Corporate Law Group

Bankruptcy and Liquidation issues are dealt with mainly under the Indian Companies Act, 1956, the Sick Industrial Companies (Special Provisions) Act, 1985 (“SICA”), Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Indian Contract Act, 1872, the Indian Civil Procedure Code, 1908 and other substantive and procedural laws for recovery proceedings.

As regards ‘winding up’ on account of bankruptcy, there are mainly two modes for such proceedings:-

(ii). Through winding-up by a Court of Law on a Winding-Up Petition or similar such Petitions for an appropriate reason.

Once a company is declared ‘bankrupt’ or ‘unable to be revived’, a scheme is formulated with the approval of a competent Court to ensure that the liabilities of the company are reasonably met out of its assets.

However, law in India encourages revival or reconstruction of sick companies. SICA is an Act which allows sick companies to approach the Board for Industrial and Financial Reconstruction (‘BIFR’) for declaring themselves sick and get ‘immunity’ from recovery proceedings during the pendency of revival or reconstruction proceedings before BIFR. This Act has been enacted to extend an opportunity of revival or reconstruction to sick companies; during such proceedings, recovery proceedings against the company concerned are automatically stayed and appropriate schemes including schemes for change of management, are formulated to revive or reconstruct the sick companies. However, the provisions of SICA are many times misused only for ‘sick’ company status and ‘immunity’ from legal proceedings.

As regards recovery of dues is concerned, Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Civil Procedure Code, 1908 are the main laws under which recovery proceedings are initiated. It was on account of the long and tardy recovery process under the Civil Procedure Code, 1907 that Debts Due to Banks and Financial Institutions Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 were put into effect.

CLG handles all facets of bankruptcy, liquidation law and practice - from filing winding up petitions before courts to representing debtors and creditors before the Board of Industrial and Financial Reconstruction (‘BIFR’) and the Appellate Authority for Industrial and Financial Reconstruction (‘AAIFR’).

Due Diligence on liquidity of Clients’ potential business partners by conducting search with courts of law, financial institutions and other judicial and quasi-judicial bodies
Developing legal and policy safeguards against possible bankruptcy and liquidation proceedings
Legal Guidance for SICA proceedings – for or against immunity from legal proceedings
Formulating effective litigation strategy for filing or opposing winding up, liquidation, bankruptcy proceedings before the appropriate courts/forums in India
Consultancy services on all procedural requirements for winding up, liquidation and bankruptcy proceedings
Drafting, vetting required court pleadings and arguing, representing Clients in bankruptcy and liquidation proceedings
Formulating legal rehabilitation/revival schemes for bankrupt/sick industries
Formulating schemes to assist bankrupt corporate entities to revive/rehabilitate themselves
Consultancy services in reviving and restructuring sick companies by co-ordinating with Financial Institutions
Formulating schemes for equitable and fair liquidation of assets

It is our experience that often corporate bodies declare themselves ‘sick’ or ‘bankrupt’ under SICA for automatic stay of all recovery proceedings to avoid ‘financial liability’, which ultimately has the undesirable effect of defrauding their creditors. It is in this context that Corporate Law Group usually advise its Clients to conduct thorough enquiry into financial dealings of their potential business partners, more particularly ‘Hidden Liability’ and ‘Financial Viability’ of such entities to enter into business transactions in question. For conducting such exercises, CLG has a highly trained in-house team of Chartered Accountants, Company Secretaries and lawyers and scope of our enquiry encompasses not only past and present financial transactions but also findings/records of statutory Tribunals, Commissions, Police Investigation Reports, Regulatory Body Reports etc. Such exercises become all the more important for financially sensitive sectors like Banking, Insurance and Non-Banking Financial Services.