Resolution of Stressed Assets through the Insolvency and Bankruptcy Code, 2016
What this domain tests
This domain tests the corporate insolvency resolution process (CIRP) mechanics: who may trigger it, the moratorium, committee of creditors (CoC) voting math, the Section 29A gateway, the statutory conditions a resolution plan must satisfy, and the liquidation waterfall. Expect calculation-style questions on timelines and voting shares.
Core rules
- Entry routes: Section 7 (financial creditor), Section 9 (operational creditor, default of at least ₹1 crore as notified, demand notice first), Section 10 (corporate debtor itself). Adjudicating authority is NCLT; appeals go to NCLAT, then the Supreme Court.
- Timeline: CIRP must close within 180 days, extendable by 90 days on CoC approval; the outer limit is 330 days including extensions and legal proceedings, though courts have permitted limited extensions in exceptional cases.
- Moratorium (Section 14): bars institution or continuation of suits and arbitration, transfer of assets, enforcement of security, recovery proceedings and utility disconnections. It does not extinguish criminal liability of the corporate debtor's officers.
- CoC: voting share is proportionate to admitted financial debt. Resolutions need 51% of members present and voting; approval of a resolution plan needs 66%; withdrawal under Section 12A needs 90%.
- Section 29A: bars wilful defaulters, promoters of NPAs of over one year, disqualified directors, convicted persons and connected persons from submitting plans.
- Plan conditions (Section 30(2)): pay CIRP costs first, pay workmen's dues for 24 months and secured creditors no less than their liquidation value, and keep the corporate debtor running.
Worked example
CoC voting shares: A 40%, B 25%, C 20%, D 15%. A+B = 65%, below the 66% threshold, so the plan fails even though it is a clear majority of value. Adding C takes the vote to 85% and the plan passes. If the same committee wanted to accept a Section 12A settlement, 85% would still be short of 90% - a point candidates routinely miss. Suppose instead liquidation value for secured creditors is ₹100 crore; a plan offering ₹98 crore fails Section 30(2) even if unsecured creditors are paid more, because secured creditors are tested against liquidation value, not fair value.
Traps that cost marks
- Mixing the 51%, 66% and 90% thresholds.
- Treating fair value as the statutory floor rather than liquidation value.
- Assuming moratorium halts criminal proceedings or stays proceedings against personal guarantors.
- Forgetting the first CoC meeting must be held within 30 days of the trigger date.