Blog Details

Author - Advocate Rashi Suri (Managing Partner)

Litigation

The term Litigation is used to describe initiated proceedings between opposing parties to enforce or defend a particular legal right. Typically, a Litigation is settled by arbitration/ agreement between the parties, but it may also be decided by a judge or jury in the court.

Litigation is not a synonym for a lawsuit as it is generally believed. Litigation includes various activities before it, during, and after a lawsuit to enforce the litigated legal right. In addition to the actual lawsuit, a litigation process may also include pre-suit negotiations, arbitrations, facilitations and appeals.

Insolvency and Bankruptcy Code 2016 (IBC)

The essence of objectives of the Insolvency and Bankruptcy Code 2016 (IBC or Code) of India, in a nutshell, is to consolidate the existing framework and create a single law for insolvency and bankruptcy. The Code can be feathered with four main features namely Insolvency Resolution, Insolvency regulator, Insolvency professionals and Bankruptcy and Insolvency Adjudicator. 

Litigation Process in the IBC

The Code arranges the liability of an organisation in three broad classifications:

1. Monetary Liabilities: these depend on agreements related money

2. Operational Liabilities: these depend on operational agreements

3. Statutory Liabilities: these are payable to government offices

The code provides for establishing a Corporate Insolvency Resolution Process (CIRP) by the National Company Law Tribunal (Adjudicating Authority) when a corporate indebted person or operational bank files an application. The banks having unadulterated budgetary agreement /association with the element are called monetory banks. The Code provides to distinguish between money related loan bosses and operational leasers based upon their liabilities emerging from various fundamental agreements.

The very initial phase in a corporate bankruptcy goals procedure normally enourages to take all possible actions to revive and restart the corporate individual based on a course called 'Goal Plans'. If this does not work as desired then liquidation comes as the next step. in this,  there are cases when endorsed goal plan by the Adjudiating Authority contradicts with the corporate indebted person. In such cases, anyone other than the corporate account holder may make an application before the Adjudicating Authority for a liquidation.

To encourage liquidation, the outlet sets up a domain of the benefits, commonly known as the Liquidation Bequest concerning the corporate debtor, with the outlet holding it as a trustee to suppoer each loan bosses. IBC's segement 38 provides that the vendor shall gather the cases of the loan bosses within a predefined duration of 30 days from the date of beginning the procedure. A lender is permitted to differ his case here within 14 days since accommodation.

The vendor confirms the submitted cases, endorsed by the Insolvency and Bankruptcy Board of India (IBBI) if required, within a predefined duration. The segment 40 of the IBC provides that the outlet may either concede or dismiss the case in written along with its reasons of dismissal, in entire or to some extent, after the check of cases under Section 39. Within a duration of seven days, the outlet must communicate his choice about the cases (either affirmation or dismissal) to the lender and corporate borrower. 

The liquidator shall file the asset memorandum ot the Adjudicating Authoriy along with the preliminary report. The memorandum remains inaccessible to anyone during liquidation process unless permitted by the Adjudicating Authority otherwise.

Distribution of Assets in the IBC

Section 53 of the Code provides for distribution of Assets under ibc. It is to create a waterfall mechanism, whereby the proceeds from the sale of the liquidation assets get distributed in a certain order.

By process, the outlet differs distribution of assets under ibc till the advantage notice gets documented with the Adjudicating Authority. The vendor conveys the returns within a duration of 90 days from the receipt of the sum to the partners. The costs of indebtedness goals procedure and the liquidation expenses shall be deducted prior to the circulation.

The outlet applies before the Adjudicating Authority to pay into the Companies Liquidation Account in the Public Account of India. This includes any unclaimed continues of liquidation, undistributed resources, any other equalization payable to the partners in his grasp on the date of the request for disintegration. 

The IBC further provides that any vendor in possession of any cash, which should have been paid into the Companies Liquidation Account under Regulation, must pay enthusiasm at the rate of 12% per annum in addition to any punishment which might be controlled by the board. this is the process for distribution of assets under ibc

Conclusion

The Code, however, is an answer for settling bankruptcies in shorter procedures perhaps it still suffers from certain inadequacies and boundaries. It appears to be inconsistent with the umbrella objective of IBC to balance stakeholders' interests. A way must be carved out to rectify various anomalies without complicating the mechanism.