Proceed to NCLT for recovery of dues under Insolvency & Bankruptcy Code

recovery-of-debt-under-insolvency-and-bankruptcy-code

Introduction

Recovery Proceeding can be started against Debtor/ Corporate Debtor in the event of default by the debtor. Debtor can be Company Only. To initiate this procedure one can approach the National Company Law Tribunal which exercises the power to dispose cases under Insolvency Code.

In this article we will discuss about the relevance of Insolvency code for recovery of dues and how it is helpful in recovery.

Default means non-payment of debt when whole or any part of installment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be.

The following person could initiate the Recovery Process; on the admission of a default by the Corporate Person:

  • A Financial Creditor (means any person to whom a financial debt (Loan) is owed)
  • An Operational Creditor (means a person to whom an operational debt is owed)

“Operational Debt” means a claim in respect of the provision of

  • Goods or
  • Services
  • Employment or
  • A debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;

Initiation of Process in earlier law v/s IBC Code:

Unlike earlier law, where the primary onus to initiate a resolution process lies with the debtor, and creditor may pursue separate actions for recovery, security enforcement and debt restructuring, here the Code makes a significant departure from the existing resolution regimen by shifting the responsibility on the creditor to initiate the insolvency resolution process against the corporate debtor.

How this code is helpful for Recovery of Debt by following Creditors:

  • Supplier of Goods/ Services:

Under the Act, any person has supplied Goods or rendered services to any Corporate Debtor; and such corporate debtor make default as non-payment of debt or any part of debt, non-payment of installments due, then creditor can initiate the action against the corporate debtor by filing of petition in NCLT.

Time Period of Recovery:

Creditor will issue demand notice to the debtor, if creditor doesn’t receive payment due within 10 days, then it can file application in NCLT for initiating the recovery (Corporate insolvency resolution) process. The NCLT within 14 days of application either accept the application or reject the application.

Therefore, under this new code, within 24 days from the date of issue of demand notice, petition filled by creditor either accept or reject by NCLT. The unified regime envisages a structured and time-bound process for insolvency.

Benefits:

Under this code there is no need to go to the high court for recovery of the debt by the creditors, due to time bound provision. Or we can say that this is the fastest mode of recovery of debt.

  • Small Businesses:

As per the provisions mentioned above regarding supply of goods / services, creditor have power to initiate process in NCLT for recovery of debt with time bound manner and cost effective.

Earlier small business avoids initiating process against the corporate debtor due to following reasons:

  • Earlier its took long time to admission the cases by the adjudicating authorities due to lack of time bound guidelines.
  • Earlier, filling a matter courts which was costly affair.
  • Earlier the primary onus to initiate a resolution process lies with the debtor

On to above mentioned grounds like Time; Cost etc., small business owners avoid filing application in courts against the creditors to recover the pending payments.

Under this code within 24 days of issue of demand notice creditor will come to know that whether his petition admitted or not. It is less costly then the application in the court as the fees for admission of application by the operational creditor is Rs. 2,000/-.

As a result, one can opine that this act bestow a great opportunity on the small business owners to file applications for recovery of their debts.

  • Employee and workmen dues:

Under the Code, employees and workmen are also considered as part of operational creditor. If a Company fails to make salaries payment of employees or workmen and the value of payment is more than Rs. 1 lac then employees can file the application against the Company with NCLT for initiation of process of Recovery.

Process, time, cost of the application by the employees and workmen are same as filing of application by creditor of supply of goods / services.

As a result, this act gives a great opportunity to employees/ workmen of the Companies to file applications for recovery of their dues.

  • Debtor of Loan:

Under the Code, if any person has rendered money (Loan) to any Corporate Debtor; and such corporate debtor makes default as non-payment of debt, interest or any part of debt, non-payment of installments due then lender can initiate the action against the corporate debtor by filing of petition in NCLT.

Time Period of Recovery:

Financial Creditor can file application in NCLT for initiating the recovery (Corporate insolvency resolution) process. The NCLT, within 14 days of application either accept the application or reject the application.

Therefore, under this new code within 14 days from the date of filing of petition the NCLT either accept or reject the application. However, this code gives a chance to the financial creditor to recover his debt.

 

Conclusion:

Hence, considering the intention of the Law, one can opine that Insolvency and Bankruptcy Code, 2016 is Game Changer for the corporate debtors. Powers are vested with the creditors also along with corporate debtors to initiate insolvency process against the corporate debtor. The Code promises to bring about far-reaching reforms with a thrust on creditor driven insolvency resolution. The aim of the code is early identification of financial failure and maximizing the asset value of insolvent firms.

The unified regime envisages a structured and time-bound process for insolvency resolution and liquidation, which should significantly improve debt recovery rates and revitalize the ailing Indian corporate bond markets.

There is no doubt that once the Code is fully implemented, it is going to be one of the best initiatives by the legislatures and a boon to the economy in the broader sense.

Disclaimer – the above summary is based on the personal interpretation of the revised regulations, which may differ person to person. Hence, the readers are expected to take expert opinion before placing reliance on this article.

Comment

  1. SIR,
    have been following up with M/s SRS Linited, faridabad for recovery of my term deposits matured worth 3.5 lakhs since last 6- months but to no avail. Company is in deep financial trouble , Wud filing an application with NCLT help.

    Any fees to be paid or any form to be filled for presenting my case before them.

    Pls advise & help

  2. Hello,

    My employer (Aircel) is going through the Insovency procedure.
    Though we have filed the Form-D in prescribed format to IRP but it seems that wont be getting anything. Have not been paid salaries since April 2018.

    Can you guide the further course of action..

  3. We had received a order for supply of equipment from a Public limited company. The payment terms were 50% advance along with the order and balance against Proforma Invoice after inspection. Successful trials were given and Proforma Invoice raised for balance payment. However the company has not paid balance amount for past 4 years now. The equipment was custom built for the company to suit it’s manufacturing process. Can we apply to the NCLT for recovery of dues and interest thereon as although equipment has not been lifted by customer it cannot be sold to any other party except as scrap. Kindly advise

    1. Based on the preliminary facts, you would be covered under “Operating Creditors” based on the argument that limitation act does not applicable to IBC.

    2. Based upon the facts mentioned you can file the case Under Sec 17 IBC in NCLT as you will be qualified as an Operational Creditor and you can get the dues and interest from the company. However before filing the case in NCLT you will need to get certain documents of the Public limited company. You will also need to send a legal notice for the recovery of dues to the company before filling a case in the NCLT.

  4. Insolvency Code has put the emplyees on the same pedestal as that of other financial creditors. Undoubtedly it is the fastest way to recover dues. 270 days time frame to the maximum is what brings people to NCLT

  5. R/sir,
    I am worked for company 28 years when the company fall down in 2007 they didnot pay me and told their is nothing for you (due).so i filed a case now my case in high court .they said the company is going to be liquidation and with nclt .they give a massage for me to settle the case with minimum amount .can nclt is beneficial or not for my recovery of required amount and what is process timeline in nclt in high court. Please guide me .

  6. sir,
    i had service in one private ltd co. from 2006 to 2015.while service company has been not release our salaries and annual balance that why i had left from that co. Now company has been insolvency so suggest how can we get our balance amount from this co..

  7. My Company has not paid the salary for the last eight months. No salary is received in 2018. The Company does not deny the payment but says that the bills are not cleared by NHIDCL. Salaries will be paid whenever the bills are received, depending on the amount received, is what the MD says. How to recover the salary from them?

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