The Insolvency and Bankruptcy code is a landmark piece of legislation providing a facelift to the existing regime in the areas of restructuring and the insolvency and bankruptcy in India. The code provided the biggest missing piece in the existing jigsaw of laws by establishing a framework for time-bound resolution for defaulting debts. Today after the implementation of the code, India now has an insolvency and bankruptcy framework which is comparable with international standards. The journey of the code is long-lasting as the code will go a long way in bringing an element of certainty and predictability to commercial transactions in the country thereby providing Ease of Doing Business.

Part III of the code deals with the insolvency resolution and bankruptcy for individuals and partnership firms, where the amount of default is not less than Rs.1, 000. The adjudicating authority of insolvency resolution for the individual and partnership firms would be the Debt Recovery Tribunal (DRT).

The fresh start process is enshrined under Chapter II of Part III of the code. The fresh start process an opportunity for a debtor who is unable to pay his debts to clear off his debts in a time-bound manner on fulfilling the prescribed condition for the fresh start of his qualifying debts. Since the essence of the code is to have a time-bound process and so on this note the time lag for completion of entire process of fresh start is 180 days, to be counted from the date of admission of application for the fresh start process.

“The intent of fresh start process to provide debtors with comparatively small debts a chance to discharge off their debts and restart afresh without any liability. The fresh start process is an alternative to the insolvency and bankruptcy processes. To prevent and curb the abuse of this debtor centric process, the code has aligned certain restrictions on the applicability and validity of fresh start process.”

For availing and undergoing the fresh start process, the first step is to satisfy the essential prerequisites related to fresh start process. Once all the prerequisites are met, an application may be submitted either by the debtor himself or by the resolution professional on behalf of the debtor. Pursuant to this, the code provides for an evaluation of the application by resolution professional, followed by a decision on its acceptance or rejection by the Debt Recovery Tribunal within 14 days of receiving the resolution professional’s recommendations on the application.

Where the application is accepted by the DRT, the code provides for legal protection from both current as well as future legal proceedings against the applicant/debtor for a period of 180 days from the date of admission of application. However, importantly the code provides the creditors in such a situation that bestows on them a right to object any of the facts/grounds listed in an accepted application for fresh start.

Such objections shall be submitted by the creditors to the resolution professional who shall then evaluate the accuracy and the importance of such objections. During the process, the resolution professional shall act as the main point of communication between the parties involved (Debtor/Creditor) and DRT. In the event of any change in financial circumstances which could make DRT change its decision on whether to accept or reject the initial application, then it shall be the duty of resolution professional to ensure that DRT is informed of the relevant change.

Finally after resolution professional has reviewed all the qualifying debts and compiled a final list of these qualifying debts then the DRT shall pass on order to discharge the debtors from all of the obligations with respect to these debts. Once the order is passed, then the fresh start process shall ultimately come to end thereby providing much-needed relief to the small-time debtors.

Having gained an insight into the Fresh Start Process now, let’s move on to the detailed aspects of the Fresh start Process.

Who can make an application for Fresh Start Process?

An application for a fresh start process may be made by a debtor either personally by him or through a Resolution Professional on the grounds of being unable to pay his debts. The application for the Fresh Start Process can only be made after satisfying the prerequisites as mentioned in the chapter for initiating the fresh start process.

Prerequisites for filing Fresh Start Process

For initiating an application for Fresh Start Process the concerned debtor is required to satisfy the below-mentioned prerequisites prior to filing an application for initiating Fresh Start Process. The prerequisites to be kept in mind and complied prior to filing an application for Fresh Start Process are as follows:

• The gross annual income of the debtor should not exceed sixty thousand rupees ;
• The aggregate value of the assets of the debtor should not exceed twenty thousand rupees ;
• The aggregate value of the qualifying debts should not exceed thirty-five thousand rupees ;
• The debtor should not be an undischarged insolvent ;
• The debtor should not own a dwelling unit ;
• No fresh start process, insolvency resolution process or bankruptcy process should be effective against the concerned director; and
• No fresh start order under the provisions of this chapter should have been made in relation to the debtor at any time during the previous twelve months to be counted from the date of making an application for the fresh start process.

Filing of application for Fresh start Process

The debtor on satisfying the above-mentioned prerequisites may make an application for fresh start process. The application for the fresh start process shall be in the prescribed form and supported by fees as prescribed in the appended regulations to the Code. The application for fresh start process shall contain the following annexures duly supported by affidavit:

• Statement of debt owed by the debtor containing the name of the creditor to whom such debt is owed along with the amount of such debt and interest.
• Amount of interest to be paid along with the rate of interest thereon.
• The statement containing details of securities that are held in respect of the debt.
• Financial details of the concerned debtor as well as of his family for two preceding years to be counted from the date of application for a fresh start.
• Personal details of debtors as may be required
• Detailed explanation for making an application for a fresh start
• Details of legal proceedings, if any that have been commenced against the concerned debtor
• Confirmation that no prior fresh start application had been made in relation to the debts of the concerned debtor at any time during the previous twelve months to be counted from the date of this application.

Interim Moratorium

On the filing of an application for Fresh start process, an interim moratorium period commences from the date of filing such application and comes to an end on the date of admission/rejection of the said application.

It is important to note that during the course of the interim moratorium, no legal proceedings or suits in respect to any debt shall be in execution or in words there shall be a stay on all such operations. Also, no creditor shall have authority to initiate any legal proceedings in respect of any pending debts during the interim moratorium period.

Appointment of Resolution Professional

Resolution Professional is a key person under the Insolvency and Bankruptcy process. He is the sole person who drives the various processes as enshrined under the Code. On this note the appointment of Resolution Professional is as follows:

Application filed by debtor through Resolution Professional

On an application being filed by the debtor via the resolution professional, the Adjudicating Authority shall direct the board to conduct a background check of the resolution professional through whom the application was filed on behalf of the debtor. The Adjudicating Authority shall make the aforesaid direction within seven days to be counted from the date on which it receives application for fresh start as filed by debtor via resolution professional. The board after conducting the background check shall communicate its findings in writing to the adjudicating authority stating whether to confirm the appointment of the resolution professional or reject the resolution professional via whom application was filed and thereby nominating another resolution professional.

Application filed by debtor himself

Debtors can also voluntarily initiate a fresh start process by filing an application themselves without the assistance of resolution professional. In such a situation the Adjudicating Authority shall within a period of seven days direct the board to nominate a resolution professional, to continue the fresh start process. On receiving the aforesaid directions from the Adjudicating Authority, the board shall after verifying nominate appropriate resolution professional with a span of ten days.

In either of the above-mentioned ways of appointment of resolution professional, the adjudicating authority shall vide its order appoint the concerned resolution professional who was recommended or nominated by the board.
Once a resolution professional is appointed to continue the fresh start process, he shall be provided a copy of the application for a fresh start as was filed prior to his appointment.

The actual process of fresh start commences after the appointment of Resolution professional as he is the concerned person to drive forward the process flow in an efficient and time-bound manner.

Examination of application by Resolution Professional

On receipt of application as filed by the debtor, the resolution professional shall commence a detailed examination of the application within a time period of ten days to be counted from the date of his appointment. The resolution professional shall after examining the filed application compile a report of his findings which shall be submitted by him to the Adjudicating Authority thereby recommending the acceptance or rejection of the filed application.

The report as compiled by the resolution professional shall incorporate the details of the amount as were mentioned in the application which in the opinion of the resolution professional both qualifying debts and liabilities which are eligible for discharge.

For compiling the report, the resolution professional is free to demand any additional information or explanation from the concerned debtor or any other person that is useful or required for drafting of the report. On receipt of request from resolution professional, the requisitionists shall provide the demanded information or explanation within seven days.

The resolution professional shall after examining the filed application and thereafter compiling his report arrive at a decision highlighting whether to accept or reject the application as filed and quote the same in his report to be served to the Adjudicating authority.

The Decision of the Adjudicating Authority

Once the report as compiled by the resolution professional is received by the Adjudicating Authority, it shall pass an order either admitting or rejecting the application. The order shall be passed within fourteen days from the receipt of the report as compiled by the resolution professional.

The order passed which admits the application filed shall clearly mention the amount which is accepted as qualifying debt based on the report drafted by resolution professional along with the amounts which are eligible for discharge via fresh start process.

The copy of the order as passed by the adjudicating authority shall be provided to the creditors highlighted in the application within a period of two days to be counted from the date on which order is passed along with a copy of the application as filed by the debtor.

Moratorium

Once the application for fresh start as filed is admitted by the adjudicating authority then the moratorium period shall commence from the very date on which the application was admitted and shall remain effective till a period of one hundred and eighty days.

During the course of the moratorium period, there shall be a stay on all the pending litigations in respect of debts. The creditors shall also remain powerless to initiate any proceedings in respect of any debts.

Objection by Creditors

Creditors have been kept in a favorable state in the Code. Creditors have been granted the power to raise objections against the order of adjudicating authority in relation to admission or rejection of application for fresh start process. In this regard the creditors as are mentioned in the order admitting or rejecting the application may if they feel necessary raise objection only on the prescribed grounds within a span of ten days which shall be counted from the day on which creditors receive the order passed by adjudicating authority.

The creditors shall file their objection via an application to resolution professional. Once objections are filed by the creditors, the resolution professional shall thereafter examine the objections raised and thereby decide whether to accept or reject the objections raised. The decision shall be made by resolution professional within a period of ten days to be counted from the data on which the application was received by him. Once objections are examined the resolution professional shall prepare an amended list of qualifying debts for seeking a discharge order.

Application against decisions of Resolution Professional

The aggrieved debtor or creditor may file an application with the adjudicating authority against the decision of the resolution professional within duration of ten days from the date on decision as taken by adjudicating authority. On an application being filed, the adjudicating authority shall decide its opinion within a period of fourteen days and thereby make order as it deems apt.

Replacement of Resolution Professional

Where the debtor or creditor is of the view that the resolution professional appointed to drive the fresh start process is required to be replaced then in such a situation the concerned debtor or the creditor may approach the adjudicating authority for replacement of appointed resolution professional.

On receipt of application for replacement of resolution professional the adjudicating authority shall within seven days make seek reference from board for replacement of resolution professional. Once the board receives the reference as made by the adjudicating authority it shall within ten days recommended to the adjudicating authority name of insolvency professional whom it proposes to be appointed as resolution professional. On being satisfied by the recommendation of the board the adjudicating authority shall appoint the suggested insolvency professional as resolution professional to continue forward the fresh start process.

Revocation of the order by Resolution professional

The Resolution Professional has been granted autonomy to seek revocation of his own order as passed for accepting or rejecting the application filed for fresh start. For seeking revocation of order the resolution professional shall have to make an application for the same to the adjudicating authority. The revocation of order shall only be applied on the fulfillment of the prescribed grounds.

Once the application is filed then adjudicating authority shall vide its order either accept or reject the application so filed within a period of fourteen days to be counted from the date on which the adjudicating authority received the application. If the adjudicating authority admits the application for revocation of order then in this scenario the moratorium as initially commenced shall come to an end and the fresh start process shall become ineffective.

Discharge Order

For obtaining the discharge order the resolution professional shall compile a final list of qualifying debts and thereafter submit the same to adjudicating authority atleast seven days prior to end of moratorium period. On receipt of the aforesaid list the adjudicating authority shall pass discharge order thereby discharging the debtor from the qualifying debts as finally compiled by the resolution professional. It is important to note that via discharge order the debtor shall be discharged from specific set of liabilities and not from his pending debts.

The fresh start process as devised for individuals is coined on the same footing as that of the fast track insolvency resolution for the corporate person. Individuals can use the umbrella of fresh start process to relieve themselves from pending debts and thereafter continue operations afresh as a clean entity.

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ELIGIBILITY OF RESOLUTION PROFESSIONAL

1. Any insolvency professional shall only be eligible to be nominated as a resolution professional for a typical corporate insolvency resolution process of a corporate debtor in case he, along with all partners as well as directors of the insolvency professional entity of which he is a partner or director, is independent of the corporate debtor.
   Elaboration— An individual shall be treated independent of the corporate debtor, in case he:
   a. is an appropriate choice to be nominated as an independent director on the board of the corporate debtor under section 149 of the Companies Act, 2013 (18 of 2013), where the corporate debtor is a company;
   b. is notn’t a connected party of the corporate debtor; or
   c. is not a proprietor or an employee or a partner:
   (i) of a firm of auditors or CS (i.e. company secretaries) in exercise or cost auditors of the corporate debtor; or
   (ii) of a firm (legal or consulting), that has or had any transaction with the corporate debtor equivalent to ten percent or more of the gross turnover of such firm, during the last three financial years.
2. A resolution professional ought to make a revelation once he is appointed only in accordance with the Code of Conduct.
3. Any resolution professional, that is a partner or a director of an insolvency resolution professional entity, shall not continue as a resolution professional in a corporate insolvency resolution process in case the insolvency professional entity or any other partner or director of such insolvency professional entity presents any of the other stakeholders in the same corporate insolvency resolution process.

ACCESS TO BOOKS

Without any bias to section 17(2)(d), the interim resolution professional may evaluate the records, books of account, and other relevant documents as well as information, to the extent appropriate for discharging his duties under the Code, of the corporate debtor held with‑

• information utilities;
• professional advisors of the corporate debtor;
• depositories of securities;
• other registries that record the ownership of assets;
• contractual counterparties of the corporate debtor; and
• members, promoters, partners, the board of directors, and joint venture partners of the corporate debtor.

EXTORTIONATE CREDIT TRANSACTION

Any transaction shall be treated as extortionate under section 50(2) where:

• the terms are unconscionable as per the principles of law relating to contracts, or
• the terms need the corporate debtor to make extravagant payments in respect of the credit provided.

PUBLIC ANNOUNCEMENT

1. An insolvency professional is needed to make a public announcement instantly on his nomination as an interim resolution professional.
   Elaboration: ‘Instantly’ means not more than three days from the date of his appointment.
2. The public announcement referred to in sub-regulation (1) shall:
   a. be in Form A as per the Schedule;
   b. be published‑
   (i) in minimum one English and one regional language newspaper which is widely circulated both at the location of the registered office and principal office, in case any, of the corporate debtor and any other location wherein the opinion of the corporate debtor or the interim resolution professional conducts material business operations;
   (ii) on the official website, in case any, of the corporate debtor; and
   (iii) on the official website, in case any, entitled by the Board for the purpose,
   c. providing the last date for submission of proofs of claim, which shall be 14 days from the date of appointment of the interim resolution professional.
3. The applicant ought to bear the expenditure of the public announcement which may be repaid by the committee to the extent it ratified them.

Clarification- The expenditure on the public announcement shall not form part of insolvency resolution process costs.

CLAIMS BY OPERATIONAL CREDITORS

1. Any person who is claiming to be an operational creditor, other than a workman or employee of the corporate debtor, shall have to submit evidence of claim to the interim resolution professional by post, in person, or by electronic means in Form B of the Schedule:
2. Even such a person may deposit supplementary documents or clarifications in support of the claim before the constitution of the committee.

• The debt due (in case any) of the operational creditor under this Regulation may be demonstrated on the basis of‑
• the shreds of evidence handy with an information utility, if any; or
• other relevant documents, including –
  (i) a contract for the supply of goods as well as services with the corporate debtor;
  (ii) any invoice demanding payment for the goods/services provided to the corporate debtor;
  (iii) any court or tribunal order that has adjudicated upon the non-payment of a debt, in case any; or
  (iv) financial accounts

CLAIMS BY FINANCIAL CREDITORS

Any person who is claiming to be a financial creditor of the corporate debtor ought to submit evidence of claim to the interim resolution professional in electronic form in Form C of the Schedule:

Although, such a person can deposit supplementary documents or clarifications in support of the claim before the constitution of the committee.

The existence of debt due to the financial creditor can be proved on the basis of ‑
(a) the availability of records with an information utility, in case any; or
(b) other relevant documents, inclusive of –
(i) any financial contract backed by financial statements as evidence of the debt;
(ii) a record proving that the amounts bound by the financial creditor to the corporate debtor under a facility have been utilized by the corporate debtor;
(iii) financial statements depicting that the debt has not been reimbursed; or
(iv) an order of a court or tribunal that has arbitrated upon the non-payment of a debt, in case any.

SUBSTANTIATION OF CLAIMS

The resolution professional or the interim resolution professional, as the case may be, may call for such other confirmation or clarification as he considers fit from a creditor for validating the entire or part of its claim.

COST OF PROOF

A creditor ought to bear the cost of proving any debt that is due to such creditor.

SUBMISSION OF PROOF OF CLAIMS

• As per sub-regulation (2), a creditor ought to submit evidence of claim on or before the last date mentioned in the public announcement.
• A creditor, who was unsuccessful in submitting evidence of claim within the stipulated time after the public announcement, may submit such evidence to the interim resolution professional or the resolution professional, as the case may be until the resolution plan is approved by the committee.
• Where the creditor is a financial creditor under sub-regulation (2), it shall be contained in the committee from the date of admission of such claim provided that such inclusion shall not affect the validity of any decision that is taken by the committee prior to such inclusion.

VERIFICATION OF CLAIMS

• The resolution professional or the interim resolution professional, as the case may be, shall verify each and every claim, as on the insolvency commencement date, within 7 days from the last date of the receipt of the claims, and thereon retain a list of creditors including names of creditors along with the amount claimed by them, the amount of their allegation confessed and the security interest, in case any, in respect of such claims, and update it.
• The list of creditors shall be –
  (a) available for inspection by the persons who have submitted evidence of claim;
  (b) available for inspection by partners, members, directors, and even the guarantors of the corporate debtor;
  (c) displayed on the website of the corporate debtor, in case any;
  (d) filed with the Adjudicating Authority; and
  (e) conferred at the initial meeting of the committee

DETERMINATION OF AMOUNT OF CLAIM

1. Where the amount demanded by a creditor is not accurate due to any contingency or other reason, the resolution professional or the interim resolution professional, as the case may be, shall make the best estimate of the amount of the claim on the basis of the information available with them.
2. The resolution professional or the interim resolution professional, as the case may be, shall amend the amounts of claims accepted, inclusive of the estimates of claims made under sub-regulation (1), as soon as may be achievable, when he comes across additional information warranting such revision.

DEBT IN FOREIGN CURRENCY

The claims designated in foreign currency ought to be valued in Indian currency at the official exchange rate as on the date of insolvency commencement.

Explanation – “official exchange rate” is referred to the reference rate as published by the Reserve Bank of India or derived from such reference rates.

COMMITTEE WITH ONLY OPERATIONAL CREDITORS

1. In a case where the corporate debtor has no financial debt or where all financial creditors are related parties of the corporate debtor, the committee shall be set up as per this Regulation.
2. The committee that is formed under this Regulation shall consist of members as under ‑
   (a) 18 largest operational creditors in terms of their value:
   Provided that if the number of operational creditors is less than 18, the committee needs to include all such operational creditors;
   (b) one representative that is elected by all workmen other than those workmen included under sub-clause (a); and
   (c) a single representative who is elected by all employees other than those employees included under sub-clause (a).
3. A member of the committee formulated under this Regulation shall have voting rights in the ratio of the debt due to such creditor or debt represented by such person, as the case may be, to the total debt.
   Explanation – For the intent of this sub-regulation, ‘total debt’ is the sum total of‑
   (a) the amount of debt due to the creditors listed in sub-regulation 2(a);
   (b) the amount of the aggregate debt due to workmen under sub-regulation 2(b); and
   (c) the amount of the aggregate debt due to employees under sub-regulation 2(c).

A committee formed under this Regulation and its members shall have the same rights, powers, duties and obligations as a committee comprising financial creditors and its members, as the case may be.

INITIAL MEETING OF THE COMMITTEE

The interim resolution professional shall file a report declaring the constitution of the committee to the Adjudicating Authority on or before 30 days from the date of his appointment.

The interim resolution professional shall summon the first meeting of the committee within 7 days of filing the report under this Regulation.

FAQ’S

Q. How can a creditor file a claim?
The evidence of claim is to be deposited by way of particularized forms along with an affidavit (on a non-judicial stamp paper of INR 100) (witnessed by a notary or oath commissioner) and relevant documentary evidence in support of the claim, as guided under IBBI (Insolvency and Bankruptcy Board of India) (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”)

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