Information: As specified by the Insolvency and Bankruptcy
Board of India (IBBI).

Application Process and Fee

A. Submission: File the application with the AA following the specified rules
and procedures.
B. Fee: Pay ₹25,000 to the Pay and Accounts Officer, Ministry of Corporate
Affairs, payable in Mumbai, New Delhi, Kolkata, or Chennai.

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AA’s Role (Section 7(4))

The Adjudicating Authority must review the application within 14 days to check:

1. Debt and Default Verification based on IU records or submitted documents.

2. All required details and evidence are provided.
3. No disciplinary actions are pending against the proposed IRP.

Note: If the application is incomplete, the AA provides 7 days to rectify errors.

Corporate Guarantor
Section 5(8) of the IBC defines financial debt to include: Clause (i): Any liability
arising out of a guarantee for repayment of the financial debt under Clause (a).
This means that a corporate guarantor—someone who guarantees repayment of
a loan—is treated as a debtor under the IBC if the borrower defaults. A financial
creditor can pursue recovery from both the corporate debtor (principal borrower)
and the corporate guarantor based on their co-extensive liability.
Simultaneous Proceedings under Section 60:
Section 60(2): Allows separate or simultaneous proceedings against:
1. The corporate debtor (principal borrower).
2. The corporate guarantor.
Section 60(3): If insolvency proceedings (CIRP) are initiated against both the
corporate debtor and the corporate guarantor in different adjudicating authorities,
then the proceedings against the corporate guarantor can be transferred to the
authority handling the CIRP of the corporate debtor.

In a batch of civil appeals against separate judgments and orders of the National
Company Law Appellate Tribunal (‘the NCLAT’), the Division Bench of Abhay S.
Oka* and Pankaj Mithal, JJ., dealt with the question that, when a debt is
considered as financial debt and operational debt under the Insolvency and
Bankruptcy Code, 2016 (‘the IBC’). The Bench said that the test to determine
whether a debt is a financial debt within the meaning of Section 5(8) is the
existence of a debt along with interest, if any, which is disbursed against the
consideration for the time value of money. In the case of M. Suresh Kumar Reddy
v. Canara Bank, Supreme Court upon considering the legal framework governing
Section 7 petitions under the IBC, referred to its previous rulings in Innoventive
Industries Ltd. v. ICICI Bank and E.S. Krishnamurthy v. Bharath Hi-Tecch Builders
(P) Ltd. In Innoventive Industries28 the Supreme Court asserted that the NCLT
should admit a Section 7 petition once it confirms the occurrence of a default in
the payment of a financial debt. Likewise, in E.S. Krishnamurthy, the Supreme
Court underscored the NCLT’s limited role, emphasising that its task is solely to
ascertain whether a default has occurred. If so, the petition must be admitted
under Section 7. Examining the Vidarbha Industries, the Supreme Court
acknowledged that it introduced an element of discretion for the NCLT in admitting
a Section 7 petition, subject to valid reasons for non-admission. However, upon
evaluation, the Supreme Court clarified that the Vidarbha Industries dicta was
confined to the specifics of that case. Consequently, the Supreme Court clarified
that once a default occurs, the NCLT has minimal discretion to reject the admission
of a Section 7 petition. The only valid ground for dismissal would be if the debt
had not yet matured and become payable.

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4. Initiation of CIRP by Operational Creditor (OC)

4.1. Difference between an FC and an OC

In the Swiss Ribbons Pvt. Ltd. v. Union of India case, the Supreme Court
highlighted several distinctions between Financial Creditors (and Operational
Creditors under the IBC.
Basis Financial Debt (FCs) Operational Debt (OCs)
Nature of Debt Loans, borrowed money, or Claims for provision or
debts raised for the time supply of goods or services,
value of money (e.g., term including employment and
loans, working capital government dues.
loans).
Involves interest-bearing Generally non-financial,
loans disbursed against time involving recurring
value of money payments like goods,
considerations. services, or wages.
Secured vs Typically secured creditors Usually unsecured creditors
Unsecured Debt with loans backed by with claims not backed by
collateral (e.g., mortgages, any security, relying on
asset pledges). CD’s goodwill.
Types of Financial contracts involving Commercial contracts for
Agreements large sums and fixed goods/services, often
repayment schedules (e.g., smaller in value and
term loans, capital loans). recurring in nature.
Role in Significant role in Focused mainly on debt
Restructuring restructuring CD’s business settlement without
and during financial stress involvement in rejuvenation
Reorganization through loan rescheduling. or revival of the CD.
Dispute Formal dispute resolution Often resolved through
Resolution through courts or structured arbitration clauses, relying
negotiations. on private mechanisms
rather than judicial
systems.
Default Triggers Specific repayment Smaller debts related to
and Repayment schedules with acceleration unpaid invoices; no ability
clauses making entire loan to recall entire debt upon
due upon default. default.
Involvement in Direct involvement in CD’s Primarily focused on
CIRP viability assessment and recovering owed debt, with
reorganization to maximize minimal participation in
creditor recovery. restructuring processes.

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4.2. Pre-CIRP application requirements by OC
Under Section 9 of the IBC, an Operational Creditor (OC) can file an application
to initiate the CIRP against a Corporate Debtor (CD).
However, before filing the application, the OC must:
 Serve a demand notice to the Corporate Debtor (CD) under Section 8 of the
IBC. A demand notice is a formal notice or a copy of an invoice sent by the
OC to the CD to demand payment for the unpaid operational debt. This notice
must be served before initiating the CIRP and is part of the pre-application
process.
 The demand notice informs the CD of the default and requests the payment
of the operational debt.
 Upon receiving the demand notice or invoice, the CD must respond within 10
days by providing one of the following:

o Dispute Notification: The CD can inform the OC about the existence of a

dispute (if any), or that there is a suit or arbitration already pending
regarding the operational debt, the quality of goods or services or the
breach of a representation or warranty, prior to receiving the notice.

o Evidence of Payment: The CD may provide evidence that the debt has
been settled, which could be an attested copy of the electronic transfer or
proof that the OC has cashed a cheque.

If the CD does not settle the debt or respond with evidence of

dispute within the 10-day period, the OC can file an application for
initiating a CIRP under Section 9 of the IBC.

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4.3. Application details

Form 5 Structure
A. Part I: Applicant (OC) Details: Name, identification number, and contact
details of the OC.
B. Part II: Corporate Debtor (CD) Details: Name, registration number, nominal
share capital, and paid-up share capital of the CD.
C. Part III: Proposed Interim Resolution Professional (IRP) Details: Name,
address, email, and registration number of the proposed IRP.
D. Part IV: Operational Debt Particulars
 Total debt amount.
 Transactions leading to the debt.
 Date(s) the debt fell due.
 Default amount and default date.
E. Part V: Evidence of Debt and Default: Supporting documents proving the
existence and non-payment of debt.

Mandatory Attachments with Application (Section 9(3))

1. Copy of Demand Notice
2. Affidavit of No Dispute
3. Bank Certificate (Optional)
4. IU Records (Optional)
5. Other Proof of Default

Application Fee and Submission

a. Fee: ₹2,000 to the Pay and Accounts Officer, Ministry of Corporate Affairs,
payable in Mumbai, New Delhi, Kolkata, or Chennai.
b. Submission: File the application with the Adjudicating Authority (AA)
following prescribed rules and procedures.

AA’s Role After Filing (Section 9(5))

The Adjudicating Authority (AA) will:
 Review Application: Verify documents, completeness, and default
existence.
 Admission or Rejection:
 Admit the application if requirements are met, or
 Reject the application if: Debt payment is made, Dispute is raised before
notice receipt, Incomplete documentation is submitted (7 days are given
for correction).
 Interim Resolution Professional (IRP):
 Approve the proposed IRP unless disciplinary proceedings are pending.

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In Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Limited [(2018) 1 SCC
353], the Supreme Court undertook a detailed analysis of the provisions relating
to applications by an OC under section 9 of the IBC and laid down the following
principles
When examining an application under section 9 of the IBC, the NCLT will have to
determine:
 whether there is an operational debt exceeding Rs 1,00,00,000;
 whether the documentary evidence furnished with the application demonstrates
that the debt is due and has not yet been paid;
 whether there are any disputes between the parties over the debt, or a record
of pendency of any suit or arbitration proceeding filed before the receipt of the
demand notice in relation to the dispute.
 If any of the above conditions are not satisfied, the OC’s application will be
rejected by the AA.

Any “notice of dispute” issued by the CD under section 8(2) of the IBC must bring
to the notice of the OC the “existence of a dispute,” or the fact that a suit or
arbitration proceedings relating to a dispute is pending between the parties. What
is important is that the dispute must predate the receipt of the demand notice.

The AA must determine whether or not a dispute over the debt existed from
before. It is difficult to import the expression “bona fide” (good faith) into section
8(2) to judge if a dispute existed or not. The AA should just decide whether there
is a likelihood of such a dispute that requires further investigation. The AA does
not need to be satisfied that the defense is likely to succeed. So long as a dispute
truly exists, the AA has to reject the application.

The definition of “dispute” in section 5(6) is inclusive. It must relate to one of the
three sub clauses of section 5(6)–(a) the existence of the amount of debt, (b) the
quality of goods or service, or (c) the breach of a representation or warranty,
either directly or indirectly.

In K. Kishan Vs. M/s. Vijay Nirman Company Pvt. Ltd. [2017 SCC Online SC 1665],
the Supreme Court addressed whether the act of challenging an arbitration award
under Section 34 of the Arbitration and Conciliation Act, 1996 can be considered
as an "existence of dispute or pendency of arbitration proceedings" under Section
8 of the Insolvency and Bankruptcy Code (IBC). The Court held that when an
Operational Creditor (OC) challenges an arbitration award under Section 34 of the
Arbitration and Conciliation Act, 1996, it signifies that the award is disputed. This
dispute is considered a pre-existing dispute. As such, the dispute is already in
place before the demand notice under Section 8 of the IBC is sent, and therefore,
the OC cannot initiate insolvency proceedings under the IBC if a dispute already
exists.

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5. Initiation of CIRP by Corporate Debtor (CD)

Section 10 of the IBC, 2016 provides for the voluntary initiation in case of
default of the Corporate CIRP by a Corporate Debtor or an authorized person
related to the CD.

A corporate applicant u/s 5(5) includes:

a. The Corporate Debtor (CD) itself.
b. A member or partner of the CD who is authorized to make the application
under the constitutional document of the CD (e.g., Memorandum of
Association or Articles of Association).
c. An individual who is in charge of managing the operations and resources of
the CD.
d. Any person who has control and supervision over the financial affairs of the
CD.

5.1. Special Resolution

a. Shareholders’ Resolution for a Corporate Debtor (CD):

 An application under Section 10 must be accompanied by a special
resolution passed by the shareholders of the CD.
 The resolution must be carried by a minimum of 75%, either in person or
by proxy, based on valid votes cast in its favour (as per Section 114 of the
Companies Act, 2013).

b. Partners’ Resolution for a Partnership Firm:

If the entity is a partnership, the resolution must be passed with the
approval of at least three-quarters (75%) of the total number of partners
of the CD to authorize filing the application.

5.2. Application details

Form 6 Structure (Five Parts)

 Part I: Corporate Applicant’s Details

o Information about the directors, promoters, and partners.
o Date of incorporation, registered address, nominal share capital, and paid-
up share capital.
o Authorized representative details, if applicable.
 Part II: Proposed Interim Resolution Professional (IRP)
o Name, address, email ID, and registration number of the proposed IRP.
o IRP should not have disciplinary proceedings pending against them.
 Part III: Financial/Operational Debt Details
o Total outstanding financial and operational debts.
o Names of creditors along with their claims and security interests, if any.
o Date(s) of default and details of debts incurred.
 Part IV: Books of Account and Financial Records
o Statement of books of account reflecting the financial condition of the CD.
o Documents showing evidence of insolvency, including:
■ Balance sheets.
■ Profit and loss statements.
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 ■ Auditor’s reports and bank statements.
 Part V: Special Resolution or Partner Resolution
o A special resolution passed by shareholders (for companies).
o For partnerships, approval of 75% of total partners confirming the decision
to file for CIRP.

Mandatory Attachments as per Section 10(3)

 Financial Documents:
o Books of Account reflecting financial distress and insolvency.
o Bank statements, audit reports, and tax filings confirming inability to repay
debts.
 Details of Proposed IRP:
o Certificate of registration and consent form signed by the IRP.
 Resolution Approvals:
o For Companies: Special resolution by shareholders.
o For Partnerships: Consent of at least 75% of partners.
 Proof of Default:
o Record with an Information Utility (IU) or other supporting documentation
showing failure to pay debts.
 Demand Draft of ₹25,000:
o Payment made to the Pay and Accounts Officer, Ministry of Corporate
Affairs, payable in Mumbai, New Delhi, Kolkata, or Chennai.

The cases of Innoventive Industries Ltd. v. ICICI Bank, Leo Duct Engineers and
Consultants Ltd., and Unigreen Global Private Ltd. highlight the discretionary
power of the NCLT to reject applications for Corporate Insolvency Resolution
Process (CIRP) under Section 10 of the Insolvency and Bankruptcy Code (IBC)
when the applications are found to be filed with malicious intent or to abuse
the moratorium provisions. In Innoventive Industries Ltd., NCLAT emphasized
that NCLT can reject such applications if filed with an intent to misuse the law. In
Leo Duct Engineers, NCLT held that CIRP applications should be dismissed if their
admission causes irreparable loss to creditors or undermines their ongoing
recovery efforts. Similarly, in Unigreen Global Pvt. Ltd., the NCLT Principal Bench
rejected the CIRP application for non-disclosure of material facts and imposed a
penalty under Section 65 of IBC for malicious intent, highlighting the duty of the
adjudicating authority to prevent misuse of the insolvency process. These cases
reinforce that CIRP cannot be used as a tool to evade legitimate creditor actions
or secure unjust moratorium benefits.

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6. Who cannot apply for CIRP? (Sect 11)

Under Section 11, the following entities are ineligible to apply for the
initiation of a CIRP:
1. Corporate debtors undergoing an active CIRP
2. FC/OC of CD undergoing PPIRP
3. Corporate debtors that have completed CIRP in the preceding 12
months
4. Corporate Debtor in respect of whom resolution plan approved
under PPIRP in the preceding 12 months
5. Corporate debtors/FC that have violated terms of an approved
resolution plan within preceding 12 months
6. Corporate debtors in respect of whom a liquidation order has
already been passed

7. Time limit for CIRP (Sect 12)

The CIRP must be completed within 180 days from the date of admission of
the application by the Adjudicating Authority (NCLT).

Extension of Timeline (Maximum 90 Days)

If the resolution process cannot be completed within the initial 180 days, the
Committee of Creditors (CoC), by a 66% vote, can approve an extension
of up to 90 additional days. Extension can be granted only once. The
total period, including this extension, cannot exceed 270 days.

In certain cases, the courts have excluded periods of unavoidable delay,

such as time taken for litigation or unforeseen circumstances (e.g., lockdowns
during the pandemic). However, such exclusions are subject to judicial
discretion.

Mandatory Liquidation if Timeline Exceeds

If the CIRP is not completed within the maximum permissible time frame
of 330 days (including all extensions and exclusions for legal proceedings),
the corporate debtor must mandatorily enter liquidation, unless otherwise
directed by the Supreme Court in specific circumstances.

In the case of West Bengal Financial Corporation Vs. Bijoy Murmuria RP

of the Dimension Steel & Alloys Pvt. Ltd. NCLAT refered judgment of CoC
of Essar Steel India Ltd. vs. Satish Kumar Gupta and Ors. and held that the
Hon’ble Supreme Court has held that in exceptional cases, time can be
extended. The general rule being that 330 days is the outer limit within which
resolution of the stressed assets of the Corporate Debtor must take place
beyond which the Corporate Debtor is to be driven into liquidation and also
held that in 2nd proviso to sub-section (3) of Section 12 the word mandatorily
as being manifestly arbitrary under Article 14 of Constitutional of India and as
being an excessive and unreasonable restriction on the litigant’s right to carry
on business under Article 19 (1)(g) of the Constitution. Therefore, strike down
the word “mandatorily”. With the aforesaid now it is settled law that the time
limit for completion of Insolvency Resolution Process provided in Section 12 of
IBC is not mandatory.

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8. Withdrawal of application (Sect 12A)

Before an application is admitted under section 7 (and section 9), it is open to

an FC or OC to withdraw it. Often this is done if the applicant and CD reach a
settlement while the proceedings are pending. This is more common with
applications filed by OCs.

If an FC or OC seeks to withdraw an application due to a technical error in it,

it may file a new one with the AA’s permission.

Once an application for a CIRP is admitted by the AA, it can be

withdrawn under section 12A of the IBC with the approval of 90
percent of the voting share of the CoC.

Regulation 30A of the CIRP Regulations specifies the manner for such
withdrawal after admission. It provides that a withdrawal application may be
submitted to the AA:
(a) before the CoC is constituted, through the IRP, or
(b) after the CoC is constituted, through the IRP or RP.

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