Adjudicating, Appeals and Penalties for Corporate Persons | IBC

Topics covered in this article are as follows:

1. Adjudicating Authority in relation to insolvency resolution and liquidation for corporate persons

1.1 Application for bankruptcy or insolvency resolution or liquidation of guarantor of corporate debtor

1.2 Jurisdiction of NCLT

1.3 Period of moratorium excluded for purpose of limitation

2. Appeals and Appellate Authority

3. Appeal to Supreme Court on question of law

4. Civil court not to have jurisdiction where NCLT or IBBI has jurisdiction

5. Expeditious disposal of applications

6. Offences and penalties in relation to corporate insolvency

6.1 Punishment for concealment or property

6.2 Punishment for transactions defrauding creditors

6.3 Punishment for various other offences

Note: To view Amended, Updated & Annotated Insolvency and Bankruptcy Code 2016 [as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance 2021], refer to [14th Edition] of Taxmann's Insolvency & Bankruptcy Law Manual

1. Adjudicating Authority in relation to insolvency resolution and liquidation for corporate persons

Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located – section 60(1) of Insolvency Code, 2016.

1.1 Application for bankruptcy or insolvency resolution or liquidation of guarantor of corporate debtor

Loans given to corporate debtor may have been guaranteed by (a) corporate guarantee of group company or parent company and/or (b) personal guarantees of directors or some other persons.

The financial creditor who has obtained such guarantees can invoke the guarantees.

If the surety (guarantor) does not pay after guarantee is invoked, application can be made to NCLT for insolvency resolution of corporate guarantor (if surety is body corporate) or bankruptcy (if surety is individual).

Normally, application relating to the bankruptcy of an individual is required to be filed before DRT (though these provisions are not yet made effective). However, if such individual is a surety for corporate debtor and if he does not pay guarantee amount when guarantee is invoked, application for bankruptcy for such individual surety can be made before NCLT.

Application for bankruptcy of personal guarantor or insolvency resolution of corporate guarantor – An application relating to the insolvency resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of defaulting corporate debtor shall be filed before National Company Law Tribunal. The application shall be filed before bench of NCLT where the application for insolvency resolution of corporate debtor is filed, irrespective of place of registered office of corporate guarantor or location of personal guarantor – section 60(2) of Insolvency Code, 2016.

If an insolvency resolution process or liquidation or bankruptcy proceeding of a corporate guarantor or personal guarantor, as the case may be, of the corporate debtor is pending in any court or tribunal, it shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor – section 60(3) of Insolvency Code, 2016.

If such application is transferred to NCLT against a personal surety, the National Company Law Tribunal shall be vested with all the powers of the Debt Recovery Tribunal as contemplated under Part III of Insolvency Code, 2016 – section 60(4) of Insolvency Code.

[Part III of Insolvency Code deals with insolvency resolution and bankruptcy for individuals and partnership firms]

1.2 Jurisdiction of NCLT

The National Company Law Tribunal shall have jurisdiction to entertain or dispose of applications and claims while exercising jurisdiction. These are overriding provision, even if contrary to any other law – section 60(5) of Insolvency Code, 2016.

1.3 Period of moratorium excluded for purpose of limitation

In computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded. This provision overrides provision of Limitation Act or any other law – section 60(6) of Insolvency Code, 2016.

2. Appeals and Appellate Authority

Any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal – section 61(1) of Insolvency Code, 2016.

The appeal shall be filed within thirty days before the National Company Law Appellate Tribunal. This period can be extended by NCLAT if sufficient cause is shown – section 61(2) of Insolvency Code, 2016.

3. Appeal to Supreme Court on question of law

Appeal against order of NCLAT can be filed to the Supreme Court within 45 days from the date of receipt of such order on a question of law arising out of such order under this Code within forty-five days. This period can be extended by Supreme Court by further 15 days – section 62 of Insolvency Code, 2016.

Of course writ jurisdiction of High Court and special leave petition (SLP) powers of Supreme Court, granted under Constitution of India, remain unaffected.

4. Civil court not to have jurisdiction where NCLT or IBBI has jurisdiction

No civil court shall have jurisdiction in respect of any matter in which the Adjudicating Authority or IBBI is empowered by, or under, this Code to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by such Adjudicating Authority or IBBI under this Code – section 231 of Insolvency Code, 2016.

5. Expeditious disposal of applications

The Insolvency and Bankruptcy Code specify strict time limits for each action. If action is not completed within specified time, the National Company Law Tribunal or the National Company Law Appellate Tribunal can grant extension upto ten days – section 64(1) of Insolvency Code, 2016.

No injunction by Court – 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 National Company Law Tribunal or the National Company Law Appellate Tribunal under this Code.

6. Offences and penalties in relation to corporate insolvency

The Insolvency and Bankruptcy Code, 2016 makes stringent provisions for punishments to fraudulent persons. These include imprisonment. Such offences have to be tried in criminal courts only.

Offences under of this Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013.

Court shall not take cognizance of any offence punishable under this Act, except on a complaint made by the Board (IBBI) or the Central Government or any person authorised by the Central Government in this behalf – section 236(2) of Insolvency Code, 2016.

The provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the person conducting a prosecution before a Special Court shall be deemed to be a Public Prosecutor.

6.1 Punishment for concealment or property

If any officer of the corporate debtor has committed any of specified offence, shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to five years, or with fine, which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both [section 68 of Insolvency Code, 2016]

Burden of proof of innocence is on accused officer – An officer shall not be liable to any punishment under this section if he proves that he had no intent to defraud or to conceal the state of affairs of the corporate debtor. Thus, burden of proof is on him to prove innocence – proviso to section 68 of Insolvency Code, 2016.

6.2 Punishment for transactions defrauding creditors

If an officer of the corporate debtor or the corporate debtor commits any of specified acts, such officer of the corporate debtor or the corporate debtor, as the case may be, shall be punishable with imprisonment for a term which shall not be less than one year, but which may extend to five years, or with fine, which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both – section 69 of Insolvency Code, 2016.

6.3 Punishment for various other offences

The Insolvency Code specifies various offences which are punishable. Broadly these are as follows—

• • Punishment for misconduct in course of corporate insolvency resolution process – section 70(1) of Insolvency Code, 2016.
  • Offences by insolvency professional – section 70(2) of Insolvency Code, 2016.
  • Punishment for falsification of books of corporate debtor – section 71 of Insolvency Code, 2016.
  • Punishment for wilful and material omissions from statements relating to affairs of corporate debtor –  section 72 of Insolvency Code, 2016.
  • Punishment for false representations to creditors – section 73 of Insolvency Code, 2016.
  • Punishment for contravention of moratorium or the resolution plan – section 74(1) of Insolvency Code, 2016.
  • Punishment for false information furnished in application – section 75 of Insolvency Code, 2016.
  • Punishment for non-disclosure of (a) dispute or (b) payment of debt by operational creditor – section 76 of Insolvency Code, 2016.
  • Punishment for providing false information in application made by corporate debtor – section 77 of Insolvency Code, 2016.
  • Residual punishment of fine for violation of provisions of Insolvency Code – section 235A of Insolvency Code, 2016

Continue Reading: 

1. Background of the Insolvency & Bankruptcy Code
2. Insolvency Resolution of Corporate Persons
3. Conducting Corporate Insolvency Resolution Process
4. Liquidation process for Corporate Persons
5. Realisation and Distribution of Assets by Liquidator
6. Bankruptcy for Individuals and Partnership firms