Under the Insolvency and Bankruptcy Code, 2016, the Adjudicating Authority for insolvency resolution and liquidation of corporate persons, including corporate debtors and their guarantors, is the National Company Law Tribunal. The jurisdiction of the NCLT is determined by the location of the registered office of the corporate person. Section 60(1) of the Code specifies that the NCLT bench having territorial jurisdiction over the registered office of the corporate person is the appropriate forum for handling such cases. The role of the Adjudicating Authority is central to ensuring the timely and fair resolution of insolvency proceedings, as it has the power to admit or reject applications, oversee the resolution process, and order liquidation when required. The NCLT acts as the first point of judicial intervention in the insolvency process, and its orders can significantly impact the outcome for creditors, debtors, and other stakeholders.
Application for Bankruptcy or Insolvency Resolution or Liquidation of Guarantor of Corporate Debtor
Many corporate loans are backed by guarantees. These guarantees can be provided in various forms, such as a corporate guarantee from a group company or parent company, or personal guarantees from directors or other individuals. When a financial creditor invokes such a guarantee due to default by the corporate debtor and the guarantor fails to honor the obligation, the creditor has the right to approach the NCLT to initiate insolvency resolution or bankruptcy proceedings against the guarantor. If the guarantor is a corporate entity, insolvency resolution proceedings can be initiated. If the guarantor is an individual, bankruptcy proceedings may be pursued. Normally, bankruptcy applications against individuals are filed before the Debt Recovery Tribunal under the provisions relating to individuals and partnership firms, though these provisions are yet to be fully operational. However, the Code makes a specific exception for personal guarantors of corporate debtors. If a personal guarantor defaults on their obligation, the application for their bankruptcy can be filed before the NCLT instead of the DRT. This ensures that all matters related to the insolvency of the corporate debtor and its guarantors are handled in a coordinated manner by the same judicial forum. Section 60(2) of the Code clarifies that applications for insolvency resolution, liquidation, or bankruptcy of a corporate guarantor or personal guarantor of a corporate debtor must be filed before the NCLT bench where the corporate debtor’s insolvency resolution application is pending. This applies regardless of the location of the registered office of the guarantor. This consolidation of proceedings reduces conflicting orders and facilitates an efficient resolution process. Section 60(3) further states that if any insolvency, liquidation, or bankruptcy proceedings against a guarantor are already pending in another court or tribunal, such proceedings shall be transferred to the NCLT handling the corporate debtor’s case. This ensures all connected proceedings are centralized before a single Adjudicating Authority. Section 60(4) provides that when an application against a personal guarantor is transferred to the NCLT, the Tribunal shall have all the powers of the Debt Recovery Tribunal as prescribed under Part III of the Code, which deals with insolvency resolution and bankruptcy for individuals and partnership firms.
Jurisdiction of NCLT
The NCLT has wide jurisdiction to entertain or dispose of any application or proceeding by or against a corporate debtor, as well as claims related to insolvency or liquidation. Section 60(5) grants the NCLT authority to handle all questions of law or fact arising out of or about the insolvency resolution or liquidation proceedings of a corporate person. These provisions are overriding in nature, meaning they take precedence even if contrary provisions exist in any other law currently in force. The exclusive jurisdiction of the NCLT ensures that the insolvency process is not disrupted by parallel proceedings in other forums. This helps maintain the integrity and speed of the process, which is one of the core objectives of the Insolvency and Bankruptcy Code.
Period of Moratorium Excluded for Purpose of Limitation
Section 60(6) of the Code deals with the computation of limitation periods for suits or applications involving a corporate debtor. When a moratorium is declared under the Code during the corporate insolvency resolution process, the period for which the moratorium is in place shall be excluded while calculating the limitation period for initiating or defending legal proceedings. This provision ensures that parties are not disadvantaged by the statutory suspension of legal actions during the moratorium period. The provision has an overriding effect, meaning it applies even if it conflicts with the Limitation Act, 1963, or any other law. The rationale is to prevent creditors or debtors from losing their right to take legal action merely because the insolvency process legally bars such actions for a certain period. By excluding the moratorium period from the limitation calculation, the Code provides a fair opportunity for parties to pursue their claims or defenses once the moratorium is lifted.
Appeals and Appellate Authority
The Insolvency and Bankruptcy Code provides a clear and structured appellate framework to ensure that decisions of the Adjudicating Authority, namely the National Company Law Tribunal, can be reviewed. This framework offers an essential safeguard against errors in judgment and protects the rights of parties involved in insolvency proceedings. Under Section 61(1) of the Code, any person aggrieved by an order of the NCLT passed under Part II of the Code, which deals with corporate insolvency resolution and liquidation, may prefer an appeal to the National Company Law Appellate Tribunal. The right to appeal is not limited to corporate debtors or creditors; it extends to any stakeholder who can demonstrate that the order adversely affects their rights or interests. This may include operational creditors, financial creditors, shareholders, employees, and guarantors. The grounds for appeal can vary widely. They may involve questions of fact, such as whether a default occurred, or questions of law, such as whether the NCLT correctly interpreted the provisions of the Code. Appeals may also be filed on procedural grounds if there is evidence that the process followed by the NCLT was flawed or did not comply with statutory requirements.
The Code stipulates specific timelines to ensure that appeals do not unduly delay the resolution process. Section 61(2) mandates that appeals must be filed within thirty days from the date of receipt of the NCLT order. This is a strict limitation period designed to maintain the speed of the insolvency resolution framework, which is one of the Code’s primary objectives. However, recognising that delays can sometimes be unavoidable, the NCLAT has the discretion to extend this period by an additional fifteen days if the appellant demonstrates sufficient cause for the delay. The discretion to condone delays is exercised cautiously to prevent abuse of the process and ensure that parties act with diligence. The NCLAT serves as the second tier of judicial scrutiny in corporate insolvency matters. It reviews the NCLT’s decision to ensure it complies with the law and principles of natural justice. The appellate tribunal has the power to confirm, modify, or set aside the NCLT’s order. It may also remand the matter back to the NCLT for reconsideration with specific directions. The NCLAT’s role is not only corrective but also interpretative, as its decisions often set important precedents on how the provisions of the Insolvency and Bankruptcy Code are to be applied.
In addition to appeals against final orders, interlocutory orders—interim directions or decisions issued during proceedings—can also be challenged in certain circumstances. However, courts and tribunals encourage parties to avoid fragmenting the litigation process through excessive interlocutory appeals, as such challenges can hinder the timely completion of insolvency proceedings. Importantly, the appellate process under the Code is designed to be expeditious. The NCLAT is expected to dispose of appeals as quickly as possible, given the time-sensitive nature of corporate insolvency resolution. Delays can erode the value of the corporate debtor’s assets and reduce the likelihood of successful resolution, which is why efficiency is emphasised at every stage.
Appeal to the Supreme Court on a Question of Law
The appellate structure under the Code includes a further right to approach the Supreme Court, but only on questions of law. Section 62 of the Code provides that any person aggrieved by an order of the NCLAT may file an appeal to the Supreme Court within forty-five days from the date of receipt of the NCLAT order. This time frame can be extended by a further fifteen days if the appellant can show sufficient cause for not filing the appeal within the prescribed period. The limitation to questions of law means that the Supreme Court does not re-examine factual findings made by the NCLT or NCLAT unless they are intertwined with legal issues. This ensures that the apex court focuses on clarifying and settling important legal principles rather than re-evaluating the evidence in each case.
A question of law may arise where there is a dispute about the interpretation of statutory provisions, the applicability of legal principles, or the jurisdiction of the NCLT or NCLAT. It can also involve constitutional issues, such as whether a provision of the Insolvency and Bankruptcy Code violates fundamental rights or other constitutional mandates. The Supreme Court’s role in the appellate process is crucial because its decisions are binding on all courts and tribunals in India. By settling conflicting interpretations of the Code and laying down authoritative legal principles, the Supreme Court helps ensure consistency and predictability in insolvency law.
It is important to note that while the Code specifies the appeal process, the constitutional powers of the High Courts and the Supreme Court remain unaffected. The writ jurisdiction of the High Courts under Articles 226 and 227, and the special leave jurisdiction of the Supreme Court under Article 136, are not curtailed by the Code. This means that in exceptional cases, where there is a violation of fundamental rights, principles of natural justice, or jurisdictional errors, parties can approach these higher courts even if the statutory appellate process has not been exhausted. However, both the High Courts and the Supreme Court exercise these extraordinary powers sparingly in insolvency matters to avoid undermining the speed and efficiency of the Code.
The procedural framework for appeals to the Supreme Court is governed by the Supreme Court Rules, which prescribe the form and content of the appeal, the documents that must be filed, and the applicable court fees. Given the complexity and high stakes involved in insolvency cases that reach the Supreme Court, these proceedings often involve detailed legal arguments and extensive reliance on precedents. The apex court may also stay the operation of the NCLAT’s order pending the hearing of the appeal if it is satisfied that there is a strong prima facie case and that irreparable harm may result if the order is implemented immediately.
Civil Court Jurisdiction Excluded Where NCLT or IBBI Has Jurisdiction
The Insolvency and Bankruptcy Code creates a specialised legal mechanism for dealing with insolvency and liquidation matters. A core feature of this mechanism is the exclusion of the jurisdiction of ordinary civil courts in matters where the Adjudicating Authority, namely the National Company Law Tribunal, or the Insolvency and Bankruptcy Board of India, is empowered to pass orders. Section 231 of the Code provides that no civil court shall have jurisdiction in respect of any matter in which the NCLT or the IBBI is authorised by the Code to act. This provision is designed to prevent conflicting decisions and ensure that insolvency matters are handled exclusively by specialised forums with expertise in corporate and financial restructuring.
The exclusion is broad and applies not only to final orders but also to interim actions and measures taken during the insolvency process. Moreover, the Code explicitly states that no injunction shall be granted by any court or other authority in respect of any action taken, or to be taken, in pursuance of an order passed by the NCLT or the IBBI under the Code. This prevents parallel proceedings and injunctions that could delay or disrupt the insolvency resolution process. The rationale behind this provision is to protect the integrity of the insolvency framework. Insolvency cases are time-sensitive because prolonged proceedings can cause the deterioration of the debtor’s business and assets. Allowing multiple courts to intervene could fragment the process, create jurisdictional disputes, and undermine the goal of speedy resolution.
The exclusion of civil court jurisdiction does not, however, completely bar judicial review. As with other specialised tribunals, orders of the NCLT and IBBI remain subject to scrutiny by higher constitutional courts through writ jurisdiction in cases involving fundamental rights violations, procedural irregularities, or lack of jurisdiction. Nevertheless, such interventions are rare and are usually limited to exceptional circumstances.
Expeditious Disposal of Applications
One of the most significant reforms introduced by the Insolvency and Bankruptcy Code is the imposition of strict timelines for various stages of the insolvency process. The Code recognises that time is a critical factor in maximising the value of a distressed business and ensuring equitable treatment of creditors. Section 64(1) of the Code mandates that the NCLT and the NCLAT must endeavour to dispose of applications or appeals within the prescribed time limits. Where it is not possible to meet these deadlines, an extension of up to ten days can be granted by the respective tribunal if sufficient cause is shown.
The emphasis on expeditious disposal aligns with the overall framework of the Code, which sets out defined periods for each step of the corporate insolvency resolution process. For example, the resolution process is to be completed within 180 days from the commencement date, extendable by a maximum of 90 days, and in certain exceptional cases, an overall limit of 330 days is applied, including litigation delays. These time-bound provisions are intended to prevent the insolvency process from becoming protracted, as was common under earlier laws where restructuring or liquidation proceedings could drag on for years.
Section 64 also reinforces the principle that no injunction shall be granted by any court, tribunal, or authority in respect of any action taken or to be taken in pursuance of any power conferred on the NCLT or the NCLAT under the Code. This mirrors the earlier provision in Section 231 and further ensures that the process is not stalled by external interventions. The efficiency of the process depends heavily on judicial discipline in adhering to these timelines and resisting unwarranted adjournments. Delays not only erode the value of assets but also reduce the likelihood of finding a viable resolution applicant willing to take over the corporate debtor’s business.
The Code’s time-bound approach has been one of its most praised features, though in practice, meeting the timelines can be challenging due to the volume of cases, procedural complexities, and appeals. Nevertheless, the statutory mandate for quick disposal remains a guiding principle for the NCLT and NCLAT in managing insolvency cases.
Offences and Penalties about Corporate Insolvency
The Insolvency and Bankruptcy Code incorporates stringent provisions to deter and punish fraudulent conduct in the insolvency process. These provisions are designed to protect creditors, maintain confidence in the insolvency framework, and ensure that debtors and other stakeholders act honestly and transparently. The offences are criminal and, depending on the gravity, may involve fines, imprisonment, or both.
The jurisdiction to try offences under the Code lies with Special Courts established under Chapter XXVIII of the Companies Act, 2013. These Special Courts are designated to handle cases involving serious corporate offences, and their procedures are governed by the Code of Criminal Procedure, 1973. For these proceedings, a Special Court is deemed to be a Court of Session, and the person conducting the prosecution is deemed to be a Public Prosecutor. This ensures that cases are prosecuted with the seriousness and formality required in criminal trials.
Section 236(2) of the Code stipulates that no court shall take cognisance of any offence punishable under the Code unless a complaint is made by the Insolvency and Bankruptcy Board of India, the Central Government, or any person authorised by the Central Government in this regard. This requirement prevents frivolous or malicious prosecutions and ensures that criminal proceedings are initiated only after due consideration by a competent authority.
The offences under the Code cover a wide range of misconduct. They include acts such as concealment of property, falsification of records, making false statements, wilful omissions from required disclosures, and fraudulent transactions designed to defeat the interests of creditors. Penalties are prescribed in specific sections, and the severity depends on the nature and impact of the offence. The punitive framework is intended not only to punish wrongdoing but also to serve as a deterrent to others who might be tempted to abuse the insolvency process.
In addition to penal provisions, the Code places the burden of proof in certain offences on the accused. For example, in cases involving concealment of property by officers of the corporate debtor, the officer can escape liability only if they prove they had no intent to defraud or to conceal the true state of affairs of the debtor. This reversal of the normal burden of proof reflects the seriousness with which such offences are viewed and the difficulty in otherwise establishing fraudulent intent.
Punishment for Concealment of Property
Section 68 of the Insolvency and Bankruptcy Code prescribes strict penalties for concealment of property by officers of the corporate debtor. If any officer of the corporate debtor has, within the twelve months preceding the insolvency commencement date or any time thereafter, concealed any part of the property of the corporate debtor or any debt due to or from the corporate debtor, they are liable for punishment. This concealment may include the destruction, mutilation, or falsification of books of account, the making of false entries, or the fraudulently parting with property. The punishment for such an offence is imprisonment for a term not less than three years, which may extend to five years, and a fine not less than one lakh rupees, which may extend to one crore rupees, or both. The burden of proving lack of fraudulent intent rests on the accused officer, making it their responsibility to demonstrate that their actions were not aimed at deceiving creditors or obstructing the insolvency process.
Punishment for Transactions Defrauding Creditors
Section 69 deals with transactions defrauding creditors. If any officer of the corporate debtor or the corporate debtor itself engages in transactions with the intent to defraud creditors, whether by transferring, concealing, or removing property, they are subject to criminal liability. Such actions, which reduce the pool of assets available for distribution to creditors, strike at the heart of the insolvency process. The punishment for this offence is imprisonment for a term not less than one year, which may extend to five years, and a fine not less than one lakh rupees, which may extend to one crore rupees, or both.
Misconduct During Corporate Insolvency Resolution Process
Section 70 outlines offences related to misconduct during the corporate insolvency resolution process. Subsection (1) targets officers of the corporate debtor who fail to disclose required information, provide false information, or do not cooperate with the resolution professional. Subsection (2) applies to insolvency professionals who act dishonestly, fail to discharge their duties in good faith, or contravene the provisions of the Code. Such misconduct can derail the resolution process, compromise the interests of creditors, and damage confidence in the insolvency framework. Penalties for such offences include imprisonment and fines, with the severity depending on the nature of the violation.
Punishment for Falsification of Books
Under Section 71, falsifying the books of the corporate debtor is a serious offence. This includes making false entries, erasing or altering records, or omitting material particulars with the intent to deceive. Accurate books of account are essential for assessing the financial health of the corporate debtor and for enabling creditors and resolution professionals to make informed decisions. Any falsification undermines the transparency of the process and attracts imprisonment and fines as prescribed under the Code.
Wilful and Material Omissions from Statements
Section 72 penalises the wilful and material omission of information from statements relating to the affairs of the corporate debtor. Such omissions may conceal critical facts about the debtor’s financial position, asset base, or liabilities, which can mislead creditors and obstruct the insolvency resolution process.
False Representations to Creditors
Section 73 addresses the offence of making false representations to creditors. This may occur when officers of the corporate debtor misrepresent facts to induce creditors to agree to certain terms or to influence the voting on a resolution plan. Such misrepresentation is punishable under the Code to protect the integrity of creditor decision-making.
Contravention of Moratorium or Resolution Plan
Section 74 makes it an offence to knowingly violate the moratorium declared under Section 14 of the Code or to contravene the terms of an approved resolution plan. The moratorium is a critical safeguard that halts enforcement actions and preserves the value of the debtor’s assets during the resolution process. Violations can undermine the stability and predictability of the process, and the Code imposes penalties to deter such conduct.
Furnishing False Information in Applications
Sections 75 and 77 deal with the furnishing of false information in applications made by operational creditors and corporate debtors, respectively. Providing false data to the NCLT compromises the tribunal’s ability to make fair and accurate determinations and is punishable with imprisonment, fines, or both.
Non-Disclosure of Dispute or Payment of Debt by Operational Creditor
Section 76 penalises operational creditors who fail to disclose the existence of a dispute or the fact that the debt has already been paid. Such non-disclosure can lead to wrongful initiation of insolvency proceedings, causing unnecessary harm to the corporate debtor.
Residual Punishment
Section 235A serves as a residual provision for punishing contraventions of the Code for which no specific penalty is provided. This ensures that all violations, even if not explicitly listed, can be sanctioned. The penalty in such cases may extend to a fine of up to one crore rupees.
Conclusion
The provisions on adjudication, appeals, and penalties under the Insolvency and Bankruptcy Code reflect the legislature’s intent to create a specialised, efficient, and credible insolvency framework. By designating the NCLT and NCLAT as exclusive forums for insolvency matters, the Code ensures that cases are handled by bodies with the necessary expertise. The appellate structure provides safeguards against judicial errors, while the exclusion of civil court jurisdiction prevents delays and conflicting orders. The Code’s emphasis on strict timelines aims to preserve asset value and maintain creditor confidence.
Equally important are the stringent penalty provisions, which deter fraudulent and obstructive conduct. By criminalising serious offences and placing the burden of proof on offenders in certain cases, the Code seeks to protect the rights of creditors and the integrity of the process. The combination of adjudicatory efficiency, appellate oversight, and strong deterrence mechanisms positions the Insolvency and Bankruptcy Code as a comprehensive tool for addressing corporate insolvency in India.