The Corporate Insolvency Resolution Process (CIRP) is a legal mechanism established under the Insolvency and Bankruptcy Code, 2016 (IBC) to resolve financial distress in companies and promote creditor recovery. The process ensures time-bound resolution of insolvency, either through revival or liquidation of the defaulting corporate entity. Understanding how to file and navigate through CIRP is essential for students studying corporate law and clients engaging with corporate lawyers in Chandigarh, corporate advocates in Chandigarh, civil lawyers in Chandigarh, and civil advocates in Chandigarh.

Overview of the Insolvency and Bankruptcy Code, 2016

The Insolvency and Bankruptcy Code, 2016 (IBC) is a comprehensive statute that consolidates the laws related to insolvency resolution in India. The primary objective of the IBC is to enable faster resolution of financial stress, maximize the value of assets, and promote entrepreneurship. It covers insolvency resolution for corporate persons, partnership firms, and individuals.

Key Objectives of IBC

  • Ensure time-bound resolution of insolvency.
  • Maximize the value of assets of the corporate debtor.
  • Balance the interests of all stakeholders.
  • Facilitate ease of doing business by improving the credit market.

Who Can Initiate CIRP?

Section 7 – Financial Creditors

A financial creditor can initiate CIRP against a corporate debtor upon a default. This application must be filed with the Adjudicating Authority, i.e., the National Company Law Tribunal (NCLT). The application should include evidence of default, records from information utilities, and proposed name of the Interim Resolution Professional (IRP).

Section 9 – Operational Creditors

An operational creditor can initiate CIRP only after issuing a demand notice under Section 8 of the IBC. If the debtor fails to repay the debt within 10 days or does not raise any dispute, the creditor may file an application under Section 9.

Section 10 – Corporate Debtor

A corporate debtor may voluntarily initiate CIRP by filing an application with the NCLT. The application must include financial information, records of the default, and the details of the proposed IRP.

Threshold for Initiation

The minimum default amount required to trigger CIRP is ₹1 crore (as per the notification dated 24th March 2020). This threshold applies to all creditors seeking insolvency proceedings against a corporate debtor.

Jurisdiction and Filing with NCLT

NCLT Chandigarh

The NCLT has jurisdiction over insolvency matters. For companies located in Chandigarh or the Tricity region, the NCLT Chandigarh Bench is the appropriate authority.

Documents Required

  • Application in the prescribed form (Form 1, 5, or 6 depending on the type of applicant).
  • Evidence of default.
  • Details of the debt.
  • Board resolution (in case of voluntary filing).
  • Proposed IRP’s written consent.

Timelines for Admission

Once an application is filed, the NCLT must either accept or reject it within 14 days. If accepted, the CIRP commences from the date of admission.

Moratorium Under Section 14

Upon admission of the CIRP application, a moratorium is declared as per Section 14. This moratorium serves to preserve the assets of the corporate debtor and allows uninterrupted resolution proceedings.

Activities Prohibited During Moratorium

  • Initiation or continuation of suits or proceedings against the debtor.
  • Enforcement of security interests.
  • Recovery of property by owners or lessors.
  • Suspension of supply of essential goods or services (with some exceptions).

Public Announcement and Claims

Section 15 – Public Announcement

Within three days of CIRP commencement, the Interim Resolution Professional (IRP) must make a public announcement inviting claims from creditors. This notice includes the name and address of the corporate debtor, the last date for submission of claims, and details of the IRP.

Claims by Creditors

Creditors must submit their claims in prescribed forms:

  • Financial Creditors: Form C
  • Operational Creditors: Form B
  • Employees and Workmen: Form D

Interim Resolution Professional (IRP)

Appointment Under Section 16

The NCLT appoints an IRP within 14 days of the admission of the CIRP application. The IRP takes control of the management and affairs of the corporate debtor.

Duties of the IRP

  • Collecting all financial and operational information.
  • Managing the affairs of the company as a going concern.
  • Constituting the Committee of Creditors (CoC).
  • Protecting and preserving the assets of the corporate debtor.

Committee of Creditors (CoC)

The CoC is the backbone of the CIRP. It comprises all financial creditors and is responsible for making key decisions during the process.

Section 21 – Formation of CoC

The IRP forms the CoC after verifying the claims of the financial creditors. The CoC conducts meetings and votes on various resolutions.

Powers of the CoC

  • Appoint or replace the Resolution Professional.
  • Approve or reject the resolution plan.
  • Decide on liquidation, if no resolution plan is acceptable.
  • Extend CIRP duration (subject to NCLT approval).

Resolution Professional (RP) and Resolution Plan

Role of the RP

Once appointed (either confirmed IRP or new professional), the RP manages the entire CIRP and coordinates with all stakeholders.

Resolution Plan – Section 30

The RP invites resolution plans from eligible resolution applicants. These plans must:

  • Provide for payment of CIRP costs.
  • Repay the debts of operational creditors.
  • Provide for management of the company post-resolution.
  • Not contravene any provisions of the law.

CoC Approval

The CoC must approve the resolution plan by 66% voting share. Once approved, it is submitted to the NCLT for final approval under Section 31.

Timeline for CIRP Completion

As per Section 12 of the IBC:

  • The initial CIRP period is 180 days.
  • It may be extended by 90 days, subject to CoC approval.
  • The total CIRP period, including extensions, cannot exceed 330 days.

If a resolution plan is not approved within this period, the company goes into liquidation.

Liquidation Process

When Liquidation is Ordered

Liquidation may be initiated in the following cases:

  • Failure to receive any resolution plan.
  • Rejection of the resolution plan by NCLT.
  • Decision of CoC to liquidate the company.

Liquidation Procedure – Section 33 Onwards

  • Appointment of a liquidator.
  • Preparation of the asset memorandum.
  • Valuation and sale of assets.
  • Distribution of proceeds based on the waterfall mechanism outlined in Section 53.

Priority of Claims

  1. CIRP costs and liquidation expenses.
  2. Secured creditors and workmen dues (up to 24 months).
  3. Employees’ dues.
  4. Unsecured creditors.
  5. Government dues.
  6. Preference shareholders.
  7. Equity shareholders.

Penalties for Fraudulent Initiation or Non-Compliance

Section 65 – False or Malicious Filing

Anyone who initiates CIRP with malicious intent or fraudulent claims may be penalized with a fine ranging between ₹1 lakh and ₹1 crore.

Section 66 – Fraudulent Trading

If, during CIRP, it is discovered that the business was carried out with intent to defraud, the responsible persons may be held liable for contributing to the assets of the company.

Relevance for Legal Professionals

The CIRP has redefined the landscape of corporate debt resolution in India. Legal professionals such as corporate advocates in Chandigarh and civil advocates in Chandigarh frequently handle matters related to CIRP before the NCLT Chandigarh. These professionals assist in drafting applications, representing parties, and ensuring compliance with IBC provisions.

Their expertise is vital in interpreting legal documents, communicating with creditors and debtors, and ensuring that stakeholders’ rights are protected throughout the resolution process.

FAQs on Corporate Insolvency Resolution Process (CIRP)

Q1. What is the minimum amount of default required to file for CIRP?

Under the Insolvency and Bankruptcy Code, 2016, the minimum default threshold to initiate the Corporate Insolvency Resolution Process (CIRP) is ₹1 crore. This threshold applies uniformly to all creditors—financial and operational—seeking to trigger insolvency proceedings against a corporate debtor. The increase in the threshold, from the earlier limit of ₹1 lakh to ₹1 crore, was notified by the Ministry of Corporate Affairs in March 2020.

This change is particularly important for companies operating in Chandigarh and nearby industrial regions, where corporate lawyers in Chandigarh and corporate advocates in Chandigarh routinely advise clients on the eligibility criteria for initiating CIRP before the NCLT Chandigarh Bench. Understanding the default threshold is a crucial starting point for any potential creditor considering legal action.

Q2. Who is eligible to submit a resolution plan during CIRP?

A resolution plan can be submitted by any person or entity, provided they are not disqualified under Section 29A of the IBC. This section lays down specific restrictions to ensure that only credible and bonafide applicants take part in the corporate restructuring process. For instance, wilful defaulters, undischarged insolvents, and persons convicted for financial offenses are barred from participating.

Legal guidance is essential while preparing and submitting a resolution plan, especially for applicants unfamiliar with the procedural complexities. Experienced corporate advocates in Chandigarh assist clients in understanding eligibility, preparing compliance documents, and presenting the plan before the Committee of Creditors (CoC) and the Resolution Professional (RP).

Q3. What is the role of the Committee of Creditors (CoC) in CIRP?

The Committee of Creditors (CoC) plays a central role in the CIRP and is composed primarily of financial creditors. Once the IRP verifies claims, the CoC is constituted under Section 21 of the IBC. The CoC is vested with the authority to make all key commercial decisions concerning the resolution of the corporate debtor.

The CoC is responsible for:

  • Approving or rejecting resolution plans.
  • Replacing or confirming the Interim Resolution Professional (IRP).
  • Deciding whether to continue with CIRP or initiate liquidation.
  • Approving extensions of the CIRP timeline.

For companies undergoing CIRP in Chandigarh, civil lawyers in Chandigarh and corporate lawyers in Chandigarh often act as legal advisors to members of the CoC, guiding them through critical decisions and ensuring that all actions are compliant with IBC provisions and NCLT orders.

Q4. Can the CIRP period be extended beyond 330 days?

No, the Corporate Insolvency Resolution Process cannot extend beyond 330 days, including any time spent on litigation or judicial proceedings. This outer limit is established under Section 12 of the IBC, following amendments and Supreme Court rulings which emphasized the need for speedy disposal of insolvency matters.

Initially, CIRP is to be completed within 180 days, which can be extended by 90 days with CoC approval. However, the entire process, along with any time consumed in court proceedings, must conclude within the maximum cap of 330 days.

Due to the tight timelines, stakeholders frequently engage civil advocates in Chandigarh and corporate lawyers in Chandigarh to avoid delays in documentation, plan submission, and legal filings. The assistance of a qualified legal team ensures the process progresses smoothly within the prescribed limits.

Q5. What happens if no resolution plan is approved within the CIRP period?

If no resolution plan is submitted or approved within the 330-day timeframe, or if all submitted plans are rejected by the CoC or NCLT, the corporate debtor is mandatorily pushed into liquidation, as per Section 33 of the IBC.

During liquidation:

  • A liquidator is appointed to sell the assets of the corporate debtor.
  • Claims from stakeholders are settled according to the waterfall mechanism in Section 53.
  • The corporate entity ceases to be a going concern.

This phase requires careful legal navigation, particularly in ensuring compliance with notice requirements, asset distribution, and labor obligations. In Chandigarh, corporate advocates in Chandigarh and civil lawyers in Chandigarh are frequently engaged to represent the interests of creditors, shareholders, and employees during liquidation proceedings before the NCLT Chandigarh.