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CS Professional · Insolvency and Bankruptcy - Law and Practice · Corporate Insolvency Resolution Process

Arjun Forgings Ltd has financial creditors who are not related parties, owed a total of ₹200 crore. Before filing a PPIRP application, it seeks their approval for the filing under section 54A(3). Creditors holding ₹120 crore approve and the others abstain. What is the position?

The approval is insufficient. Section 54A(3) needs unrelated financial creditors holding at least 66% in value of the financial debt to approve the filing. Here ₹120 crore of ₹200 crore is only 60%, and the members' special resolution is a separate requirement.

  1. AApproval is valid, since 60% exceeds a simple majority
  2. BApproval is not sufficient, since at least 66% in value of the unrelated financial creditors' debt is requiredCorrect
  3. CApproval is valid only if all creditors vote
  4. DApproval is not needed, because the special resolution of members is sufficient

Explanation

Section 54A(3) requires approval from unrelated financial creditors representing not less than 66% in value of their financial debt. ₹120 crore is 60% of ₹200 crore, which falls short. Members' special resolution is a separate requirement under clause (g) and does not replace it.

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