Corporate debtor

Section 3(8) of the Insolvency and Bankruptcy Code, 2016 defines corporate debtor as a corporate person who owes a debt to any person. Corporate person, under Section 3(7), means a company as defined in the Companies Act, 2013, a limited liability partnership, or any other person incorporated with limited liability under any law, but does not include a financial service provider. Debt, under Section 3(11), is a liability or obligation in respect of a claim due from any person, and includes financial debt and operational debt.

Two elements follow: the debtor must be a corporate person, and it must owe a debt. A partnership firm or an individual is not a corporate debtor, and a bank or other financial service provider is excluded from the ordinary corporate insolvency process, though Section 227 lets the Central Government notify financial service providers for insolvency proceedings under a special framework. Individuals, including personal guarantors to corporate debtors, are dealt with under Part III of the Code.

Part II of the Code applies to the insolvency and liquidation of corporate debtors where the minimum amount of default is one crore rupees, under Section 4. Default under Section 3(12) is non-payment of a debt that has become due and payable. Under Section 6, when a corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate the corporate insolvency resolution process. On admission, the moratorium under Section 14 bars suits and proceedings against the corporate debtor, transfers of its assets, enforcement of security interests and recovery of property occupied by it, though Section 14(3)(b) leaves sureties outside the moratorium.

In P. Mohanraj v. Shah Brothers Ispat (2021), proceedings under Sections 138 and 141 of the Negotiable Instruments Act against a corporate debtor were held to be barred by the moratorium, while they could continue against its directors. In Mobilox Innovations v. Kirusa Software (2017), an operational creditor's application was held liable to rejection where the corporate debtor shows a plausible pre-existing dispute. Examiners test the definition, the excluded entities, the default threshold and the scope of the moratorium.