A corporate debtor under Insolvency and Bankruptcy Code, 2016 (IBC) is the Corporate Person who owes a debt to any person. The definition of Corporate Person as defined under section 3(7) of the IBC is as follows:-
“Corporate Person” means a company as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider;.
DEFENSE AGAINST THE INSOLVENCY PETITION
Under IBC every creditor, financial or operational, has to follow a certain procedure to establish the claim and initiate the insolvency resolution process. If the procedure is not duly followed then the corporate debtor has a very good defence to get the petition disposed of.
AGAINST THE FINANCIAL CREDITOR
If the petition is filed by the financial creditor then the corporate debtor should:-
1. Check whether the key ingredients to file the petition have been fulfilled or not?
Firstly, the debt and default should have occurred before filing of petition and if none of the element is present, the petition filed by the financial creditor shall get rejected
2. Identify, whether the claim is genuine or not?
The corporate debtor should check the accounts thoroughly and verify the claim from the accounts. If any discrepancy arises, the corporate debtor should file the reply within the prescribed time period.
3. Check whether the IRP proposed does not have any disciplinary proceedings pending against him?
The corporate debtor should check if any disciplinary proceedings are pending against the proposed IRP. If there is any disciplinary proceeding pending against the proposed IRP, then the petition filed by the Financial Creditor shall be rejected. It is noteworthy to mention here that it is mandatory for the Financial Creditor to propose the name of the IRP under section 7 of the IBC.
AGAINST THE OPERATIONAL CREDITOR
If the petition is filed by the operational creditor then the corporate debtor should check the following:-
- Whether prior to filing of petition any demand was issued by the operational creditor in the prescribed format.
- Whether there is existence of any dispute between the corporate debtor and the operational creditor.
- Whether the pre-existing dispute (if any) was communicated to the operational creditor prior to the issuance of demand notice by the operational creditor.
- The pendency of any proceedings already pending between the operational creditor and corporate debtor.
If any of the above situations exists, then the corporate debtor has strong grounds to defend the petition.
The Corporate Debtor is provided an opportunity under section 10 of the IBC wherein if the corporate debtor is unable to discharge it liabilities and does not have enough resources available, to revive the business then corporate debtor can voluntarily file the insolvency petition to undergo the Corporate Insolvency Resolution Process and NCLT shall admit it if the petition is complete & has not been filed to defraud the creditors.
PROTECTION AGAINST THE FRAUDULENT CLAIMS
A corporate debtor can defend the Insolvency Petition filed against them if the claim raised by the creditor is not genuine or have been raised to harass the corporate debtor. When an application is filed against the corporate debtor, the corporate debtor should verify the accounts and identify whether the claim raised is genuine or not