Insolvency, NCLT and company disputes

The Insolvency and Bankruptcy Code, 2016 (IBC) is a time-bound collective proceeding. It is not a debt-recovery statute in the old sense, though operational and financial creditors use it when a company has defaulted. The National Company Law Tribunal also hears oppression and mismanagement petitions, merger applications and other company matters under the Companies Act, 2013. SN Law Chambers advises creditors, directors and companies on whether an IBC application is the correct instrument, and on the documents the Adjudicating Authority actually requires. The Supreme Court has repeatedly said that the Code is not a substitute for a civil suit in a genuinely disputed debt — see, among others, the discussion in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018) 1 SCC 353 on ‘pre-existing dispute’.

Open the Medchal note — NCLT and insolvency work from Hyderabad and Medchal

Scope of work

• Demand notices under Section 8 of the IBC and applications under Section 9 by operational creditors
• Financial-creditor applications under Section 7, where the brief is of that character
• Advice to corporate debtors on default, moratorium and the role of the resolution professional
• Oppression and mismanagement petitions under Sections 241–242 of the Companies Act, 2013
• Related company filings before the NCLT Bench having jurisdiction for Hyderabad

Typical issues

• Whether there is a default above the IBC threshold, and whether the debt is financial or operational
• Whether a pre-existing dispute bars an operational-creditor application
• Limitation, including the effect of acknowledgements and Section 238A of the IBC
• Personal guarantees and proceedings against guarantors
• Whether a shareholders’ fight belongs in the NCLT or in a civil court or in arbitration

Applicable Indian statutes

Procedure

An operational creditor ordinarily serves a demand notice in the prescribed form. If payment or a notice of dispute does not follow within the statutory period, an application may be filed before the NCLT. The Authority examines default, the completeness of the application, and — for operational debt — the existence of a genuine pre-existing dispute. Admission brings a moratorium. From that point the proceeding is collective. A creditor who wants only to pressure a solvent company into paying a disputed invoice is using the wrong statute, and the Tribunal is slow to assist that use.

Typical legal remedies

• Admission of a corporate insolvency resolution process
• Rejection of an application that does not meet the Code
• Resolution plan as approved by the committee of creditors and the Authority
• Liquidation in the circumstances the Code provides
• Company-law orders regulating the affairs of the company, including in oppression petitions

Documents commonly relevant

• Invoices, contracts, ledgers and bank statements proving the debt
• NeSL or other financial-information records where relevant
• Demand notice, proof of service, and any reply
• Certificate or statement as prescribed in the current IBBI forms
• Company master data, constitutional documents and board records
• For Section 241 petitions: share registers, notices of meetings and the acts complained of

Important considerations

• Threshold default amounts and forms are notified from time to time. They must be verified on the date of filing, not from memory of an older article.
• Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC 17 upheld the Code’s scheme. It did not convert every unpaid bill into an insolvency case.