CS Professional · Corporate Restructuring, Valuation and Insolvency

Application for Corporate Insolvency Resolution Process: formula sheet

Full chapter guide

Key formulas

Operational creditor: Operational creditor = person owed an operational debt (including a legal assignee or transferee); Section 5(20). Look at the nature of the debt, not the status of the creditor.
Operational debt: Operational debt = claim for goods or services (including employment) + dues under any law payable to the Central Government, a State Government or a local authority; Section 5(21). Employees and Government departments can be operational creditors.
Financial debt test: Financial debt = debt disbursed against consideration for the time value of money; Section 5(8). Includes money borrowed against interest, debentures, finance leases and similar items.
Default: Default = whole or any part or instalment of a debt due and payable, and not repaid; Section 3(12). The debt must be due and payable, not merely owed.
Minimum default: Minimum amount of default for CIRP = ₹1 crore; Section 4, as notified. The Government can change it by notification.
Dispute: Dispute includes a suit or arbitration relating to (a) existence of the debt, (b) quality of goods or service, (c) breach of representation or warranty; Section 5(6). It is the usual ground to resist a section 9 application.
Demand notice (Section 8(1)): Default occurs → operational creditor delivers demand notice or copy of invoice to corporate debtor; Notice demands payment of the unpaid operational debt in the form and manner prescribed.
Reply period (Section 8(2)): Corporate debtor must respond within 10 days of receipt of the notice or invoice; The period runs from receipt by the debtor.
Reply ground (a): dispute: Existence of a dispute, or record of pendency of a suit or arbitration filed before receipt of the notice or invoice, in relation to the dispute; The suit or arbitration must have been filed before the notice or invoice was received.
Reply ground (b): payment: Attested copy of record of electronic transfer from debtor's bank account, or attested copy of record that creditor encashed debtor's cheque; Payment must be evidenced by one of these two documents.
Gateway to Section 9: After 10 days, no payment and no notice of dispute → creditor may file Section 9 application; Section 9(1). Creditor may propose an interim resolution professional under Section 9(4).
Creditor's affidavit (Section 9(3)(b)): Affidavit that no notice of dispute has been given by the corporate debtor; Wilful concealment of a dispute or payment is punishable under Section 76: imprisonment of 1 to 5 years, or fine of ₹1,00,000 to ₹1,00,00,000, or both.
When the creditor may file: Filing allowed = 10 days after delivery of demand notice or invoice (s. 8(1)) + no payment + no notice of dispute under s. 8(2); The ten days run from delivery, not from the date of the notice.
Documents to furnish with the application (s. 9(3)): (a) copy of invoice or demand notice; (b) affidavit that no dispute notice has been given; (c) copy of certificate from the financial institution maintaining the creditor's accounts confirming no payment, if available; (d) record with an information utility confirming no payment, if available; (e) any other proof or prescribed information; Clauses (c) and (d) apply "if available". Clauses (a) and (b) are always required.
Time for the AA's decision: Order within 14 days of receipt of the application; The AA either admits or rejects by order and communicates it to both parties.
Grounds for admission (s. 9(5)(i)): Application complete + no payment of the unpaid operational debt + invoice or notice delivered + no dispute notice received or recorded in the information utility + no disciplinary proceeding pending against the proposed RP; All conditions must be met together.
Grounds for rejection (s. 9(5)(ii)): Incomplete application, or payment made, or no invoice or notice delivered, or dispute notice or record of dispute, or disciplinary proceeding pending against the proposed RP; Any one ground is enough.
Cure for a defective application: Notice to rectify the defect within 7 days of receipt of the notice; The AA must give this notice before rejecting for incompleteness.
Commencement: CIRP commences from the date of admission; Section 9(6).
Time to decide: Admit or reject within 14 days of receipt of the application (s. 9(5)); Time runs from receipt of the application, not from the demand notice.
Grounds for admission (s. 9(5)(i)): Complete application + debt unpaid + invoice/notice delivered + no dispute notice or IU dispute record + no pending disciplinary proceeding against proposed RP; All five must be met.
Grounds for rejection (s. 9(5)(ii)): Incomplete application OR debt paid OR invoice/notice not delivered OR dispute notice/IU record of dispute OR disciplinary proceeding pending against proposed RP; Any one ground is enough.
Defect notice (proviso): Before rejecting for incompleteness: notice to rectify within 7 days of receipt of that notice; Applies only to the incompleteness ground.
IRP proposal (s. 9(4), s. 16(3)): Proposed RP is appointed as IRP if no disciplinary proceedings are pending; if no proposal, reference to IBBI, which recommends within 10 days; The IRP is appointed on the insolvency commencement date (s. 16(1)).
Commencement (s. 9(6)): CIRP commences from the date of admission; Moratorium and other consequences follow from this date.
Commencement date: CIRP commences on the date of admission of the application (sections 7, 9 or 10); For section 9, see section 9(6). Not the filing date and not the demand notice date.
Orders on admission: Moratorium (s.14) + public announcement (s.15) + appointment of IRP (s.16); Section 13(1). Announcement is made immediately after the IRP is appointed (s.13(2)).
Acts barred by moratorium: Section 14(1)(a)-(d): suits and execution; transfer or disposal of assets; enforcement of security interest including SARFAESI; recovery of property by owner or lessor; Learn all four limbs in order.
Protected supplies and grants: s.14(2) essential goods and services; s.14(2A) critical supplies; Explanation: licences not terminated on insolvency grounds; Critical supplies can stop if moratorium-period dues are unpaid. Licences are protected only if current dues are paid.
Exclusions: Section 14(3): notified transactions; surety in a contract of guarantee to the corporate debtor; The moratorium does not apply to these.
Duration of moratorium: From date of order till CIRP completion; ends on plan approval (s.31(1)) or liquidation order (s.33); Section 14(4) and proviso.
CIRP closing date in announcement: 180th day from date of admission; Section 15(1)(f).
Pre-pack moratorium: Declared with the admission order under section 54C; runs till pre-pack period ends; Section 54E applies section 14(1) read with 14(3) mutatis mutandis.
Section 9(1) trigger: Demand notice delivered + 10 days expire + no payment + no notice of dispute → operational creditor may apply; The ten days run from the date of delivery of the notice or invoice under section 8(1). A dispute that existed before the demand notice also bars the application, even if no section 8(2) reply is sent.
Mobilox dispute test: Pre-existing dispute + plausible contention needing investigation + not spurious or feeble → reject application; The dispute must exist before the demand notice. The tribunal does not try the merits.
Decision period: Adjudicating Authority to admit or reject within 14 days of receipt of the application; Section 9(5). If the application is incomplete, notice to rectify the defect within 7 days is given before rejection.
Commencement: CIRP starts from the date of admission; Section 9(6).
Section 12A withdrawal: Application by applicant + approval of 90% voting share of CoC → withdrawal may be allowed; The tribunal may allow it. Approval of the CoC does not bind the tribunal.
Section 76 penalty: Concealing a dispute or payment: imprisonment 1 to 5 years or fine ₹1,00,000 to ₹1,00,00,000, or both; Applies to the operational creditor and any person who knowingly authorised the concealment.
Appeal to Supreme Court: Against NCLAT order on question of law: 45 days, extendable by up to 15 days; Section 62, for sufficient cause.

Quick revision

An operational creditor serves a demand notice or a copy of the invoice under Section 8(1) after a default.
The corporate debtor has ten days from receipt to reply under Section 8(2).
The reply can show a dispute, or a record of a suit or arbitration filed before the notice was received.
The reply can also show payment, by an attested record of electronic transfer or of the creditor encashing a cheque.
Section 9 filing is allowed after ten days if there is no payment and no notice of dispute.
Section 9(3) documents: invoice or demand notice, affidavit of no dispute notice, bank certificate if available, information utility record if available, other proof.
The operational creditor may propose an interim resolution professional under Section 9(4).
The Adjudicating Authority must admit or reject within fourteen days of receiving the application.
An incomplete application gets a notice to fix the defect within seven days before rejection.
CIRP commences from the date of admission of the application.
Under Section 16, the Board recommends an insolvency professional within ten days if the operational creditor proposes none.
Section 7 is the financial creditor route; Section 95 covers partners and firms.

Common mistakes

Treating every unpaid supplier as a financial creditor because money is owed. Fix: Apply section 5(8). Trade credit for goods lacks the time value of money element, so the supplier is operational.
Saying Government dues cannot be operational debt. Fix: Quote section 5(21). Dues under any law payable to the Central Government, a State Government or a local authority are operational debt.
Treating any reply from the debtor as a valid dispute. Fix: Tie the reply to Section 8(2)(a): a real dispute, or a suit or arbitration filed before receipt of the notice. Apply this to the facts given.
Counting the ten days from the date the creditor sent the notice. Fix: The text says ten days of the receipt of the notice or invoice. Count from receipt.
Saying CIRP starts when the application is filed. Fix: Write that CIRP commences from the date of admission under section 9(6).
Treating the bank certificate and information utility record as always compulsory. Fix: Note that clauses (c) and (d) carry the words "if available". The invoice or demand notice and the affidavit are always needed.
Saying the Adjudicating Authority can reject immediately for any defect. Fix: State that notice to rectify within seven days is mandatory before rejecting for an incomplete application.
Applying the seven-day notice to every rejection ground. Fix: The proviso covers only clause (ii)(a). Payment, dispute, non-delivery and pending disciplinary proceedings do not get a rectification notice.
Treating the filing date or demand notice date as the CIRP start. Fix: Write that CIRP commences on the date of admission by the Adjudicating Authority (section 9(6) for section 9 cases).
Saying the moratorium stops action against a surety or guarantor of the corporate debtor. Fix: Section 14(3)(b) excludes a surety in a contract of guarantee to the corporate debtor, so the creditor can proceed against the surety.

Exam tips

Open every classification answer by quoting the section: 5(20) and 5(21) for operational, 5(8) for financial.
Write a comparison in a short list: nature of debt, time value of money, who it is owed to, and the route to start CIRP (section 9 for operational creditors).
In case questions, test default and the ₹1 crore threshold with figures before you state a conclusion.
Always mention the dispute check from section 5(6) and the demand notice before a section 9 application. Examiners reward this link.
Mention that Government dues and employee claims are operational debt. These are favourite short-note points.
Write the provision first, then apply the dates and the reply to the facts, then conclude. Use section numbers 8(2), 9(1) and 9(5)(ii)(d).
Always compute the ten-day deadline from the date of receipt and show the date.
Quote the two payment documents exactly: electronic transfer record and encashed cheque record, both attested.