Personal guarantors liable for corporate debt

Insolvency and Bankruptcy Code, 2016

• It deals with debt default of companies and limited liability entities, partnership firms and individuals.
• It was based on T K Vishwanathan Committee on Bankruptcy Law Reforms Committee (BLRC) in 2014.
• It proposes a framework to ensure early detection of stress in a business, initation of the insolvency resolution process by the debtor, financial creditor or operational creditor; the liquidation of unviable business and avoiding the destruction of the value of the failed business.
• The Code separates commercial aspects of the insolvency proceedings from judicial aspects.
  • IPs will deal with commercial aspects such as affairs of the corporate debtor, and committee of creditors.
  • Judicial issues will be handled by proposed Adjudicating Authorities (NCLT/DRT).
  • ‘Information Utility’ is created which would store financial information in electronic databases.
• Insolvency and Bankruptcy Board of India (IBBI) is set up.
  • IBBI is a unique regulator i.e. It regulates both professions and transactions.
  • It has regulatory oversight over Insolvency Professionals (IPs), IP Agencies (IPA) and Information Utilities (IU).
  • It writes and enforces rules of corporate insolvency, corporate liquidation, individual insolvency and individual bankruptcy under IBC.
  • IBBI is responsible to implement the IBC and amend laws for insolvency resolution of Corporate persons, partnership firms and individuals in a time-bound manner for maximization of valuation of assets of such person.
  • To promote entrepreneurship, credit availability and balancing the interest of all stakeholders.
  • So far, IBBI has produced 3 sets of regulations: IPs; IPA and bye-laws and Governing board for IPAs.
• The Code also provides a fast track insolvency resolution process for corporates and LLPs. This will be an enabler for start-ups and SMEs to complete the resolution process in 90 days (extendable to 45 days in deserving cases).
• The Code also addresses cross-border insolvency with a detailed framework soon.
• When a corporate entity defaults on its debt, control shifts from shareholders/ promoters to Committee of Creditors (CoC). CoC have 180 days to evaluate the case (90 days extendable).
• IBC has amended India's Corporate insolvency resolution process. Prior to the approval of the resolution plan, the antecedants, credit worthiness and credibility of resolution applicants including Promoter are considered by the Committee of Creditors.
• IBC empowers operational creditors (workmen, suppliers etc.) also to initiate the insolvency proceedings upon non-payment of dues.
• During waterfall (liquidation) Financial debts owed to unsecured creditors have been kept above the Government’s dues..
• Recently India amended IBC and prohibited near relatives, their CA, and Promoters in the Bidding process during Insolvency.
• Even RBI allowed ECB for re-bidding under IBC.
• RBI allowed faulty organizations to bid for their subsidiary organization if they pay interest on the loan in which default is taken place.
• IBC was spearheaded by MoF but now from 2016, the administration is transferred to Mo Corporate Affairs.
• IBC Amendment, 2019 =
  • Time-bound resolution, voting rules for financial creditors
  • Homebuyers as creditors. Can initiate proceedings.
  • 330 days deadline, Creditors who voted against majority can receive minimum liquidation value, Resolution plan to be binding on all.

Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021

• Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 promulgated on 4th April 2021 provides for a pre-packaged insolvency resolution process (PPIRP) for corporate debtors classified as micro, small and medium enterprises.
• The Insolvency and Bankruptcy Board of India notified the Insolvency and Bankruptcy Board of India (Pre-packaged Insolvency Resolution Process) Regulations, 2021 (PPIRP Regulations) today to enable the operationalisation of PPIRP.
• The PPIRP Regulations detail the Forms that stakeholders are required to use, and the manner of carrying out various tasks by them as part of the PPIRP.

These provide details and manner relating to:

1. Eligibility to act as resolution professional, and his terms of appointment;
2. Eligibility of registered valuers and other professionals;
3. Identification and selection of authorised representative;
4. Public announcement and claims of stakeholders;
5. Information memorandum;
6. Meetings of the creditors and committee of creditors;
7. Invitation for resolution plans;
8. Competition between the base resolution plan and the best resolution plan;
9. Evaluation and consideration of resolution plans;
10. Vesting management of corporate debtor with resolution professional;
11. Termination of PPIRP.

What is the news? Lenders can initiate insolvency proceedings against personal guarantors for Corporate debt

• The Supreme Court upheld a government move to allow lenders to initiate insolvency proceedings against personal guarantors, who are usually promoters of big business houses, along with the stressed corporate entities for whom they gave guarantees.
• In a judgment which will ring loud and clear across the business community, a Bench of Justices L. Nageswara Rao and S. Ravindra Bhat held that on November 15, 2019, government notification allowed creditors, usually financial institutions and banks, to move against personal guarantors under the Indian Bankruptcy and Insolvency Code (IBC) was “legal and valid”.
• The court said there was an “intrinsic connection” between personal guarantors and their corporate debtors.
• Justice Bhat, who authored the 82-page verdict, said it was this “intimate” connection that made the government recognise personal guarantors as a “separate species” under the IBC.
• It was again this intimacy that made the government decide that corporate debtors and their personal guarantors should be dealt with by a common forum — National Company Law Tribunal (NCLT) — through the same adjudicatory process.
• In this context, Justice Bhat referred to how the November 2019 notification had not strayed from the original intent of the IBC. In fact, Section 60(2) of the Code had required the bankruptcy proceedings of corporate debtors and their personal guarantors to be held before a common forum — the NCLT.
• “The adjudicating authority for personal guarantors will be the NCLT if a parallel resolution process is pending in respect of a corporate debtor for whom the guarantee is given,” Justice Bhat noted.

One Stop Centre Scheme

• One Stop Centre Scheme (OSCs) is a centrally sponsored scheme for addressing the problem of violence against women.
• One Stop Centre Scheme (OSCs) is being implemented by the Ministry of Women and Child Development.
• It is a sub-scheme of the umbrella scheme for the National Mission for Empowerment of Women including the Indira Gandhi Mattritav Sahyaog Yojana.
• The scheme is being implemented across the country since 1st April 2015 through State Governments/ Union Territory (UT) Administrations to provide integrated support and assistance to women affected by violence and in distress, both in private and public spaces, under one roof and to facilitate immediate, emergency and non-emergency access to a range of services including police, medical, legal aid and counselling, psychological support to fight against any forms of violence against women.
• To date, 701 OSCs in 35 States/UTs have been operationalised.
• In the prevalent situation created due to the Covid pandemic, women who are in a distress situation or affected by violence may contact the nearest OSCs for speedy assistance and services.
• The WCD Ministry has directed the Chief Secretaries/Administrators of all States/UTs and DC/DM of all Districts to keep One Stop Centres operational during the lockdown period with the availability of all the basic materials required for fighting COVID-19 like Sanitizers. Soaps, Masks etc.
• As per scheme guidelines, for smooth functioning of the centres, the responsibility of appointment/ recruitment/ selection of empanelled agencies/ individuals to provide legal counselling/ Medical aid/ psycho-social counselling etc. lies with the district administration of the respective States/ UTs.
• Funding: The scheme is funded through Nirbhaya Fund and the central government provides 100% financial assistance to the state governments /Union Territories administrations.

• Auditing: Audit will be done as per Comptroller & Auditor General of India norms and social audit will also be undertaken by civil society groups.

One-stop centres will be integrated with women's helplines to provide the following services:

1. Emergency response and rescue services.
2. Medical assistance.
3. Assistance to women in lodging the FIR.
4. Psycho-social support and counselling.
5. Legal aid and counselling.
6. Shelter
7. Video conferencing facility.

Mouda River Rejuvenation Case Study: Water crisis

• NTPC, Central Public Sector Undertaking under the Ministry of Power in Mouda, Maharashtra has helped over 150 villages in and around its operational area to overcome water crisis through a groundwater rejuvenation project.
• As part of its CSR initiative, NTPC Mouda is supporting the Jalyukta Shivar Yojana project which has successfully managed to turn Mouda into a water-surplus tehsil.
• This project was carried out by the Maharashtra wing of Art of Living along with aid from a few other organizations and the State government.
• Earlier Mouda, was one of the most water-deficient tehsils in Nagpur.
• The project which started in 2017 has covered more than 200 km in Mouda, Hingna and Kamptee tehsils.
• In the last four years, over 150 villages have benefited from it.
• NTPC Mouda had contributed 78 lakhs for the fuel charges of machinery and equipment involved. For a similar rejuvenation project of 5 ponds over an area of 1000 acres, an amount of 1 Crore is also being provided by NTPC Mouda.
• The ‘Trap the rain where it falls’ technique involves the creation of ponds and nullahs throughout the stretch of the river so that rainwater can be held for a long period.
• Earlier, the rainwater would run off the ground, but now the water gets sufficient time to percolate deep into the ground. This has led to a massive increase in groundwater levels.
• Until a couple of years ago, the farmers in this area were struggling to get water for crops such as paddy, and wheat and it was chilly during the pre-harvesting seasons. Now, the stored rainwater has come to their rescue and provided a new lease of life to their crops and income levels.

Khelo India Programme

• It is a Central Sector Scheme with 12 components and achieves twin objectives of National Youth Policy, 2001: broad basing sports and achieving excellence in sports.
• It was introduced to revive the sports culture in India at the grass root level.
• Talented players will be given annual financial assistance of Rs. 5 lakh/ year for 8 years.
• It was launched after merging Rajiv Gandhi Khel Abhiyan, Urban Sports Infra Scheme (USIS) and National Sports Talent Search System Programme.
• 12 components include Community coaching, annual sports competition, State level centers, sports infra, physical fitness, women, PwD, peace and development and indigenous/ tribal games.
• Rajiv Gandhi Khel Abhiyan
  1. It replaced Panchayat Yuva Krida/ Khel Abhiyan (focused on sports infrastructure at village and block level.
  2. RGKA is a Centrally Sponsored Scheme. For block-level sports complex.
  3. Promote sports, increase access, competitions,
  4. Construct sports complexes in every rural block or Panchayat.
  5. 11 outdoor and 5 indoor games, 3 sports trainers with 1 female.
  6. Assistance for sports equipment and self-defence training for women.