Dual Insolvency Laws V/s

Single Bankruptcy Law

A Case of India
This paper shows the incidence that corporate failure (Insolvency) has adverse
implications on various stakeholders, creditors, suppliers, employees and
customers. It also has a ripple effect on the economy, affecting the solvency of
many other businesses. Therefore the objective of this paper is to analyze the
current Insolvency Laws in India and also to compare the Insolvency Laws
practiced in India and U.S. This paper examines the suitability of adapting
Single Bankruptcy Law in India and also recommends the areas which India
has to focus to meet the International Standards of Insolvency.
 Index
Introduction

Company Profile....2
Insolvency..14

Review of Literature...........................18

Data Analysis

Objectives.20
Research Methodology.....21
Discussion: Insolvency laws of India...22
Insolvency of Non-Corporates....................30
Companies Act 2013.............................................................................32
Governing Bodies..33
Bankruptcy Law of U.S....................................37
Comparative Analysis....40
Case of Suzlon Energy........48

Conclusion..50

Recommendations........................................................................................................53

Appendix..55

References......................................................................................................................71

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 Chapter 1: Introduction
The Ministry of Corporate Affairs is primarily concerned with administration
of the Companies Act 2013, the Companies Act 1956, the Limited Liability
Partnership Act, 2008 & other allied Acts and rules & regulations framed
there-under mainly for regulating the functioning of the corporate sector in
accordance with law.

The Ministry is also responsible for administering the Competition Act, 2002
to prevent practices having adverse effect on competition, to promote and
sustain competition in markets, to protect the interests of consumers through
the commission set up under the Act.

Besides, it exercises supervision over the three professional bodies, namely,

Institute of Chartered Accountants of India (ICAI), Institute of Company
Secretaries of India (ICSI) and the Institute of Cost Accountants of India (ICAI)
which are constituted under three separate Acts of the Parliament for proper
and orderly growth of the professions concerned.

The Ministry also has the responsibility of carrying out the functions of the
Central Government relating to administration of Partnership Act, 1932, the
Companies (Donations to National Funds) Act, 1951 and Societies Registration
Act, 1980.

Ministry's Mission: To be responsive and sensitive to changes in the business

environment and suitably formulate and modify corporate laws and
regulations from time-to time.

2
Objectives of MCA

To provide simplified laws governing Corporate Sector to facilitate

effective compliance and regulatory regime.
Delivery of all registry related services with speed, certainty and
transparency, access to public information and effective monitoring of
statutory compliance by the companies.
To encourage corporate sector to adopt good corporate governance
practices and corporate social responsibility.
To promote investor education and awareness for creation of
appropriate business environment that facilitates growth of corporate
sector in the country.
To develop capacity building and secure policy advisory support
through IICA.
Administration of Companies Act and other Acts under purview of
Ministry (effective enforcement for prevention of Corporate Frauds)
To promote competition and curb anti-competition practices.

Functions of MCA

Administration of the Companies Act, 1956 and other related Acts.

Formulation of Rules and regulations under various Acts administered
by the Ministry.
Convergence of Indian Accounting Standards with IFRS.
Implementation of Competition Act through the Competition
Commission of India.
e-Governance in MCA.

3
 Build systems for early detection of irregularities in corporate
functioning.
Undertaking investor education and awareness programmes.
To undertake investigation of serious frauds through the Serious Fraud
Investigation Office.
Administration of the cadre of Indian Corporate Law Service.

Administrative Structure

The Ministry has a three tier organizational structure with, the Headquarters
at New Delhi, seven offices of Regional Directors at Ahmedabad, Chennai,
Guwahati (presently functioning at Shillong), Hyderabad, Kolkata, Mumbai,
and NOIDA, fifteen Registrars of Companies, fourteen Official Liquidators and
nine Registrar of Companies-cum-Official Liquidators in States and Union
Territories. The Official Liquidators, function under the overall administrative
control of the Ministry, and are attached to corresponding High Courts.

1. The Headquarters of MCA is organized into various Divisions/ Sections/

Cells for administering/ regulating various aspects of the Companies Act,
corporate policy etc.

2. The provisions of the Companies Act are dealt with by various sections
under the supervision of concerned Joint Secretaries. A brief description of
major activities of these Sections is given below:

3. Company Law I Section deals with legislative proposals relating to the

legal framework governing companies and Limited Liability Partnerships.

4
4. Company Law II Section deals with examination of inspection reports,
investigation reports and technical scrutiny reports received from field
offices. After examination of these reports, prosecutions are ordered. In
addition, this section deals with the examination and issue of directions of
Special Audit Reports, complaints relating to misuse and diversion of funds,
and mismanagement of companies etc. under the provisions of the Companies
Act.

5. Company Law III Section deals with raising of capital (further issue,
conversion of loans and debentures) or reduction of Share Capital, payment of
dividends, form and contents of Balance Sheets and Profit & Loss Accounts,
Amalgamation and Merger of Government Companies, Accounts of Foreign
companies, references received from RDs/ ROCs for approval of names of
companies, alteration of Memorandum and Articles of Association etc.

6. Company Law - IV (Legal) Section deals with default cases under various
Sections of the Companies Act, 2013 and Companies Act, 1956 and rules made
thereunder leading to prosecution. It also examines applications/ petitions
made to the Central Government seeking authorization for filing application
for prevention / alleged acts of mismanagement and oppression under Section
399(4) of the Companies Act, 1956. The draft reply/ affidavits to be filed by
ROCs/RDs/OLs and other attached offices of the Ministry are vetted by this
Section. Apart from the above, this Section tenders legal advice to other
Sections of the Ministry as well as to other Ministries.

7. Company Law - V (Policy) Section deals with policy matters for

consideration of Cabinet, Cabinet Committees, and Committee of Secretaries.

5
It also deals with declaration of institutions as Public Financial Institutions;
issue relating to Capital Market, SEBI, Foreign Direct Investments, Anti Money
Laundering, combating the financing of terrorism in India. Accounting
standards/Convergence with IFRS. It issues clarification/simplification of
various rules and procedures prescribed under the provisions of the
Companies Act, 2013, Companies Act, 1956 and LLP Act, 2008. The Division is
also responsible for launching various schemes to aid in the implementation
of corporate laws, e-Governance forms, coordinating the framing of guidelines
for ensuing uniformity of practices by all field offices, and change in the venue
for holding the Annual General Body Meetings of Government Companies.

8. Company Law - VI Section deals with regulation of invitation and

acceptance of deposits by the companies; approvals of declaration of dividend
out of reserves; grants of Nidhi status to the companies as per the provisions
of the Companies Act.

9. Company Law VII Section deals with statutory applications relating to

appointment of managerial person in a company when such appointment is
not in consonance with the provision of Companies Act, 2013; payment and
remuneration of managerial person of listed companies and subsidiary of a
listed company and when such limits exceed the limits mentioned in the
provision of the Companies Act, 2013 and waiver from recovery of
remuneration paid to such managerial personnel in excess of the limits of the
Companies Act, 2013.

10. Cost Audit Branch under Section 148 of the Companies Act, 2013,
formulates & notifies rules in relation to (i) maintenance of Cost Accounting

6
Records by certain class of companies and; (ii) the audit of Cost Records for
certain class of companies. It also monitors the compliance of the rules under
Section 148 and various other provisions of the Companies Act, 2013. It also
conducts studies to analyze the Cost Audit Reports and informs the relevant
Departments/ Organizations/Regulatory bodies about the observations from
such studies.

11. Investor Grievance Management Cell (IGMC) attends to the grievances

of investors filed with the Registrars of Companies for their settlement;
coordinates with RBI, Department of Economic Affairs, SEBI etc. for redressal
of complaints received in MCA, but pertaining to their jurisdiction. Investors
complaints broadly relate to non-receipt of dividend, matured deposits and
interest thereon, rights/bonus shares, annual report, share certificate,
debenture certificate; non-redemption of debentures and interest thereon;
non-refund of application money; non-registration of transfer of shares etc. In
order to actively associate the field offices for redressal of investors
grievances, a Nodal officer has been designated at three different levels : (i) all
offices of Regional Directors (RDs), (ii) all offices of Registrars of Companies
(ROCs), and (iii) at Headquarters in the Ministry. The updated list of nodal
officers of MCA is available in the MCA website under Investor Services.

12. CSR Cell was constituted on 09.05.2014 and is entrusted with the
responsibility of issuing clarifications regarding Corporate Social
Responsibility (CSR) provisions, Schedule VII of the Companies Act, 2013 and
Companies (CSR Policy) Rules; examining references from stakeholders
seeking clarification related to CSR; coordinating with various agencies such

7
as industry associations, professional institutes, International bodies and IICA
on policy issues related to CSR; and to interact with other
Ministries/Departments on CSR issues.

13. Research & Analysis Division is responsible for compilation, editing and
publication of: (i) the Annual Report of the Ministry, (ii) the Annual Report on
the Working and Administration of the Companies Act, and (iii) Monthly
Newsletter on the activities of the Ministry. The Division provides economic
input on issues relating to Corporate Performance, Capital Market reforms,
Disinvestment and Foreign Direct Investment at the macro level.

14. Statistics Division looks after issues relating to improvements of

corporate statistics generated from the MCA-21 Portal (including in XBRL
mode); shares statistical information on the corporate sector with Central
Ministries and Organizations such as Central Statistics Office (CSO), Reserve
Bank of India (RBI), Securities and Exchange Board of India (SEBI) and others,
as and when necessary. The Statistics Division publishes the Monthly
Information Bulletin containing statistical information and analysis of
developments in the corporate sector.

15. International Cooperation Section in the Ministry plays a key role in

coordinating and organizing interactions with counterpart organizations of
other countries, International Organizations such as Corporate Registers
Forum (CRF), Global Reporting Initiative (GRI), International Association of
Insolvency Regulators (IAIR), Organization for Economic Co-operation and
Development (OECD) etc.

8
16. RTI Monitoring Cell, apart from being a repository of all RTI related
information, also functions as a conduit between the applicant/ appellant and
the CPIO/ Appellate Authority. The Cell is also responsible for implementing
various Sections of the RTI Act, where an obligation has been cast on the
Public Authority. The Cell also monitors the progress of all RTI applications
and appeals to ensure their disposal within the prescribed time limits.

17. Gender Budget Cell (GBC) was set up with the objective of facilitating the
integration of gender analysis into Government budgeting. The GBC of MCA
has initiated steps to build up an information/ database system on gender
representation in MCA, various branches of the Ministry as well as field
offices, and attached offices and professional institutes.

18. Official Language Section undertakes the implementation of the Official

Language Act and Rules made there-under; translation of documents issued

under section 3(3) of Official Language Act from English to Hindi and vice-
versa, and also work relating to the Parliamentary Committee on the Official
Language. It is responsible for the conduct of the meetings of Official Language
Implementation Committee, and for implementation of decisions taken by
Hindi Advisory Committee. It administers the Hindi Teaching Scheme, as well
as the conduct of Hindi Workshops. It also offers suggestions for the
progressive use of Hindi in the Ministry.

19. Vigilance Wing obtains factual information in regards to complaints

received against the employees, conducts preliminary enquiry against the

9
employees alleged for involvement in corruption. It also makes effort to
streamline the existing procedures so as to minimize the scope of corruption.

20. Administration-I Section deals with Establishment matters relating to all

Group A officers at the Headquarters filled under Central Staffing Scheme; all
Group A officers of the en-cadred posts of Indian Economic Service (IES),
Indian Statistical Service (ISS), Indian Cost and Accounts Service (ICAS) and
Central Secretariat Official Language (CSOL); Officers of the Central
Secretariat Service (CSS); Officers of the Central Secretariat Stenographer
Service (CSSS); Officers of the Central Secretariat Clerical Service (CSCS);
General Central Service Group B and C posts at Headquarters; Hindi en-
cadred posts in Central Secretariat Official Language Service. It also deals with
Creation of posts and establishment matters relating to the Office of the
Minister of Corporate Affairs, Office of the Minister of State for Corporate
Affairs and creation/continuation of posts in Headquarters other than ICLS
posts along with other administrative work.

21. Administration II Section deals with all establishment matters relating

to officers of ICLS (Group A Service), establishment matters relating to the
Officers of RDs, ROCs and OLs, training of ICLS officers. It also deals with other
work relating to delegation of powers to RDs/ ROCs/ OLs, Issue of Gazette
Notifications in pursuance to Section 448 of Companies Act, 1956 and Section
396 of Companies Act, 2013 appointing officers as OLs, ROCs etc.

22. Administration-III Section deals with all policy issues related to Serious
Fraud Investigation Office (SFIO) and; establishment, personnel and financial
matters relating to SFIO which requires approval of Central Government.

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23. Administration-IV Section deals with establishment, personnel and
financial matters relating to Company Law Board (CLB), National Company
Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT)
which requires approval of Central Government.

24. Competition Section deals with matters relating to the enforcement of

Competition Act; formation of Competition Policy; all Establishment,
personnel and financial matters of Competition Commission of India and
Competition Appellate Tribunal requiring approval of Central Government;
appointment of Chairperson and Members in Competition Commission of
India as well as in Competition Appellate Tribunal and the condition of service
thereof.

ATTACHED/ SUBORDINATE OFFICES / ORGANISATIONS

Company Law Board

The Company Law Board (CLB) functions as an independent, quasi-judicial

body created under section 10E of the Companies Act, 1956, exercising
equitable jurisdiction and became functional on 31.05.1991. The business of
the Company Law Board is regulated by the Company Law Board Regulations,
1991 prescribing the procedure for filing applications/ petitions before it, and
rules prescribing fees for submitting application/petitions as per the
Company Law Board (Fees on Applications and Petitions) Rules 1991.

Competition Commission of India

The Competition Commission of India (CCI) was established on 14.10.2003

under the Competition Act, 2002, with the objective of eliminating practices

11
having an adverse effect on competition, promoting and sustaining
competition, protecting the interest of consumers and ensuring freedom of
trade in India.

Competition Appellate Tribunal

The Competition Appellate Tribunal (COMPAT) was established on

14.10.2003 under the Competition Act, 2002, with powers to entertain
appeals against directions or decisions of CCI, and to adjudicate on claim for
compensation that may arise from the findings of the Commission and itself.

Serious Fraud Investigation Office

Serious Fraud Investigation Office (SFIO) was set up through a resolution

dated 2.7.2003. It is a multi-disciplinary investigating agency, wherein experts
from diverse sectors like banking, capital markets regulation, corporate
regulation, law, forensic audit, taxation, information technology etc. work
together to unravel corporate frauds. Cases requiring investigation under the
Companies Act consequent upon preliminary inquiries or inspections, where
there are indications of serious breach of law, are assigned to the SFIO. The
ambit of investigation by the organization is not confined to the Companies
Act but could cover other statutes including the Indian Penal Code. Under the
Companies Act, 2013, SFIO has now been given statutory status. It is headed
by a Director, in the rank of Joint Secretary to the Government of India.

Indian Institute of Corporate Affairs

The Institute (IICA) has been established as a think tank, action research,
service delivery and capacity-building institute to serve as a one-stop-shop

12
providing a platform for value-adding partnerships between government,
corporate entities and other stakeholders. Since its establishment as a Society
in September, 2008, the Institute has taken many steps to fulfil its mandate,
viz. (i) Its five Schools and four Centers have become operational. (ii) Indian
Corporate Law Service Academy has become functional and is imparting
training to officers of the Indian Corporate Law Service since 2010. (iii) The
Institute has emerged as an important Institute for conducting various
courses, seminars, workshops etc. on issues of relevance to the corporate
sector such as corporate social responsibility, corporate governance, role of
company directors, independent directors, competition issues etc. The IICA is
headed by a Director General and Chief Executive Officer.

Professional Institutes

The Ministry administers laws regulating the Professions of Accountancy [The

Chartered Accountants Act, 1949]; Costs Accountancy [The Cost and Works
Accountants Act, 1959]; and Company Secretaries [The Company Secretaries
Act, 1980], through three Professional Institutes, namely, Institute of
Chartered Accountants of India, Institute of Cost Accountants of India and
Institute of Company Secretaries of India set up under these Acts of
Parliament.

13
Insolvency is the time when an individual, corporation, or other organization
cannot meet its financial obligations for paying debts as they are expected.
Insolvency can occur when certain things happen, some of which may include:
poor cash management, increase in costs, or decrease in cash flow.

A finding of insolvency is imperative, as particular rights are empowered for

the creditor to exercise against the insolvent individual or organization. For
example, exceptional debts may be paid off by dissolving assets of the
insolvent party. Prior to proceedings, it is common for the insolvent entity to
meet with the creditor in order to attempt to arrange a substitutable payment
method.

It is conceivable that a business may be "insolvent" in cash flow, yet still

dissolvable on the balance sheet. These cases may include illiquid assets,
which help the balance sheet's solvency, but not the cash flows. This can
likewise work the other way around with negative net assets (balance sheet
insolvency), yet a positive cash flow. In this case, the flow of cash is simply
enough to pay off debts, despite the fact that the business has more liabilities
than assets.

The incidence of corporate failure has unfavorable ramifications for various

stakeholders including the shareholders, creditors, employees, suppliers and
customers. Corporate failure can likewise have a ripple effect on the economy,
affecting the solvency of many other businesses. Therefore, it is mandatory to
have a highly efficient corporate insolvency regime that

separates viable companies from the unviable ones, and

14
 re-organizes the former to the extent feasible and liquidates the latter
(before any significant depletion in the value of the business),
minimizing losses for all stakeholders in the process.

An ideal insolvency regime needs to strike the right balance between the
interests of all the stakeholders by a reasonable allocation of risks among
them.

Reasons behind Insolvency

The main reasons behind insolvency are primarily poor management and
financial constraints. This is much more predominant in smaller companies.
Specifically, the reasons are:

Market Company did not recognize the need for change

Bad debts obviously money owed by customers

Management failure to acquire adequate skills, imprudent accounting,

lack of information systems

Finance loss of long term finance, over gearing or lack of cash flow

Knock on effect i.e. from other insolvencies

Other for example excessive overheads etc.

It is however observed that the larger the company, the better the chance of
survival and of receiving remedial treatment and of paying creditors.

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Insolvency Laws

The law of insolvency is a social legislation which has been established to

provide respite and alleviation to the honest debtors who because of any
unfortunate or unforeseen circumstances become incapable of paying back
their debts.

The principal focus of modern insolvency legislation and business debt

restructuring practices is not the liquidation and disposal of insolvent entities
but on the remodeling of the financial and organizational structure of debtors
experiencing financial distress so as to permit the rehabilitation and
continuation of their business. In some jurisdictions, it is an offence under the
insolvency laws for a corporation/enterprise to continue in business while
insolvent. In others (like the United States with its Chapter 11 provisions), the
business may continue under a proclaimed protective arrangement while
alternative options to achieve recovery are worked out.

Ultimately the basic objective of insolvency laws is the distribution of the

effects of a debtor in the most expeditious, equal and economical mode and
liberation of his person from the demands of his creditors when he has made a
full surrender of his property.

Insolvency arises in two different circumstances. They are:

1. Individual level (Individual Insolvency)

2. Company level (Corporate Bankruptcy)

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Bankruptcy

Bankruptcy is not absolutely the same as insolvency. Technically, bankruptcy

occurs when a court has determined insolvency, and given legal orders for it
to be resolved. Bankruptcy is a determination of insolvency made by a court
of law with resulting legal orders intended to resolve the insolvency.

Insolvency depicts a circumstance where the debtor is not able to meet

his/her obligations. Bankruptcy is a legal maneuver in which an insolvent
debtor seeks relief.

In few nations, including the UK, bankruptcy is limited to individuals, and

different types of insolvency proceedings (such as liquidation and
administration) are applied to companies. In the US, bankruptcy is applied
more broadly to formal insolvency proceedings.

Bankruptcy fraud is a white-collar crime. While hard to sum up crosswise

jurisdictions, basic criminal acts under bankruptcy statutes commonly include
camouflage of assets, disguise or annihilation of documents, irreconcilable
situations, deceitful claims, false articulations or revelations, and fee settling
or redistribution courses of action. Falsifications on bankruptcy forms often
constitute prevarication. Numerous filings are not all by themselves criminal,
but rather they may violate procurement of bankruptcy law. In the U.S.,
bankruptcy fraud statutes are especially focused on the mental condition of
specific activities. Bankruptcy fraud is a federal crime in the United States.

17
 Chapter 2: Review of Literature
The chief aim of every system of bankruptcy law should be to combine
and regulate two great objects; firstly the distribution of effects of
debtor in the most expeditious and equal note and secondly the
liberation of the person from the demands of creditors when he has
made a full surrender of his property (Henley, 1832).
Bankruptcy laws which prevailed in the earlier times were a species of
criminal law and bankrupts under that law were regarded as criminal
offenders. The treatment to which they were subjected was cruel and
inhuman. The present bankruptcy laws are far more humane and by the
end privileges are not only conferred by creditors but also the bankrupt
or debtor (Blackstone et.al)
Thomas Jackson and Douglas Baird (1984; 1990) in their individual and
collaborative papers advanced the proposition that the US system of
corporate insolvency law was primarily aiming towards the
maximization of creditors returns.
Put very shortly: Jackson (1982; 1986) argued that insolvency law was
no more than a collective debt collection mechanism.
According to C.F.Pratten (1991), a company can fail due to internal or
external deficiencies. However it should not be assumed that single
causes or single patterns of causes are to be encountered when failures
are analyzed. Collapses generally result from operation of number of
causes that involves both external pressures and as well as internal
failings (Vanessa Finch 2002).

18
 Sir Kenneth Cork (1982) in his report was of the philosophy that
existing insolvency law dealt with individual bankrupts in an
excessively punitive and stigmatic manner, but he was determined to
amend the laws perceived leniency in dealing with directors who
abused the privilege of limited liability. As for rehabilitation he aimed to
device an insolvency regime that would facilitate rescues rather than
just process failures.
According to Kedarnath and Amulyaratan (1942) an Official Assignee
that is assigned to carry out insolvency proceedings for the purpose of
affidavits, verifying proofs, petitions or other proceedings in insolvency,
possess judicial powers in enquiring into proof of debts. For that
purpose he can be regarded as the Court under Cr Pc, but not when he is
presiding a meeting of creditors.
As per the Tanjore v Nataraja Sastrial (1923), the local government
appointed Official Receivers to be Receivers under the Provincial
Insolvency Act. In absence of any exceptional reasons such as personal
disqualification affecting the Official Receivers he alone should be
appointed Receiver.

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 Chapter 3: Data Analysis
Objectives
To analyze the prevailing Insolvency Laws in India and U.S. and its effect
on their economies respectively.

To compare the Insolvency Law practiced in India and Bankruptcy Law

practiced in U.S.

To examine the suitability of adapting Single bankruptcy Law in India.

To make few recommendations about the areas which India has to focus
to meet the International Standards of Insolvency.

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Research Methodology
The present study is based on Secondary data (the essential information is
only Government approved and can't be gathered in individual, due to the
above reasons we need to depend only on the auxiliary source).

Keeping in view the above mentioned objectives, we have discussed the paper
with help of the Corporate Law and its Acts, indicators proposed by the World
Bank.

This paper is a combination of both Exploratory and Descriptive Research.

Exploratory research is research conducted for a problem that has not been
clearly defined. It often occurs before we know enough to make conceptual
distinctions or posit an explanatory relationship. Exploratory research often
relies on secondary research such as reviewing available literature and/or
data, or qualitative approaches.

The main goal of Descriptive Research is to describe the data and

characteristics about what is being studied. The idea behind this type of
research is to study frequencies, averages, and other statistical calculations.

The conceptualizing of descriptive research (categorization) precedes the

hypotheses of exploratory research.

Descriptive research and explanatory research fit together to see Conceptual

framework.

21
 Discussion
The stream of insolvency laws can be segregated chiefly under two heads:

Personal Insolvency, which deals with individuals and partnership firms

governed by Provisional Insolvency Act, 1920 and Presidency Towns
Insolvency Act, 1908 and Corporate Insolvency, whose consequence is
winding up of the company under the Companies Act, 1956.

Under the Constitution of India Bankruptcy & Insolvency is Entry 9 in List III
- Concurrent List, (Article 246 Seventh Schedule to the Constitution)1 i.e.
both Center and State Governments can make laws relating to this subject.

I. Insolvency Laws of India

In context of corporate laws, the word "insolvency" has neither been utilized
nor characterized as a part of India. Be that as it may, Section 433 (e)2 of the
Companies Act, 1956 covers a company, which is "not able to pay its debts",
and hence constitutes a ground for winding up of the company.

In India the process of winding up of companies is regulated by the

Companies Act and is under the supervision of the court. Despite the fact that
article 19 (1)(g)3 of the Constitution of India offers opportunity to practice any
profession or to bear any occupation, trade or business to the subjects of
India, there are confinements on conclusion of any industrial undertaking.
Such confinement is defended on the ground that it is in public interest to
prevent unemployment. As a consequence of such policy there is a

22
opportunity to undertake any industrial activity, but there is no freedom to
exit.

The present Legal and procedural system relating to Corporate Insolvency

separated from a few other unique provisions like debt recovery laws, is laid
out by four major legislations, namely:

Companies Act 1956 (Relevant sections under Companies Act 2013 are
not yet implemented)
Sick Industrial Companies (Special Provisions) Act, 1985 [SICA]
Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest Act (SARFAESI) Act, 2002 otherwise called the
Securitization Act.
Recovery of Debts due to Banks and Financial Institutions Act, 1993
(RDB Act) [Debt Recovery Tribunals are set up under this Act].

I.1 Companies Act 19564

An extensive legislation, demonstrated after the British Companies Law, gives

a variety of powers on the federal (Union) government (the Department of
Companies Affairs via the Company Law Board) and the legal framework (the
High Courts) to monitor and direct companies. Under this Act, liquidation of a
company facing financial distress can be accomplished via two modes:

Voluntary liquidation by creditors or

Involuntary liquidation by court.

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In the first and the more effective instance of voluntary liquidation,
shareholders vote in favor of liquidation and hand over control of the
liquidation process to secured creditors, who then employ a private or an
official liquidator to supervise the asset sales and distribution; In the second
case, a creditor with a minimum amount of 500 of unpaid and undisputed
debt, in the wake of giving three weeks notification to the debtor, can appeal
to the court for automatic liquidation, in which case, the court will focus on
the legitimacy of the claim and the sensibility of the request before ordering
liquidation. Then again, the courts actions are absolutely discretionary and
the court may decline to hold the company insolvent on different
contemplations including that of public interest. Amid the time it takes for
the courts to decide upon a case, the debtor stays possessing the advantages,
but once the winding-up has been ordered by the court, an official liquidator
(government personnel) is designated who then takes responsibility of the
whole process from claiming and selling assets, recovering uncalled capital
from contributories and paying off the companys liabilities. In settling the
claims, the highest priority is accorded pari passu (where everyone is equal in
front of the law) to secured creditors and workers dues, followed by
preferential status of government and administrative claims (personnel
severance pay and accrued insurance and pension benefits), with the residual
going towards settling the claims of unsecured creditors and equity holders.
Fraudulent and preferential transfers that occur within six months of the
liquidation petition are dealt with as in the US Bankruptcy code. An intriguing
feature of this provision is the nonappearance of a programmed stay then
period between documenting of the request and a decision by the court, and

24
this interim period, which can last up to a year, is typically described by a free
for all of claims by a wide range of petitioners and in some cases sale of
collateral in possession of creditors. Restructuring under this Act is restricted
to either a merger & acquisition strategy or a voluntary compromise
arrangement between the company and the creditors if an adjustment in the
capital structure (changing debt for equity or reducing equity) is justifies as a
major part of the compromise. The compromise arrangement can be proposed
by any party (creditors, management, government, official liquidator) yet it
has to be approved by creditors (majority in numbers and three-fourth in
value) and affirmed by the court, which has the power to administer the
implementation of the compromise. There is no provision similar to a cram-
down, which would make the compromise binding without the approval of
the essential square of creditors. Likewise, the liquidation and reorganization
petitions here are not so much sequential and either proceeding can trigger
the other whenever until an order for liquidation is passed.

India started its journey for industrial development after independence

in 1947. The industrial policy resolution of 1948 marked the beginning
of the evolution of the Indian Industrial Policy; and from there on with
the economic and social development there has been shift in the
industrial policy from the directed and regulated economy in the 1948
and 1956 Policy Resolution, to the free market economy in 1991. The
problem of industrial sickness and its considerable drop out on the
nations economy and also the problem faced by financial institutions
(which have invested much of the public funds in such industries) in the
matter of recovery of their dues and the rehabilitation of the sick

25
 industrial company led to enactment of the Sick Industrial Companies
(Special Provisions) Act, 1985.

Industries Development and Regulation Act [IDRA], 19515

The [IDRA] is an essential piece of legislation for the development and

regulation of certain industries. It contains provisions for the regulation of
industries to prevent industrial undertakings from falling sick and
consequently hampering the production of materials necessary for the
economic development of the nation.

Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and [IDRA]

The two Acts i.e.; the [IDRA] and SICA work in different fields however they
would appear to be overlapping. The [IDRA] was enacted for the development
and the regulation of certain industries. The [IDRA] applies to industries
specified in the schedule to the Act and the SICA is applicable to those
exceptional companies having industries as mentioned in the schedule to the
[IDRA].

I.2 Sick Industrial Companies Act 1985

This Act, constituting the closest alternative to a comprehensive bankruptcy

framework, established a semi-legal body, the Board for Industrial and
Financial Reconstruction (BIFR)6, to secure timely detection of sick
industrial companies and to provide the appropriate type of intervention. This
procedure is applicable only for industrial companies that have been
registered for more than 5 years and have accumulated losses at the end of
any year greater than their net worth (The SIC Act characterizes net worth as

26
the sum of paid up capital and free reserves; free reserves include all
reserves from profits and share premium account but not from revaluation of
assets, depreciation write-offs or amalgamation) and have no less than 50
laborers on any day in preceding 12 months and also have a factory license.

The Board of Directors of the company is required to file an application with

the BIFR within 60 days from the finalization of the audited accounts of the
year in which the company has fallen sick.

Once an application for intervention has been filed, the BIFR has three choices.
It can

1. approve a management/creditor supported arrangement without

concessional financing,
2. determine unviability of the business and prescribe liquidation to the
court (governed by Companies Act, 1956 discussed above) or
3. claim that the firm must be rehabilitated in public interest (at present
enlisted sick cases utilize ~ 2.2 million workers) and affirm an
arrangement requiring major concessions and sacrifices from the
different parties including subsidies from the government.

In the choices 2 and 3, the BIFR appoints an operating agency (OA), usually
the largest secured lender (a bank or financial institution), to determine the
viability of the company and propose a turnaround arrangement. In this case,
an automatic stay against all claims, suits and legal proceedings against the
sick company is granted as soon as the case is registered with the BIFR but
the debtor remains in possession of the assets. Any action recommended by

27
the BIFR can be challenged before the courts by the management or the
creditors, and often the courts refer the case back to the BIFR for further
review causing an interminable circle of postponements.

Albeit in fact, SIC Act has been repealed by the Sick Industrial Companies
(Special Provisions) Repeal Act 2003 (the Repealing Act), which still has not
yet come into force.

I.3 Securitization and Reconstruction of Financial Assets and Enforcement

of Security Interests Act, 2002 (SARFAESIA)

SARFAESIA empowers banks or financial Institutions with a presence in India

or which have been advised by the government of India, to recover on non-
performing assets (NPAs) without court intervention.

An asset is classified as non-performing if interest or installments of principal

due remain unpaid for more than 180 days. SARFAESIA provides three
different methods for recovery of non-performing assets, including

1. taking possession
2. selling and leasing the assets underlying the security interests such as
movable property (tangible or intangible, including accounts
receivables)
3. Immovable property without intervention of the courts.

The SARFAESIA is not accessible to secured creditors, which are not Indian
Banks or Financial Institutions notified by government of India.

28
Therefore, this mechanism is largely seen as a debt recovery tool and not an
Insolvency resolution tool because it doesnt ease rescue in practice.

I.4 Recovery of Debts due to Banks and Financial Institutions Act, 1993
(RDDBFI Act)7

An amazingly dubious and every now and again questioned legislation

ordered as a component of the financial reforms in the mid-1990s, this Act
permits banks and financial institutions to seek after recuperation of
extraordinary debts more noteworthy than 1 million by filing a petition
before a Debt Recovery Tribunal (DRT). The DRT issues a recuperation
request (essentially through liquidation of assets) after a moderately quick
procedure of assessing and approving the case, which may override the other
two regulations in jurisdiction, inclination and need of cases. The justification
for this clashing legislation is that "the civil courts are troubled with different
sorts of cases. Recuperation of dues because of banks and financial
institutions is not given any need by the civil courts. The banks and financial
institutions like some other disputants need to experience a procedure of
seeking after the cases for recuperation through civil courts for unduly long
stretches" (Justice Eradi Committee Report, 2000).

Figure 1 below shows a schematic summary of the various legal routes

available to companies under financial distress.

29
II. Insolvency of Non- Corporates8

The Companies Act 2013 and other acts like SICA, SARFAESIA, RDDBFIA and
even the past Companies Act 1956 just administer the insolvency proceedings
of corporates. Insolvency proceedings of Non-corporates like Individuals or
Sole Proprietors, Partnerships and Co-operatives are described below-

The Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act,
1920 are two noteworthy establishments that deal with personal insolvency
and have parallel provisions and their substantial content is also similar but
the two vary in respect of their state specific jurisdiction. While Presidency
Towns Insolvency Act, 1909 applies in Presidency towns namely, Kolkata,
Mumbai and Chennai, Provincial Insolvency Act, 1920 applies to all provinces
of India. The Presidency Towns Insolvency Act, 1909 consists of 127 sections
and 2 schedules. The Provincial Insolvency Act, 1920 consists of 83 sections
and 2 schedules. These two Acts are applicable to individuals as well as to sole
proprietorships and partnership firms and are not applicable to corporations
or against any association or company registered under any enactment.

INSOLVENCY OF SOLE PROPREITORSHIP

The owner of a sole proprietorship is not a separate legal entity from the
business of the sole proprietorship. So the laws governing bankrupt
individuals also oversee insolvent sole proprietorships. Individuals can file a
petition for their own bankruptcy or a court may proclaim them bankrupt on
the off chance that they are unable to pay their debts.

30
 INSOLVENCY OF PARTNERSHIP FIRM

Each of the partners is jointly and severally liable for the debts of the
partnership. On dissolution of a partnership, the assets of the partnership
must be first applied towards the repayment of debts of the partnership to
third parties. If the assets are not sufficient to repay the debts, the creditors
may take proceedings against the partners. According to Section 41 of the
Indian Partnership Act, 1932 a partnership will be dissolved if all but one of
the partners becomes insolvent9.

In case of Limited Liability Partnership (LLP), provisions related to winding

up & dissolution of limited liability partnership , compromise, arrangement or
reconstruction of LLP are laid down by Limited Liability Partnership Act,2008
(LLP Act) along with detailed provisions on the same in Limited Liability
Partnership Rules,2012 . The provisions are similar to ones in Companies Act
201310.

Most aspects of insolvency resolution of other partnerships are governed

under personal insolvency law.

INSOLVENCY OF CO-OPERATIVE SOCIETIES

Cooperative Societies fall under the State List in Constitution & there are state
specific legislations for their winding up. In addition, the Co-operative
Societies Act, 191211 & the Multi- State Co-operative Societies Act, 2002, which
are both central acts. Be that as it may, these acts does not accommodate for
rehabilitation & revival of sick co-operative societies12.

31
III. Companies Act 201313

The Companies Act 2013 provides for a new comprehensive regime for
revival and rehabilitation of companies not all like SICA which is applicable to
some specified industrial companies only, the Companies Act 2013 for
corporate rescue is applicable to all companies. The rescue related provisions
of new Companies Act 2013 made a few upgrades over the old regime.

Chapter XIX accommodates instrument by which corporate revival &

rehabilitation may be attempted, however it doesnt accommodates
automatic ban.
Provisions in chapter XX relates to winding up of companies. It
incorporates winding up by Tribunal, Voluntary Winding Up, winding
up by every mode, Official Liquidators.
Chapter XXI additionally gives provisions about Winding Up of
Unregistered Companies. (These chapters are not yet notified).

The insolvency procedure for corporates had experienced significant change,

subsequent to the time it was initially formulated. The earliest act, Companies
Act 1956 has been modified time-to-time enhancing the insolvency
procedures through distinctive corrections. The latest improvisation of whole
Companies Act 1956 is Companies Act 2013. Also the other acts like SICA,
SARFAESIA, and RDDBFIA had experienced different amendments.

Actually, insolvency acts overseeing personal insolvency (Individuals or Sole

Proprietors) had been rigid and had never experienced any progressions. It
has been ineffective in practice to a great extent.

32
IV. Governing Bodies

Under the Companies Act 1956, there was always a mechanism for resolution
of disputes. Till 2002 amendments to Companies Act 1956, Company
Court/High Court and Company Law Board are the two bodies which had the
power for dispute resolution mechanism. With object of building up a
particular dispute resolution mechanism at one place and without running to
different forms for various issues, a National Company Law Tribunal (NCLT)
was proposed to be constituted under Section 10FB of Companies Act 1956
(which is yet to be established).

IV.1 Company Court/High Court

It is surely understood that High Court is a Constitutional Court and it enjoys

the extraordinary power under Article 226 of Constitution of India14. As
indicated by Companies Act 1956, amendments of 2002 dispute mechanism
dwell with Company Court. These have jurisdiction to captivate certain
company matters like winding up, amalgamation petitions etc. The winding
up methodology according to Companies Act 1956, which is as of now in
operation (for the sections not notified in Companies Act 2013), gives the
relevant powers to High Court acting as Company Courts. High Court has
jurisdictions in voluntary as well as compulsory winding up of companies.
High Court governs the proceedings with respect to following matters:

Winding up petition & its hearing

Appointment of liquidator & provisional liquidator, in special cases
Passing the winding up order

33
 For closing, continuing & transferring suit or proceeding
Calling for annual general meeting of creditors in case of voluntary
winding up.

High court has jurisdictions in relation to place at which registered office of

the company concerned is located.

The Official Liquidator

An Official Liquidator (OL) designated by the Government, is attached to every

High Court. The Court, after passing the winding up order, designates the
liquidator. In circumstances of compulsory winding up, by virtue of his office
and the order of the Court, the Official Liquidator becomes the liquidator of
the Company. He then assumes responsibility of the affairs of the company
and caries out the process of winding up as per the provisions of section 444
of the Act15. He might however apply to the Court for directions if any needed
with respect to any matter relating to winding up.

IV.2 Company Law Board

The Company Law Board is an autonomous semi-legal body in India which has
powers to disregard the conduct of companies within the Company Law. The
idea of Company Law Board in its present structure was introduced through
an amendment to the Companies Act 1956 in the year 1988. Company Law
Board is additionally dispute resolution mechanism constituted under section
10E16 of the Companies Act 1956 and it is directed by Company Law Board
Regulations, 1991. It is a specific forum and exercises vital functions which
has effects on the corporate world. It has powers to entertain applications

34
under Sections 397/398. It controls the undertakings of companies and
prevents the illicit activities by a group in the company. The Company Law
Board will be succeeded over by the National Company Law Tribunal (NCLT),
which will govern all companies under the Companies Act, 2013.

IV.3 Debt Recovery Tribunal

The Debt Recovery Tribunal (DRT) is administered by provisions of the

Recovery of Debt Due to Banks and Financial Institutions Act, 199317. The
object of the DRT is to receive claim applications from banks and Financial
Institutions against their defaulting borrowers. For this reason, the Debt
Recovery Tribunal (Procedure) Rules 1993 have likewise been framed.

Keeping in accordance with the global trends on helping financial institutions

recover their bad debt quickly and proficiently, the Government of India has
constituted thirty three Debt Recovery Tribunals and five Debt Recovery
Appellate Tribunals across the nation.

IV.4 Special Courts

According to Companies Act 2013, there are provisions for establishment of

Special Courts for giving expedient trial of offences under this Act. A special
court will consist of a special judge, who is appointed by Central government
with the concurrence of Chief Justice of High Court. The jurisdictions
governing these special courts are laid down in Chapter XXVIII (Section 435 to
Section 446)18 of the Companies Act 2013.

35
IV.5 National Company Law Tribunal (NCLT) & National Company Law
Appellate Tribunal (NCLAT)

In 1999, the Indian government set up a High Level Committee headed by

Justice V.B. Balakrishna Eradi, to look at existing law & prescribe changes to
the winding up provisions. In 2000, the panel filed its report and prescribed,
that winding up & liquidation procedure be incorporated with a tribunal
called the National Company Law Tribunal (NCLT). Following the
recommendation in December 2002, the Companies (Amendment) Act 2002
was passed19. According to this Act, winding up proceedings& liquidation
process of companies will never again be bifurcated between the BIFR & High
Courts yet rather will be under one umbrella of NCLT. All jurisdictions
practiced by the high courts with respect to companies would be transferred
to NCLT and NCLAT. However the judicial survey powers under Article 226
and 227 of the constitution will stay with the high courts. All petitions pending
before CLB and BIFR will likewise be transferred to NCLT and NCLAT. In spite
of the fact that the Amendment Act is passed, just the portion of Amendment
Act that set up NCLT is as of now operational because entire Amendment Act
has not been notified till date. So NCLT has not yet been established. The
powers & laws governing NCLT have been mentioned in Chapter XXVII of CA
2013 (which is not yet enforced)20.

36
V. Bankruptcy Law of U.S.A

Bankruptcy in United States of America is governed under the United States

Constitution (Article 1, Section 8, clause 4) which enables Congress to
institute Uniform Laws on the subject of Bankruptcies all through the United
States. United States Law governing Formal Business and Personal Financial
Reorganization or Liquidation is divided between Federal and State Law. Most
critical Formal Reorganizations or Liquidations are administered under the
Jurisdiction of Federal Bankruptcy Court in accordance with Bankruptcy
Reform Act of 1978.

Bankruptcy Reform Act of 1978, as amended is commonly referred to as the

Bankruptcy Code (Code). The Code has been amended several times since,
with the most significant recent changes enacted in 2005 through the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(BAPCPA). The Bankruptcy code was planned to establish procedures to
accomplish two conflicting targets:

Collection and equitable distribution of debtors assets

Relief from debt for the benefit of debtor.

Bankruptcy Code of United States is partitioned into two separate zones:

The first region applies to a wide range of Bankruptcies, regardless of

what sort of relief a debtor or creditor decides for. It includes Chapter 1,
3, 5 of the code. This region contains general provisions, for example,
definitions, rules of construction, administration techniques, rights and
obligations of debtors, and claims by the creditors.

37
 The second territory offers a debtor or creditor specific sorts of relief. It
incorporates chapter 7, 9, 11, 13 of the code.
Chapter 7

Chapter 7 Bankruptcy is a Liquidation proceeding accessible to individual

consumers and businesses. Liquidation includes the arrangement of a trustee;
to gather the non- exempt property of debtor and to reduce it to money, and
the proceeds are distributed to creditors as per the priority scheme
established by the Bankruptcy Code. A consumer debtor receives a release
from debt, with the exception of specific debts that are acknowledged from
release by the Bankruptcy Code. Chapter 7 cases are regularly no asset
cases, implying that there are not adequate non-exempt assets to fund a
distribution to creditors.

Chapter 9

Chapter 9 applies to adjustment of debts of an Insolvent Municipality or other

Governmental Unit. Chapter 9 is a form of reorganization, not liquidation.

Chapter 11

Chapter 11 Bankruptcy administers Reorganizations. It provides a procedure

by which an individual or a business can reorganize debts while continuing to
operate. The dominant parts of chapter 11 cases are filed by businesses. The
debtor, regularly with support from creditors, makes an arrangement of
reorganization under which it proposes to repay part or all of its debts.

Chapter 13

38
Chapter 13 Bankruptcy accommodates adjustment of debts of Small
Businesses and Individuals. It is utilized by individual consumers to
reorganize their financial affairs under a repayment plan that must be
completed within three to five years. To be eligible for chapter 13 relief, a
consumer must have consistent pay and may not have more than a
predetermined amount of debt.

All in all, Bankruptcies cases are either voluntary or involuntary. In voluntary

bankruptcy cases, in the majority of cases, debtors petition the bankruptcy
court. With involuntary bankruptcy, creditors, rather than the debtor, file the
petition of bankruptcy. Whereas involuntary petitions are uncommon, in any
case, and are incidentally utilized as a part of business settings to compel a
company into bankruptcy so that creditors can implement their rights.

The largest bankruptcy in U.S. history occurred on September 15, 2008, when
Lehman Brothers Holdings Inc. filed for Chapter 11 protection with more than
$639 billion in assets.

From a speculators perspective, there isnt much good to say in regards to

bankruptcy. Regardless of what sort of investment an investor made in a
company, once it goes bankrupt, he is likely going to get a lower return than
anticipated. As an individual investor, he wont have any more say in
companies restructuring plan. In general, Chapter 11 is any time superior to
Chapter 7; however in either case investor should not expect much of his
original income back. Relatively few firms undergoing Chapter 11 procedures
have the capacity to be profitable again after reorganization; regardless of the
possibility that they do get to be profitable again, it is never a quick procedure.

39
VI. The Comparative Analysis between Indias and United States
Insolvencies

The word bankruptcy often calls on negative associations and its results can
deter potential entrepreneurs from starting a new business venture. While
reducing the stigma associated with bankruptcy, policy makers can minimize
the negative impacts of business failures and boost their constructive
outcomes by embracing efficient and well-functioning bankruptcy laws.
Bankruptcy laws advance predictability for both creditors and entrepreneurs-
by establishing the rules for the worst case scenario. They permit
entrepreneurs to determine the maximum risk associated with the field
venture.

The Doing Business indicators on Resolving Insolvency measure the

proficiency of insolvency frameworks around the world. The indicators used
for ranking a country on issue of Resolving Insolvency are:

Time

Time for creditors to recover their credit is recorded in calendar years. The
reference span of time is from the companys default until the installment of
some or greater part of the money owed to the bank. Potential delays are
looked into.

Cost

The cost is measured as a percentage of estate value of the debtor. It is

calculated on the basis of questionnaire responses and incorporates court

40
charges and government duties, fees of insolvency administrators,
auctioneers, assessors and lawyers, and various charges and expenses.

Outcome

It considers whether the business continues operating as a going concern (in

which 100% value is saved) or whether its assets are sold piecemeal
(maximum 70% of value can be recovered).

Recovery rate

It measures the cents on the dollar recovered by secured creditors through

reorganization, liquidation or debt enforcement proceedings. It gives present
estimation of debt recovered. The official expenses of insolvency proceedings
are deducted. If economy had zero cases a year over the past 5 years, economy
receives a no practice stamp on time, cost and outcome indicators. The
recovery rate for no practice economies is zero (0).

Strength of Insolvency Framework

It is essentially a new indicator (introduced in 2014) which measures the

good practices in accordance with principles developed by World Bank and
The United Nations Commission on International Trade Law (UNCITRAL). It
gauges the quality of Insolvency Laws. This index is based on four other
indices;

1. Commencement of Proceedings Index

2. Management of Debtors Assets Index
3. Reorganization Proceedings Index

41
 4. Creditor Participation Index.

The strength of insolvency framework index is the sum of the score of 4

(above mentioned) sub- indices. It ranges from 0-16, with higher values
indicating insolvency legislation that is better designed for rehabilitating
viable firms and liquidating non-viable ones.

This index also takes a score of 0 in case of no practice economies.

According to the World Banks Doing Business Report, India ranked 137 (of
189 economies) in Resolving Insolvency in 2015. In comparison to 2014, its
position dropped by 2 points.

In India, resolving insolvency takes 4.3 years on average and costs 9% of the
debtors estate with the most likely outcome being that the company will be
sold as piecemeal seal. The average recovery rate is 25.7 cents on the dollar.
The strength of insolvency framework index takes the value of 6 for India. In
2009 India made resolving insolvency easier by increasing the effectiveness of
the processes and thereby reducing the time required (Doing Business 2015).

On the contrary, according to World Banks Doing Business Report U.S. ranked
4 (of 189 economies) in Resolving Insolvency in 2015. In comparison to
2014, its position remained the same.

In U.S., resolving insolvency takes 1.5 years on average and costs 8.2% of
debtors estate with most likely outcome being that the company sold as a
going concern. The average recovery rate is 81.5 cents on the dollar. The
strength of insolvency framework index takes the value of 15 for U.S.

42
 Table 1: Resolving Insolvency India U.S.
Economy Year Resolving Insolvency

Time Cost (% Outcome Recovery Strength of

(years) of estate) rate ( cents Insolvency
on the Framework
dollar)

India 2007 4.3 9 24.3

2008 4.3 9 23.1
2009 4.3 9 23.1
2010 4.3 9 24.3
2011 4.3 9 27.6
2012 4.3 9 0 26
2013 4.3 9 0 25.9
2014 4.3 9 0 25.4 6
2015 4.3 9 0 25.7 6
U.S 2007 1.5 7 77
2008 1.5 7 75.9
2009 1.5 7 76.7
2010 1.5 7 76.7
2011 1.5 7 81.5
2012 1.5 0.1 1 81.5
2013 1.5 7 1 81.5
2014 1.5 8.2 1 80.4 15
2015 1.5 8.2 1 80.4 15

Source: Doing Business Statistics

43
 Recovery rate (cents on the dollar)- U.S.
82

81

80

79

78

77 Recovery rate (cents on the dollar)

76

75

74

73
2007 2008 2009 2010 2011 2012 2013 2014 2015

Figure: 1

Recovery rate (cents on the dollar)- India

28

27

26

25

24 Recovery rate ( cents on the

dollar)
23

22

21

20
2007 2008 2009 2010 2011 2012 2013 2014 2015

Figure: 2

44
The Doing business Statistics depicts a below average profile for India
compared to U.S in terms of resolving Insolvency. India scores under the U.S.
in terms of recovery rate, cost of recovery and strength of insolvency
framework whereas it surpasses the U.S. mark regarding the time of
Insolvency. India has a very low recovery arte compared to U.S. due to
excessive length of insolvency procedure and by the piecemeal liquidation
because the recovery rates are lower in this kind of sales as compared to
going concern sales.

Weakness of insolvency regimes become apparent during crises. When a weak

insolvency framework does not provide for effective formal & out-of-court
mechanisms to address financial distress, more debts remain unresolved &
more companies languished, unprofitable but with their assets unavailable to
their creditors & little chance of turnaround. An insolvency framework that
allows debtors & creditors to find solutions through fast, inexpensive,
transparent procedures can facilitate debt repayment, encourage lending &
led to a higher survival for viable enterprises. Greater protection for secured
creditors, led to a significant reduction in the cost of debt & an increase in
both short- term & long- term debt.

Procedures that may apply to an insolvent firm:

Reorganization: It addresses debt of all creditors, secured & unsecured,

and permits suitable businesses to continue operating as a going
concern. This is the most economically efficient outcome.
Liquidation: It addresses the concern of all creditors collectively, though
business is shut down usually upon completion of proceedings.

45
 Receivership: it includes secured creditor taking over the operation of
the debtors company to protect its collateral, the business may
continue operating as a going concern.
Foreclosure: It augments the enthusiasm of secured creditors but dont
permit the continuation of the business & disregard the concerns of
unsecured creditors.

The highest recovery rates are recorded in economies where reorganization is

most common insolvency proceeding.

Economies with good bankruptcy procedures are those that augment the total
estimation of recovered debt at low cost. India needs to increase the recovery
rate in order to determine creditors to reinvest in viable firms and to
continue lending by diminishing the time and cost to resolve insolvency and
by selling in going concern, taking into consideration the fact that recovery
rates are higher in going concern sales than in piecemeal liquidation. By
taking these activities India will, have more developed credit markets.

A good insolvency regime should inhibit premature liquidation of sustainable

businesses. It ought to additionally discourage lenders from issuing high- risk
loans & managers & shareholders from taking unwary loans & making other
reckless financial decisions. Likewise more grounded regulatory protections
for creditors & ability to effectively participate in insolvency proceedings are
associated with lower costs of debt as well as a significant increase in the total
level of credit. If a bankruptcy regime respects the absolute priority of claims,
this allows secured creditors to continue lending & maintains confidence in
the bankruptcy system. Additionally, insolvency reforms that support debt

46
restructuring & reorganization reduce both failure rates & liquidation of
profitable businesses. There is a bound together global goo- rehearse
standard on creditor & debtor regimes & insolvency put forward by the World
Bank & the United Nations Commission on International Trade Law
(UNCITRAL). Good practices in many economies are aimed for enhancing both
the efficiency & the outcome of insolvency proceedings. These incorporate
streamlining insolvency procedures, setting up viable reorganization
proceedings & strengthening creditors rights.

From the last few years many countries are transforming their insolvency
frameworks. These changes have diverse purposes & objectives & can be
classified into 2 categories:

Foundational reforms create an insolvency framework or establishing

new insolvency procedures & require legislative action.
Evolutionary reforms improve existing procedures by strengthening the
legal framework or institutions applying to it, to accomplish the most
economically efficient outcomes.

Economies undertaking foundational reforms generally have no formal

insolvency regime, & creditors for the most part depend on individual
procedures as a method for debt enforcement in instances of debtor default.
Economies undertaking evolutionary reforms as of now have insolvency
framework with one or more collective proceedings.

47
 Case of Suzlon Energy
Suzlon is a vertically integrated wind power company. Suzlon makes and
installs windmills. The company manufactures blades, generators, panels, and
towers in-house and large or offshore turbines through its subsidiary Senvion
(German wind Turbine Company).

Suzlon Energy Limited, was ranked as the worlds fifth largest wind turbine
supplier, in terms of cumulative installed capacity and market share, at the
end of 2013. In India, Suzlon has been the market leader for 15 consecutive
years, with more than 8,600 MW of installed capacity, and progressive
addition of new capacity every month.

Suzlon Energy Ltd fell into bad times during the global economic crisis and
had been struggling ever since. There were many reasons for its fall from
grace. As demand raced ahead of supply in the days before the financial crisis,
Suzlon had started building wind blades without waiting for orders. However,
inventory piled up as orders shrank. The Wall Street Journal reported in
August 2008 that Suzlon had recalled 1,251 blades fitted on its top-of-the-line
turbines sold to Edison Mission Energy, a US-based wind power firm. Edison
told the US Securities and Exchange Commission that the 144ft blades had
begun to split at its three sites. Suzlon spent $25 million to change the blades
that had developed cracksnot a massive amount, but a setback given the
context.

In the biggest convertible FCCB default in India, Suzlon failed to pay interest
on $209 million of debt on 11 October 2012, after bondholders rejected its

48
request for a four-month extension. Suzlon launched a turnaround
programme, code-named Project Transformation. On 24 January 2013, its
19 lenders agreed to recast Rs.9, 500 crore of debt and convert the interest
payable for two years into 32.1% equity. They also agreed to enhance working
capital loans by Rs.1, 800 crore and a 10-year deferred repayment plan. The
promoters brought in equity and Suzlon sold bonds to refinance its existing
loan with the help of lenders to improve cash flows. The company started
making turbines only on receiving orders. After 18 months of talking to
bondholders around the world, Suzlon on 3 May 2014 announced a cashless
restructuring of $485 million worth of foreign currency convertible bonds for
five years. These bonds will mature in 2019-20. This was the last piece in a
comprehensive liability management programme at Suzlon. The company sold
assets worth Rs.700 crore (Stake sale in Chinese subsidiary and US wind farm
in FY14), cut staff to 3,200 and reduced fixed operation expenditure by 31%.
It also raised volumes to 723 megawatts (MW) in 2013-14 from 251MW in the
previous fiscal year, a 188% growth year-on-year.

Besides all these debt reducing programmes there was a huge infusion of Rs.
1, 800 crore into the company by Dilip Shanghvi Family and Associates (DSA)
in February 2015 which is also equal to 23% stake in the Business. Tulsi Tanti
also sold Senvion, which was the main contributor to company's revenues of
Rs. 20, 212 cr (FY14) for 1 billion euro and additional 50 million euro subject
to certain conditions.

49
 Chapter 4: Conclusion
It should be noted that as long as failing company remains economically viable
it should be first subject to reorganization or rescue process & not liquidation.
The business could also be sold on a going concern basis followed by
liquidation of residual entity.

There is always a vital need to govern bankruptcies through legal

jurisdictions. Complying with too many laws is a complex procedure; dual
insolvency laws increases the time, effort and cost to dissolve a particular
company while single bankruptcy law minimizes the time and effort for the
same.

As we know, India is currently following Dual Insolvency framework

separating out personal and corporate insolvency. It seen that delays both at
the level of the insolvency officials or at the courts/tribunals are primarily
responsible for the failure of Indian Insolvency regime. The delays in the
proceedings are attributable to factors like

Lack of Institutional capacity,

Requirement of courts approval,
Complicated priority regime
Hold outs by certain creditors and
Legislations required by multiple forums

Moreover the dual laws require the segregation of personal insolvency and
corporate bankruptcy. But in practice such a distinction is difficult to make.

50
The insolvency procedures in India under Companies Act 1956 appear not
just dysfunctional but near defunct. It is important to note that most secured
creditor now prefer enforcing their security interests under SARFAESI Act
instead of initiating liquidation proceedings under Companies Act 1956, this
goes against the main objective of corporate insolvency law- preservation of
going concern value by preventing piecemeal liquidation.

A dysfunctional liquidation regime encourages creditors to initiate separate

recovery proceedings for the same assets leading to conflicts, disorderly
distribution, delays and depletion in value of company. Liquidation
proceedings continued to be unattractive to creditors as a means of debt
enforcement.

According to Goswami Committee Report, the definition of sickness under

SICA only covered companies in the final stages of corporate distress. As per
Eradi Committee, the debtor in possession regime under the SICA & the
rehabilitation bias of the BIFR are adversely affecting corporate rescue. The
RBI Report opined that the restructuring did not provide the scope for
voluntary renegotiation by creditors, hampering financial prudence. It was
suggested that debtor companies abused the SICA provisions to avoid
repayment of debts owed to creditors, and to siphon away whatever value
remained in the company during the pendency of such proceedings. The Irani
Committee Report also pointed out that the non-representation of unsecured
creditors in the restructuring process led to legal proceedings being initiated
during the rehabilitation proceedings, ultimately hampering the efficiency of
litigation process. In the recent times, August 2014, a committee had been

51
formed under the leadership of T.K.Viswanathan to study the current
insolvency framework and suggest possible improvements.

The above discussion points out the loopholes or areas that needs to be
strengthened in the Indian Insolvency Framework. A Single Insolvency
Regime helps in overcoming the drawbacks of Dual Insolvency Laws.

The several advantages by enacting single insolvency legislation are:

Insolvency law has developed & is considered as a discrete area of

commercial law that is underpinned by a set of concepts, principles &
policies. When individuals & companies are in financial distress,
substantially different concerns, tensions, & stakeholder interests and
objectives emerge, which have to be addressed outside general
commercial & corporate law.
The consolidation of both insolvency regimes into a single piece of
legislation enhances clarity & access to our laws by members of the
various sectors.
Consolidation will help to address the inconsistencies & uncertainties
that invariably arise from having to cross- refer to concepts from
various pieces of insolvency legislations.
Consolidation will ensure that there is proper statutory provision to
support the transition, relationship & coordination between the
different insolvency regimes.

52
 Chapter 5: Recommendations
Following measures can be undertaken for enhancing the efficiency of the
insolvency process:

Establishing time limits for proceedings of liquidation, restructuring &

reorganization,
Giving preference to reorganization as a most common insolvency
proceeding,
Strengthening autonomy of creditors to participate in insolvency
proceedings by measures like Creditors Committees,
Improvement in management of the debtors assets,
Incorporating specific provisions in insolvency laws that would allow
debtors to maintain contracts supplying essential goods & services
during insolvency proceedings,
Unified insolvency proceedings i.e. no separate filing requirements for
liquidation or reorganization,
Provisions for voluntary filing for insolvency by debtors when a
business encounters illiquidity,
Provisions that facilitate continuation of the debtors business during
insolvency,
Permission to take new loans during insolvency in liquidation &
reorganization proceedings with approval of court,
Presenting a reorganization plan by every liquidating business.

53
The committee on the proposed bankruptcy code set up by the finance
ministry under the former law secretary T.K. Vishwanathan has been tasked
to find ways for early detection & resolution of financial distress in companies
& protection of stakeholder interest among others. The report, which may
form base for setting up the new legislation, aims to strengthen the hands of
the creditors, & improve the corporate insolvency regime of the country.
Suggestions by the committee involves:

Allowing any secured creditor to initiate rescue proceedings if the

debtor company fails to pay a single undisputed debt owed to such
secured creditor exceeding a prescribed value within 30 days of
demand or fails to secure or compound such debt to the reasonable
satisfaction of such creditor.
Making provisions for unsecured creditors, if representing 25% of the
unsecured debt to initiate rescue proceedings if the company defaults in
the payment of debt.
Giving creditors a say in determining companys sickness.
Recommended an administrative mechanism for resolving financial
distress of viable MSMEs.
Provide for certain protected harbors for certain financial contracts,
which provide exemptions from the normal operation of insolvency
laws.

54
 Appendix
1. List III Concurrent list, entry 9 Bankruptcy and Insolvency
2. Section 433 (e) circumstances in which company may be wound up by
tribunal.
A company may be wound up by the Tribunal
(e) If the company is unable to pay its debts.

3. Article 19(1) (g) in the constitution of India 1949.

(g) to practice any profession, or to carry any occupation, trade or
business.

4. PART VII : WINDING UP

Chapter I: Preliminary
Chapter II: Winding Up by the Court
Chapter III: Voluntary Winding Up
Chapter IV: Winding Up Subject to Supervision of Court
522 to 527. [Omitted]
Chapter V: Provisions Applicable to Every Mode of Winding Up

5. Chapter IIIAA - Management or Control of Industrial Undertakings

Owned
By Companies in Liquidation: 18FA. Power of Central Government to
authorize, with the permission of the High Court, persons to take over
management or control of industrial undertakings

55
 (1) If the Central Government is of opinion that there are possibilities of
running or re-starting an industrial undertaking, in relation to which an
investigation has been made under section 15A, and that such industrial
undertaking should be run or re-started, as the case may be, for
maintaining or increasing the production, supply or distribution of
articles or class of articles relatable to the scheduled industry, needed
by the General public, that Government may make an application to the
High Court praying for permission to appoint any person or body of
persons to take over the management of the industrial undertaking or to
exercise in respect of the whole or any part of the industrial
undertaking such functions of control as may be specified in the
application.
(2) Where an application is made under sub-section (1), the High Court
shall made an order empowering the Central Government to authorise
any person or body of persons (hereinafter referred to as the A
authorised person@) to take over the management of the industrial
undertaking or to exercise functions of control in relation to the
whole or any part of the industrial undertaking (hereinafter referred to
as the A concerned part@) for a period not exceeding five years:
Provided that if the Central Government is of opinion that it is expedient
in the interests of the general public that the authorised person should
continue to manage the industrial undertaking, or continue to exercise
functions of control in relation to the concerned part, as the case may
be, after the expiry of the period of five years aforesaid, it may make an
application to the High Court for the continuance of such management

56
 or functions of control, for such period not exceeding two years at a
time, as may be specified in the application and thereupon the High
Court may make an order permitting the authorised person to continue
to manage the industrial undertaking or to exercise functions of control
in relation to the concerned part:
Provided further that the total period of such continuance (after the
expiry of the initial period of five years) shall not, in any case, be
permitted to exceed twelve years.
(3) Where an order has been made by the High Court under sub-section
(2), the High Court shall direct the Official Liquidator or any other
person having, for the time being, charge of the management or control
of the industrial undertaking, whether by or under the orders of any
court, or any contract or instrument or otherwise, to make over the
management of such undertaking or the concerned part, as the case may
be, to the authorised person and thereupon the authorised person shall
be deemed to be the Official Liquidator in respect of the industrial
undertaking or the concerned part, as the case may be.
(4) Before making over the possession of the industrial undertaking or
the concerned part to the authorised person, the Official Liquidator shall
make a complete inventory of all the assets and liabilities of the
industrial undertaking or the concerned part, as the case may be, in the
manner specified in section 18FG and deliver a copy of such inventory
to the authorised person, who shall, after verifying the correctness
thereof, sign on the duplicate copy thereof as evidence of the receipt of
the inventory by him.

57
 (5) On taking over the management of the industrial undertaking, or on
the commencement of the exercise of functions of control in relation to
the concerned part, the authorised person shall take immediate steps to
so run the industrial undertaking or the concerned part as to ensure the
maintenance of production.
(6) The authorised person may, on such terms and conditions and
subject to such limitations or restrictions as may be prescribed, raise
any loan for the purpose of running the industrial undertaking or the
concerned part, and may, for that purpose, create a floating charge on
the current assets of the industrial undertaking or the concerned part,
as the case may be.
(7) Where the authorised person is of opinion that the replacement or
repair of any machinery of the industrial undertaking or the concerned
part is necessary for the purpose of efficient running the industrial
undertaking or such part, he shall, on such terms and conditions and
subject to such limitations or restrictions as may be prescribed, make
such replacement or repair, as the case may be.
(8) The loan obtained by the authorised person shall be recovered from
the assets of the industrial undertaking or the concerned part, in such
manner and subject to such conditions as may be prescribed.
(9) For the purpose of running the industrial undertaking, or exercising
functions of control in relation to the concerned part, the authorised
person may employ such of the former employees of the industrial
undertaking whose services became discharged by reason of the
winding up of the company owning such undertaking and every such

58
 person employed by the authorised person shall be deemed to have
entered into a fresh contract of service with the company.
(10) The proceedings in the winding up of the company in so far as they
relate to -
(a) the industrial undertaking, the management of which has been taken
over by the authorised person under this section, or
(b) the concerned part in relation to which any function of control is
exercised by the authorised person under this section,
shall, during the period of such management or control, remain stayed,
and, in computing the period of limitation for the enforcement of any
right, privilege, obligation or liability in relation to such undertaking or
the concerned part, the period during which such proceedings remained
stayed shall be excluded.

6. Section 4. Establishment of Board-

(1) With effect from such date as the Central Government may, by
notification, appoint, there shall be established a Board to be known as
the Board for Industrial and Financial Reconstruction to exercise the
jurisdiction and powers and discharge the functions and duties
conferred or imposed on the Board by or under this Act.
(2) The Board shall consist of a Chairman and not less than two and not
more than fourteen other Members, to be appointed by the Central
Government.
(3) The Chairman and other Members of the Board shall be persons who
are or have been or are qualified to be High Court Judges, or persons of

59
 ability, integrity and standing who have special knowledge of, and
professional experience of not less than fifteen years in science,
technology, economics, banking industry, law, labour matters, industrial
finance, industrial management, industrial reconstruction,
administration, investment, accountancy, marketing or any other
matter, the special knowledge of, or professional experience in which,
would in the opinion of the Central Government be useful to the Board.
Section 5. Constitution of Appellate Authority-
(1) The Central Government may, by notification, constitute, with effect
from such date as may be specified therein, an appellate authority to be
called the Appellate Authority for Industrial and Financial
Reconstruction consisting of a Chairman and not more than three other
Members, to be appointed by that Government, for hearing appeals
against the orders of the Board under this Act.
(2) The Chairman shall be a person who is or has been a Judge of the
Supreme Court or who is or has been a Judge of a High Court for not less
than five years.
(3) A Member of the Appellate Authority shall be a person who is or has
been a Judge of a High Court or who is or has been an officer not below
the rank of a Secretary to the Government of India or who is or has been
a Member of the Board for not less than three years.

7. Chapter II - Establishment of Tribunal and Appellate Tribunal

3. Establishment of Tribunal
4. Composition of Tribunal

60
 5. Qualifications for appointment as Presiding Officer
6. Term of Office
7. Staff of Tribunal
8. Establishment of Appellate Tribunal
9. Composition of Appellate Tribunal
10. Qualifications for appointment as Chairperson of the Appellate
Tribunal.
11. Term of Office
12. Staff of the Appellate Tribunal
13. Salary and allowances and other terms and conditions of service
of Presiding Officers
14. Filling up of vacancies
15. Resignation and removal
16. Orders constituting Tribunal or an Appellate Tribunal to be final
and not to invalidate its proceedings
Chapter III - Jurisdiction, Powers and Authority of Tribunals
17. Jurisdiction, powers and authority of Tribunals.
17A. Power of Chairperson of Appellate Tribunal
18. Bar of Jurisdiction
Chapter IV - Procedure of Tribunals
19. Application to the Tribunal
20. Appeal to the Appellate Tribunal
21. Deposit of amount of debt due, on filing appeal
22. Tribunal
23. Right to legal representation and Presenting Officer

61
 24. Limitation
Chapter V - Recovery of Debt Determined by Tribunal
25. Modes of recovery of debts
26. Validity of certificate and amendment thereof
27. Stay of proceedings under certificate and amendment or
withdrawal thereof
28. Other modes of recovery
29. Application of certain provisions of Income-tax Act
30. Appeal against the order of Recovery Officer

8. PART I Constitution And Powers of Court

PART II Proceedings from Act of Insolvency to Discharge Acts of
Insolvency
PART III Administration of Property
PART IV Official Assignees
PART V Committee of Inspection
PART VI Procedure
PART VIII Penalties
PART IX Small Insolvencies
PART X Special Provisions
PART XI Rules
PART XII Supplemental
9. Section41 - Compulsory Dissolution.
A firm is dissolved (a) by the adjudication of all the partners or of all the
partners but one as insolvent, or (b) by the happening of any event

62
 which makes it unlawful for the business of the firm to be carried on or
for the partners to carry it on in partnership: Provided that, where more
than one separate adventure or undertaking is carried on by the firm,
the illegality of one or more shall not of itself cause the dissolution of
the firm in respect of its lawful adventures and undertakings.
10. Chapter XIII Winding Up and Dissolution
63. The winding up LLP may be either voluntary or by Tribunal and LLP,
so wound up may be dissolved.
64. LLP may be wound by the Tribunal, -
(a) If the LLP decides that LLP be wound by the Tribunal;
(b) If, for a period of more than 6 months, the number of partners of LLP
is reduced below two;
(c) If LLP is unable to pay its debts
(d) If LLP has acted against the interest of sovereignty and integrity of
India, the security of the state or public order;
(e) If LLP has made a default in filing with the registrar the statement of
account and solvency or annual return for any five consecutive financial
years; or
(f) If the Tribunal is of the opinion that it is just and equitable that LLP
be wound up.
65. The Central Government may make rules for the provisions in
relation to winding up and dissolution of LLPs.

11. Dissolution of Society

39. Dissolution.

63
 (1) If the Registrar, after an inquiry has been held under Sec. 35 or after
an inspection has been made under Sec. 36 or on receipt of an
application made by three-fourths of the members of a registered
society, is of opinion that the society ought to be dissolved, he may
cancel the registration of the society.
(2) Any member of a society may, within two months from the date of
an order made under sub-section (1), appeal from such order.
(3) Where no appeal is presented within two months from the making
of an order cancelling the registration of a society, the order Shan take
effect on the expiry of that period.
(4) Where an appeal is presented within two months, the order shall not
take effect until the appellate authority confirms it.
(5) The authority to which appeals under this section shall lie Shan be
the l State Government]:
Provided that the 1[State Government) may by notification in the
2[official Gazette] direct that appeals shall lie to such Revenue authority
as may be specified in the notification.
40. Cancellation of registration of society. -Where it is a condition of the
registration of a society that it should consist of at least ten members,
the Registrar may, by order in writing, cancel the registration of the
society if at any time it is proved to his satisfaction that the number of
the members has been reduced to less than ten.
41. Effect of cancellation of registration. -Where the registration of a
society is cancelled, the society shall cease to exist as a corporate body

64
 (a) In the case of cancellation in accordance with the provisions of Sec.
39, from the date the order of cancellation takes effect;
(b) In the case of cancellation in accordance with the provisions of Sec.
40, from the date of the order.
42. Winding up. -
(1) Where the registration of a society is cancelled under Sec. 39 or Sec.
40, the Registrar may appoint a competent person to be liquidator of the
society.
(2) (a) Liquidator appointed under sub-section (1) shall have power (a)
to institute and defend suits and other legal proceedings on behalf of the
society by his name of office;
(b) To determine the contribution to be made by the members and past
members of the society respectively to the assets of the society.
(c) To investigate all claims against the society and, subject to the
provisions of this Act, to decide questions of priority arising between
claimants;
(d) To determine by what persons and in what proportions the costs of
the liquidation are to be borne; and
(e) To give such directions in regard to the collection and distribution of
the assets of the society, as may appear to him to be necessary for
winding up the affairs of the society.
(3) Subject to any rules, a liquidator appointed under this section shall
in so far as such powers are necessary for carrying out the purposes of
this section, have power to summon and enforce the attendance of
witnesses and to compel the production of documents, by the same

65
 means and (so far as may be) in the same manner as is provided in the
case of a Civil Court under the Code of Civil Procedure, 1908 (5 of 1908).
(4) Where an appeal from any order made by a liquidator under this
section is provided for by the rules, it shall He to the Court of the District
Judge.2 -

(5) Orders made under this section shall, on application, be enforced as

follows:
(a) When made by a liquidator, by any Civil Court having local
jurisdiction in the same manner as decree of such court.
(b) When made by the Court of District - Judge on appeal, in the same
manner as a decree of such Court made in any suit pending therein.
(6) Save in so far as hereinbefore expressly provided, no Civil Court
shall have any jurisdiction in respect of any matter connected with
dissolution of a registered society under this Act.

12. Chapter X - Winding up of Multi-State Cooperative Society

86. Winding up of multi-state cooperative societies
87. Winding up of cooperative bank at the direction of Reserve Bank
88. Reimbursement to the Deposit Insurance Corporation by liquidator
89. Liquidator
90. Powers of liquidator
91. Disposal of surplus assets
92. Priority of contributions assessed by liquidator

66
 93. Power of Central Registrar to cancel registration of a multi-state
cooperative society.

13. Chapter XIX - Revival and Rehabilitation of Sick Companies

Section 253 Section 269
Chapter XX - Winding Up
Section 270 Section 365

14. Article 226 in The Constitution of India 1949

226. Power of High Courts to issue certain writs
(1) Notwithstanding anything in Article 32 every High Court shall have
powers, throughout the territories in relation to which it exercise
jurisdiction, to issue to any person or authority, including in appropriate
cases, any Government, within those territories directions, orders or
writs, including writs in the nature of habeas corpus, mandamus,
prohibitions, quo warranto and certiorari, or any of them, for the
enforcement of any of the rights conferred by Part III and for any other
purpose
(2) The power conferred by clause (1) to issue directions, orders or
writs to any Government, authority or person may also be exercised by
any High Court exercising jurisdiction in relation to the territories
within which the cause of action, wholly or in part, arises for the
exercise of such power, notwithstanding that the seat of such
Government or authority or the residence of such person is not within
those territories

67
 (3) Where any party against whom an interim order, whether by way of
injunction or stay or in any other manner, is made on, or in any
proceedings relating to, a petition under clause (1), without
(a) furnishing to such party copies of such petition and all documents in
support of the plea for such interim order; and
(b) giving such party an opportunity of being heard, makes an
application to the High Court for the vacation of such order and
furnishes a copy of such application to the party in whose favor such
order has been made or the counsel of such party, the High Court shall
dispose of the application within a period of two weeks from the date on
which it is received or from the date on which the copy of such
application is so furnished, whichever is later, or where the High Court
is closed on the last day of that period, before the expiry of the next day
afterwards on which the High Court is open; and if the application is not
so disposed of, the interim order shall, on the expiry of that period, or,
as the case may be, the expiry of the aid next day, stand vacated.
(4) The power conferred on a High Court by this article shall not be in
derogation of the power conferred on the Supreme Court by clause (2)
of Article 32.

15. 444. Order for

Winding Up to be Communicated to Official Liquidator and
Registrar
Where the Tribunal makes an order for the winding up of a company,
the Tribunal, shall within a period not exceeding two weeks from the

68
 date of passing of the order, cause intimation thereof to be sent to the
Official Liquidator and the Registrar. Substituted by the Companies
(Second Amendment) Act, 2002 (w.e.f. a date yet to be notified). Prior to
its substitution, section 444 read as under:
Consequences of winding up order - 444. Order for winding up to be
communicated to Official Liquidator and Registrar. - Where the Court
makes an order for the winding up of a company, the Court shall
forthwith cause intimation thereof to be sent to the Official Liquidator
and the Registrar.

16. Part IA Board of Company Law Administration

10E. Constitution of Board of Company Law Administration.

17. Chapter II - Establishment of Tribunal and Appellate Tribunal

3. Establishment of Tribunal.(1) The Central Government shall, by

notification, establish one or more Tribunals, to be known as the Debts
Recovery Tribunal, to exercise the jurisdiction, powers and authority
conferred on such Tribunal by or under this Act.

(2) The Central Government shall also specify, in the notification referred
to in sub-section (1), the areas within which the Tribunal may exercise
jurisdiction for entertaining and deciding the applications filed before it.

18. Chapter XXVIII - Special Courts

Section 435 Section 446

69
19. Part IB - National Company Law Tribunal
10FB. Constitution of National Company Law Tribunal.- The Central
Government shall, by notification in the Official Gazette, constitute a
Tribunal to be known as the National Company Law Tribunal to exercise
and discharge such powers and functions as are, or may be, conferred
on it by or under this Act or any other law for the time being in force.
10FC. Composition of Tribunal - The Tribunal shall consist of a
President and such number of Judicial and Technical Members not
exceeding sixty- two, as the Central Government deems fit, to be
appointed by that Government, by notification in the Official Gazette.

20. Chapter XXVII - National Company Law Tribunal and

Appellate Tribunal
Section 407 Section 434

70
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01/02/content_1388019.htm

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