Initiation of CIRP by Financial Creditors : Procedural Aspects

Pragya Lalwani

This write up seeks to explain the procedure for filing application by financial creditors for initiation of corporate insolvency resolution process of corporate debtors in light of recent judgments.

1. Introduction

Insolvency regime in India has become creditor driven since the advent of Insolvency and Bankruptcy Code, 2016. Under this regime, whenever a default would be committed by the corporate debtor in payment of dues of the creditor, corporate insolvency resolution process (CIRP) can be initiated against such debtor. If there are chances of revival of a corporate as a going concern, it may be done so or else defaulting company would undergo liquidation. A financial creditor, operational creditor and even the corporate debtor can initiate CIRP against the defaulting debtor though the default should be for minimum amount of one lakh rupees. Here we will discuss the procedure of filing application for initiation of CIRP by financial creditor as provided under section 7 of the Code and rules made thereunder.

2. Meaning of 'financial creditor' and 'financial debt'

The term 'Financial Creditor' is defined under section 5(7) of the Insolvency and Bankruptcy Code, 2016. Accordingly, 'financial creditor' means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. For instance, banks, financial institutions or lenders are covered within the ambit of financial creditors.

Here, 'Financial debt' means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent;