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03/07/2017 An Analysis of the Model Question Paper for Limited Insolvency Examination (LIE), Tips for Preparation and

Information About New Book

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An Analysis of the Model Question Paper for


Limited Insolvency Examination (LIE), Tips for
Preparation and Information About New Book on
LIE
April 6, 2017

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03/07/2017 An Analysis of the Model Question Paper for Limited Insolvency Examination (LIE), Tips for Preparation and Information About New Book

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03/07/2017 An Analysis of the Model Question Paper for Limited Insolvency Examination (LIE), Tips for Preparation and Information About New Book

An Analysis of the Model Question Paper for Limited Insolvency


Examination (LIE), Tips for Preparation and Information About New
Book on LIE

About the Author


Pranav Khatavkar is a Mumbai based Advocate who penned a commentary on the
Insolvency and Bankruptcy Code, 2016. In continuation of his mission of developing Indias
re-written bankruptcy framework, Pranav has recently penned a book titled Guide to
Insolvency Professional Examination that aids and assists candidates to appear for the
insolvency professional examination. He can be reached at
pranavkhatavkar1991@gmail.com.

Insolvency Professional Examinations

The Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016
mandate two qualifying examinations for insolvency professionals Limited Insolvency
Examination (LIE) and National Insolvency Examination (NIE).

On 30th November 2016, the Insolvency and Bankruptcy Board of India (Board) notified
the syllabus for the LIE[1].

As far as the NIE is concerned, the examination hasnt been notified as of date. However,
as per the press release made by the Ministry of Corporate Affairs on 23rd November 2016,
the details pertaining to the NIE will be specified through regulations[2].

Analysis of the Model Question Paper for LIE released by


the Insolvency and Bankruptcy Board of India
The Board has released a model question paper for the LIE which is available at-
http://ibbi.gov.in/model-Rev2.pdf. For the benefit of the candidates that intend to appear
for the LIE, in this article, I am doing an analysis of the model question paper for LIE
released by the Board.

Part I Categorization of Questions


I have categorized the questions that have been presented in the model LIE question paper
in the following categories:-
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a. IBC Concept Based Questions

This category of questions consists of questions that test the conceptual clarity of a
candidate as regards the Code and the Rules and Regulations framed thereunder. An
example of an IBC Concept Based question is

1. When can a bank initiate a corporate insolvency resolution process in relation to a corporate debtor?

a. On determination of default by National Company Law Tribunal

b. Occurrence of default

c. On net-worth of the debtor becoming negative

d. On the bank classified the account as non-performing asset

The correct answer to this question is b. A bank can initiate the corporate insolvency
resolution process in relation to a corporate debtor only on occurrence of a default.

The answer to this question can be found in sub sections (7) and (8) of Section 5 and
Section 7(1) of the Code. Sub section (7) of Section 5 of the Code defines a financial
creditor and sub section (8) of Section 5 of the Code defines a financial debt. The
question is specifically asking as to when can a bank initiate the corporate insolvency
resolution process. Bank falls under the category of financial creditor under the Code and
any loan/ credit facility/other facility extended by a financial creditor qualifies as a financial
debt.

Further Section 7(1) of the Code deals with the initiation of the corporate insolvency
resolution process by a financial creditor and states that a financial creditor may file an
application for initiating the corporate insolvency resolution process when default has
occurred.

Hence in order to tackle IBC Concept Based questions, a candidate has to be extremely
clear with respect to the legal concepts covered under the Code. In order to obtain
conceptual clarity and the ability to tackle IBC Concept Based questions, I recommend a
thorough study of the Code and the Rules and Regulations framed thereunder.

When I say study, I do not recommend learning by rote. Rather I recommend attempting
to understand what the provisions are and discerning the legislative intent behind each
provision of the Code.
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03/07/2017 An Analysis of the Model Question Paper for Limited Insolvency Examination (LIE), Tips for Preparation and Information About New Book

At this stage, I deem it fit to mention that I have penned a book on the Code where I
attempted to simplify and elucidate the provisions of the Code. This book has also been
previously reviewed on Live Law (http://www.livelaw.in/insolvency-bankruptcy-code-2016-
successfully-decoded-review-commentary-insolvency-bankruptcy-code-penned-pranav-
khatavkar/). You may consider obtaining a copy of the book to understand the provisions of
the Code if you so desire in order to gain conceptual clarity on the Code.

b.IBC Procedure Based Questions

This category of questions consists of questions that test the knowledge of a candidate on
the procedural aspects of the Code and the Rules and Regulations framed thereunder. An
example of an IBC Procedure Based question is question no. 2 in the model paper-

2. The Adjudicating Authority shall appoint an interim resolution professional within ____ days of the
insolvency commencement date.

a. 07

b. 14

c. 21

d. 28

The correct answer to this question is b. The Adjudicating Authority shall appoint an
interim resolution professional within 14 days of the insolvency commencement date.

The answer to this question can be found in Section 16(1) of the Code which states that the
Adjudicating Authority shall appoint an interim resolution professional within fourteen (14)
days from the insolvency commencement date.

Unlike IBC Concept Based questions, there is nothing to understand in order to tackle IBC
Procedure Based questions as they are fairly technical and straightforward. The only way to
tackle such questions is to learn by rote important compliances and the prescribed
timelines with respect to the same under the Code and the Rules and Regulations framed
thereunder.

c.Case Study Questions

Case study questions are purely application based questions on the Code and the Rules and
Regulations framed thereunder. A situation is providedQuestions for writers?
and it is followed by questions

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03/07/2017 An Analysis of the Model Question Paper for Limited Insolvency Examination (LIE), Tips for Preparation and Information About New Book

pertaining to the situation. There are five (5) questions pertaining to the case study that
has been presented in the model question paper. As per the prescribed syllabus[3], the
case study questions shall be on the following topics:-

Corporate insolvency resolution


Corporate liquidation
Fresh start
Individual insolvency resolution
Individual bankruptcy

The case study question as provided in the model LIE paper has been reproduced as
under:-

(a) A Ltd. (Company) is engaged in the manufacturing of Sponge Iron, TMT bars and
Galvanized wires. It has availed various credit facilities from a total of 19 secured creditors
with an outstanding debt of Rs.1500 crore. Due to adverse market conditions, its financial
position took a downturn and hence it filed a reference with the Board for Industrial and
Financial Reconstruction (BIFR). The reference was duly registered. During the proceedings
before BIFR, one of the secured creditors, after taking consent of the other creditors of the
company, filed an application for abatement of the reference before BIFR.

(b) Meanwhile, one of the unsecured creditors filed an application before BIFR for the
impleadment in the proceedings. The BIFR dismissed the said application due to non-
prosecution.

(c) Subsequently, upon coming into force of the Insolvency and Bankruptcy Code (IBC),
2016, the company filed an application for initiation of Corporate Insolvency Resolution
Process (CIRP) before National Company Law Tribunal (NCLT) on 09.12.2016. However, in
the first meeting of the Committee of Creditors held on 05.01.2017, the financial creditors
of the company decided to liquidate the company. Immediately after this decision, but
before intimating the decision to the NCLT, one of the financial creditors of the company
applied to Resolution Professional (RP) giving proof of his claim and seeking his inclusion in
the Committee of Creditors.

My primary observations regarding the case study are:-

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The case study is detailed and comprehensive.


Even to understand what the situation in the case study is, one needs to be very thorough with the
Code and the Rules and Regulations framed thereunder. (Conceptually as well as procedurally)
The case study also deals with other allied laws such as the Sick Industrial Companies Act, 1985 (as
there is a mention of the Board for Industrial and Financial Reconstruction). So the candidate should
also know about other legislations that previously dealt with corporate insolvency.
This case study contains elements of both the corporate insolvency resolution process as well as the
liquidation process. So this case study is a mix of two processes covered under the Code.

There are two types of questions that follow the case study.

First category is the actual application based questions. An example of an actual application
based question is question no. 87. Question no. 87 has been reproduced as under:-

In case one of the secured creditors realizes its security interest and such realization is not
sufficient to pay its outstanding debts, can he recover the balance amount?

a) The balance amount will be ignored.

b) The balance amount will be paid at par with dues to the Central Government and
the State Government.

c) The balance amount will be paid at par with other secured creditors.

d) The Balance amount will be paid at par with unsecured creditors.

The correct answer is b. The answer to this question can be found in Section 53(1)(e) of
the Code which states that the debts owed to a secured creditor for any amount unpaid
following the enforcement of interest shall lie at par with dues to the Central Government
and the State Government. To tackle this question one needs to be conceptually thorough
with the Code and the Rules and Regulations framed thereunder. The section [i.e. Section
53(1)(e)] is straightly worded, but the question is framed in a way that it triggers thinking
and calls for some investment of time and thought. In other words, its tricky. Over here
the question is asking you whether or not the secured creditor can realize its balance
amount. So in order to answer this question, you need to first know that a secured creditor
can realize its balance amount under the Code and you will know whether or not a secured
creditor can realize its balance amount under the Code only when you are conceptually
thorough.

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03/07/2017 An Analysis of the Model Question Paper for Limited Insolvency Examination (LIE), Tips for Preparation and Information About New Book

The second category of questions that follow the case study are technical questions where
not much application of mind is required. For example question no. 90 in the model LIE
paper. Question no. 90 of the model LIE paper has been reproduced as under-

What is the priority of payment to workmen dues in case of liquidation?

a) Pari passu with secured creditors and employees

b) Pari passu with secured creditors and insolvency costs

c) Pari passu with secured creditors

d) Pari passu with financial creditors

The correct answer to this question is c. The answer to this question is to be found in
Section 53(b) of the Code which states that the priority of payment to workmen dues shall
rank pari passu with secured creditors in case of liquidation. There is not much of
application of mind needed here as the question is fairly straightforward.

d.Questions on the report of the Bankruptcy Law Reforms Committee (BLRC)

As per the prescribed syllabus for the LIE, 5% weightage is given to questions on the BLRC
Report. The model question paper contains four (4) questions on the BLRC Report. Out of
the four, I am reproducing two questions that I thought are important as far as the BLRC
Report is concerned.

The first question is question no. 53 from the model question paper-

The Code proposed by the Bankruptcy Law Reforms Committee provides for a . for
creditors and debtors to negotiate in an orderly and non-conflicted manner.

a) forum

b) calm period

c) committee

d) negotiation period

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The correct answer is b. Now please note that this question has been framed in a very
tricky manner. A primary reading of question no. 53 may make you think that you are
doomed and that along with studying and memorizing the provisions of the actual Code,
you have to also study and memorize the provisions of the Insolvency and Bankruptcy Bill,
2015 (the draft Code proposed by the BLRC).

I assure you, you are not. The answer to this question is to be found in the final report of
the BLRC on Page 74 which speaks about a calm period for creditors and debtors to
negotiate.

Hence in order to tackle questions such as this, one needs to study the entire BLRC Report
very carefully, especially the important recommendations and suggestions made by the
BLRC.

The second question is Question No. 52 from the model question paper-

The Financial Sector Legislative Reforms Commission has proposed a which will
intervene in the working of financial firms when they are distressed but still solvent.

a) Financial resolution corporation

b) Resolution corporation

c) Insolvency resolution corporation

d) Business resolution corporation

The correct answer to this question is b. This is again a tricky question. At the first
instance it may seem to you as if this question is out of the prescribed syllabus. You may
wonder what connection do the recommendations made by the Financial Sector Legislative
Reforms Commission have with the Code and more importantly why is this question there
in an exam for prospective insolvency professionals.

The answer to both your questions (first one being the answer to question no. 52 and the
second one regarding why this question is there in the model LIE paper) can be found in
paragraph 5.1 of the report of the BLRC. Paragraph 5.1 has been reproduced as under:-

The Committee recommends that there is a single Code to resolve insolvency for all legal
entities. The Code will not cover entities that have a dominantly financial function, whose
resolution is covered by the Resolution Corporation in Questions for writers?
the draft Indian Financial Code,
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03/07/2017 An Analysis of the Model Question Paper for Limited Insolvency Examination (LIE), Tips for Preparation and Information About New Book

proposed by the Financial Sector Legislative Reforms Commission. In order to ensure legal
clarity, the Committee recommends that provisions in existing law that deals with
insolvency of all registered entities be replaced by this Code (companies and limited liability
partnerships to begin with). Then, all questions related to insolvency of any legal entity in
India will find an answer in a single Code.

If you focus on the underlined portion in the abovementioned paragraph, it will be clear to
you that the BLRC while recommending the Code also referred to other proposed
legislations for insolvency resolution (i.e. Draft Indian Financial Code). The BLRC while
proposing a draft Code categorically omitted insolvency resolution and liquidation of
financial firms because they were covered by a proposed Resolution Corporation under the
Draft Indian Financial Code.

It will be now clear to you as to why the recommendations of the Financial Sector
Legislative Reforms Commission are important for prospective insolvency professionals
from a limited perspective and the correct answer to question no. 52 from the model LIE
paper of course.

e.Other categories of questions

This category of questions consists of concept based, technical questions and application
based questions on topics apart from the Code and the Rules and Regulations framed
thereunder and the BLRC Report. The other topics are as under:-

Companies Act, 2013


Limited Liability Partnership Act, 2008
Indian Contracts Act, 1872
Transfer of Property Act, 1882
Sale of Goods Act, 1930
Recovery of Debts due to Banks and Financial Institutions Act, 1993
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act,
2002
Corporate Debt Restructuring Scheme, Strategic Debt Restructuring and Scheme for Sustainable
Structuring of Stressed Assets
General Awareness
Finance and Accounts

An example of a concept based question from the other categories of questions is question
no. 59 from the model LIE paper. Question no. 59 has been reproduced as under:-
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Which of the following matters requires a special resolution by a company?

a) Reducing share capital

b) Removal of a director

c) Acceptance of deposits

d) Appointment of a director

The correct answer to this question is a. The answer to this question can be found in sub
section (1) of Section 66 of Companies Act, 2013. Special resolution is needed for reduction
of share capital. The question is specifically asking as to for which below mentioned actions
(i.e. the options) is a special resolution required. A candidate will be able to answer this
question only if he is conceptually thorough with the Companies Act, 2013. A thorough
study and more importantly conceptual clarity of the enabling section i.e. Section 66 of the
Companies Act, 2013 is required.

An example of a technical question from the other categories of questions is question no.
65 from the model LIE paper. Question no. 65 has been reproduced as under:-

A limited liability partnership firm shall, within a period of six months from the end of each
financial year, prepare for the said financial year as at the last day of the said
financial year.

a) statements of accounts

b) statements of assets and liabilities of partners

c) statements of accounts and solvency

d) statements of financial accounts

The correct answer to this question is c. Sub section (2) of Section 34 of the Limited
Liability Partnership Act, 2008 states that every limited liability partnership shall within a
period of six months from the end of each financial year, prepare a Statement of Account
and Solvency for the said financial year as at the last day of the said financial year in such
form as may be prescribed and that such statement shall be signed by the designated
partners of the limited liability partnership.
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This question is fairly technical. Not much of thought needs to be invested into this and in a
way the question is fairly straightforward. All that one needs to do in order to tackle such
question is to remember what compliance a LLP needs to do under the Limited Liability
Partnership Act, 2008.

An example of an application based question from the other categories of questions is


question no. 72 from the model LIE paper. Question no. 72 has been reproduced as under:-

B Ltd. has taken a loan from A Ltd. B Ltd. will not be considered as a borrower under of
the SARFAESI Act, 2002 in the event.

a) B Ltd. is a non-financial company

b) A Ltd. is a financial company

c) A Ltd. and B Ltd. are financial companies

d) A Ltd. and B Ltd. are non-financial companies

The correct answer to this question is d. The answer to this question can be found in
Section 2 (f) of the Securitisation & Reconstruction of Financial Assets & Enforcement of
Security Interest Act, 2002 (SARFAESI) that defines a borrower.

This question is fairly tricky. The options provided are also worded in a way that they
appear to be interconnected and hence making it difficult to make an intelligent guess.
Hence in order to tackle this question, one needs to be thorough with the definition of the
term borrower under the SARFAESI.

Part II- Tips and Techniques for Preparation for the


Limited Insolvency Examination
I suggest the following tips and techniques to prepare for the limited insolvency
examination:-

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