CS Professional June 2026 Question Paper Insolvency and Bankruptcy - Law and Practice

FOR CS PROFESSIONAL EXAM PREPARATION

CS Professional 2026
Question Paper ·
Insolvency and
Bankruptcy - Law and
Practice
EXAM YEAR TYPE

CS Professional 2026 Question Paper
SUBJECT DATE

Insolvency and Bankruptcy - Law and Practice June 2026

Notes · Sample Papers · Previous Year Papers · Mock Tests

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Roll No. ..................................... :1: OPEN BOOK EXAMINATION

Time allowed : 3 hours Maximum marks : 100

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Total number of questions : 4 Total number of printed pages : 19

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NOTE : Answer ALL Questions.

1. Read the following case study and answer the questions that follow :

(I) Background :

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Phoenix Asset Management Ltd. (Phoenix) is an asset reconstruction company registered

under the applicable laws of India. It. acquired, by way of an assignment agreement,
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the outstanding receivables owed

engaged in the hotel and hospitality business from a consortium of four public sector

banks. The assignment took place in January 2009.

Meridian had originally borrowed ` 180 crores from the consortium in March 2003

under a term loan agreement. The funds were used for the renovation and expansion

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of its flagship hotel property. Repayments were irregular from the outset, and by

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November 2008, the consortium banks collectively classified Meridian’s loan account

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as a Non-Performing Asset (NPA). Shortly thereafter, the consortium assigned all

a outstanding receivables to Phoenix.

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The shareholding of Meridian was held equally by two promoter entities, Crestwood

Hotels Pvt. Ltd. and Pinnacle Resorts Ltd. each hodling a 50% stake. Mr. Rajiv

Bhatia served as the Chairman and Managing Director of Meridian as well as of

both promoter companies.

(II) Settlement attempts and acknowledgments :

In March 2010, well within three years of the NPA declaration, Meridian wrote to

Phoenix proposing a one-time settlement of the outstanding dues. In this letter, Meridian

acknowledged that the aggregate outstanding liability, inclusive of principal and interest,

stood at ` 195 crore as on 31 December 2009. It offered an upfront payment of

` 15 crores and committed to clearing the balance in instalments over 18 months.

A formal Settlement Agreement was executed between the parties on 15 April 2010.

Under this agreement, Meridian acknowledged its total liability of ` 195 crores, agreed

to pay interest at 20% per annum compounded monthly, made an upfront payment

of ` 15 crores, and committed to clearing the balance by 30 September 2011. Between

2010 and 2013, Meridian made further part payments totalling approximately ` 48

crores through various demand drafts and cheques.

However, Meridian repeatedly sought extensions of time to pay the balance. In June

2012, it acknowledged an outstanding liability of ` 241 crore (principal and interest

combined) and sought extension until March 2013. In September 2013, Phoenix revoked

the Settlement Agreement after Meridian defaulted once again.

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From the financial year 2009-10 onwards, Meridian’s audited annual financial statements

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consistently reflected the amounts owed to Phoenix as a liability. However, beginning

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from the financial statements for the year 2014-15, the notes to the accounts contained
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a qualification. While the principal amount owed to Phoenix was shown as a liability

l ain the balance sheet, the notes stated that the Settlement Agreement had beenarevoked
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could not exceed 13% per annum, not the 20% claimed by Phoenix. The notes further

stated that the question of the correct rate of interest was pending adjudication before

the Debt Recovery Tribunal (DRT).

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Phoenix issued a notice under the SARFAESI Act in October 2013 and took symbolic

possession of the hotel property einmFebruary 2014. Phoenix also invoked the personal
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guarantee of Mr. Rajiv g
a Bhatia in May 2015.
(III) The IBC, 2016 application and proceedings :

On 10 April 2018, Phoenix filed an application under Section 7(2) of the Insolvency

and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal (NCLT),

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In its application, Phoenix claimed a principal amount of ` 42 .crore and interest
seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Meridian.

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s em a claim to approximately
of ` 178 crores calculated at 20% per annum, bringing theltotal
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a ` 220 crores.

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Meridian filed a miscellaneous application before the NCLT seeking dismissal of the

petition on the ground that it was barred by limitation. Meridian argued that the NPA

was declared in November 2008, that the limitation period of three years expired

in November 2011, and that the IBC application filed in April 2018 was hopelessly

late by nearly seven years. Meridian further contended that the financial statements

contained a clear dispute as to the rate of interest and could not, therefore, be read

as an unequivocal acknowledgment of liability sufficient to extend limitation.

Phoenix countered that its application was well within time. It relied on the audited

balance sheet of Meridian for the financial year 2014-15, signed by Meridian’s directors

on 12 September 2015, which reflected Phoenix as a creditor and acknowledged

Meridian’s outstanding financial liability. Phoenix argued that this acknowledgment, made

before the original limitation period had expired, created a fresh three-year limitation

period running from 12 September 2015 to 12 September 2018. Since the application

was filed on 10 April 2018, it was within this extended period.

Phoenix also argued that regardless of the caveats in the notes to accounts concerning

the interest rate, the balance sheet clearly showed the jural relationship of debtor

and creditor between Meridian and Phoenix, and the existence of financial liability.

A dispute about the rate of interest was a dispute about quantum, not about the

existence of the debt itself. Moreover, even if the parts payments made by Meridian

were to be considered, they would first be appropriated towards interest and then

towards principal, meaning a substantial principal remained outstanding.

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The promoter companies, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd.,
separately filed an appeal challenging the admission of the CIRP, arguing there was

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no subsisting financial debt and that the application was time-barred.

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The NCLT rejected Meridian’s limitation objection and admitted the application, appointing

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awhich set aside the NCLT’s order, holding that the financial statements with a
Interim Resolution Professional. The matter was then appealed to the NCLAT,

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caveated

Limitation Act and that the application was therefore barred by limitation.

Phoenix has now filed an appeal before the Supreme Court of India challenging the
NCLAT’s order.

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Required :

em 2008 and the application was filed only in
(a) Meridian argues that the IBC application is barred by limitation because the

ltens
a years later. Is this argument correct ? What is the
NPA was declared in November

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April 2018, nearlyg
prescribed peried of limitation for a Section 7 IBC application, and from which
date does it begin to run ?

(5 marks)

(b) Phoenix relies on Meridian’s audited balance sheet for 2014-15 as an

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acknowledgment of liability under Section 18 of the Limitation Act. According

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Can a balance sheet with a caveat about the rate ofseinterest still qualify as
to Meridian, there is a variation of Rate of Interest charged

s em an acknowledgment of debt ? What does theglaw la require ?
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a (5 marks)

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(c) Meridian contended that it has paid over ` 48 crores to Phoenix and that
this exceeds the original principal amount. It argued that no principal remains
outstanding and therefore there is no financial debt. How did the court reacted
with this argument ?

(5 marks)

(d) The NCLAT set aside the NCLT’s order admitting the CIRP on the ground
that the application was time-barred. Phoenix argued that the IBC is a beneficial
legislation and must be construed liberally. Does the IBC as a beneficial statute
have any bearing on how the law of limitation is applied to it ?

(5 marks)

(e) The promoter companies, Crestwood Hotels and Pinnacle Resorts have also
filed an appeal challenging the admission of CIRP against Meridian. They argued
that since there was a dispute on existence of financial debt, the NCLT should
not have admitted the application. Is this a valid ground to challenge the admission
of a Section 7 application ?

(5 marks)

2. (a) Please map the correct case references alongside the decision of the court(s) based
on the judicial pronouncements indicated under choice(s).

Sl. Decision Choice Case Reference

No. No.

1. NCLT and NCLAT cannot judicially (a) Laxmi Pat Surana Vs. Union Bank

innovate beyond the framework of the of India & Anr.

Insolvency and Bankruptcy Code while

dealing with schemes of compromise

and arrangement.

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2. Timelines for submission of claims (b) Ghanashyam Mishra and Sons Pvt. Ltd.
are directory, not mandatory. Delay vs. Edelweiss ARC & Ors.

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alone cannot justify rejection of

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statutory dues; RP must verify and
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include them.

g l a Sunil Kumar Jain & Ors. Vs.a
acommerical rights falling within the
3. Development (c)
Sundaresh Bhatt & Ors.
wide definition of ‘‘property’’ under
Section 3(27) and are assets of the
Corporate Debtor and are to be
included in the Information Memorandum

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4. Section 327(7) of the Companies Act . (d)c
as long as they subsist.

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Abhishek Singh v. Huhtamaki PPL

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excluding application of Section 326 Ltd., & Anr.
327 are not arbitrary.
5. Section 7 application beyond three years (e) State Tax Officer vs. Rainbow Papers
from NPA is barred by limitation. Ltd.
6. The Corporate debtor is a statutory (f) Moser Baer Karamchari Union vs.
corporation and not Government. The Union of India.

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dues are not payable into consolidated

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fund and hence cannot be treated as

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‘‘Government dues’’ and as such they

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rank as secured creditor claims in

liquidation.

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7. All creditors (including Central and (g) Victory Iron Works Ltd. vs. Jitendra
State Government or local authorities Lohia & Anr.
are bound by a resolution plan once
approved under Section 31(1).
8. RERA decrees do not affect creditor (h) Arun Kumar Jagatramka V. Jindal
classification. Claims of decree-holding Steel and Power Ltd.
homebuyers remain financial debts under
IBC, entitled to parity in resolution
plans.
9. The Liquidator is bound to adjudicate (i) Vidarbha Industries Power Ltd. vs.
and verify each and every claim based Axis Bank Ltd.
on evidence of work performed during
CIRP and entitlement is not automatic.
10. Payment of settlement amount during (j) Bank of Baroda & Anr. Vs. MBL
moratorium is not a violation of Infrastructure Ltd., & Ors.
Section 14. It extinguishes liability
and preserves value as Section 14
is meant to prevent dissipation of
assets and does not bar genuine
settlements.
(k) Swiss Ribbons Pvt. Ltd. vs. Union
of India.
(l) Paschimanchal Vidyut Vitran Nigam Ltd.
Vs. Raman Ispat Pvt. Ltd.
(m) Vishal Chelani & Ors. Vs. Debashis
Nanda.

(1 mark each Sub-Question = Total 10 Marks)

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(b) How did the Supreme Court perceive Article 142 of the Constitution to order liquidation
and what were the broader systemic reforms it suggested in the case of State Bank

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of India & Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch

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& Anr ?

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(5 marks)

ag Mr. Bikram Kumar applied to the Insolvency and Bankruptcy Board of India (IBBI)
(c)
for registration as an Insolvency Professional. During scrutiny, the Board discovered
that Mr. Bikram Kumar had a prior criminal conviction for financial fraud and was
subject to an existing restraint order issued by a regulatory authority. Additionally,
concerns were raised regarding his negative net worth and questionable financial solvency.

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What would have been the criteria for the decision and for such rejection ?

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(3 marks)

(d) Caselet :
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Aarna Ltd. (Company) is engaged in the manufacturing of Sponge Iron, IMT bars
and Galvanized wires. It has availed various credit facilities from a total of 9 secured
creditors with an outstanding debt of ` 100 crores.

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Due to adverse market conditions, its fanancial position took a downturn and hence

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it filed a reference with the Board for Industrial and Financial Reconstruction (BIFR).

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The reference was duly registered. During the proceedings before BIFR, one of the

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secured creditors, after taking consent of the other creditors

a an application for abatement of the reference before BIFR.

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Meanwhile, one of the unsecured creditiors filed an application before BIFR for the

impleadment in the proceedings. The BIFR dismissed the said application due to non-

prosecution.

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.

Based on the above situation, answer the following questions :

(i) Can the creditors initiate SARFAESI action against the company ?

(a) Yes, if they constitute more than 75% of the total financial debt.

(b) Yes, with the consent of the Liquidator.

(c) Yes, with the consent of the National Company Law Tribunal (NCLT).

(d) No, they cannot.

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(ii) 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 ?

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The balance amount will be paid at par with dues to the Central

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Government and the State Government.

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

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

(iii) In case the liquidation process is initiated, the unsecured creditor who filed
an application before BIFR for impleadment shall be paid ...................... .

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. and Bankruptcy Code, 2016.
(a) as per claim accepted by the liquidator in accordance with priorities

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specified in the Insolvency

a of its claim before BIFR.
as per the lamount
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(b)

(c) as per the amount of its claim made before the liquidator.

(d) as per the order of Debt Recovery Tribunal.

(iv) In case the secured creditor faces resistance from company for enforcement

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of security interest, such secured creditor may apply to :

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(a) Adjudicating Authority

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(b) Debt Recovery Tribunal

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(c) Liquidator

(d) High Court

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(v) 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

(1 Mark Each = Total 5 Marks)

(e) ANC Bank Ltd. filed a claim before the Liquidator of XYZ Pvt. Ltd., asserting itself

as a secured creditor with a charge over the company’s immovable property. The

Liquidator questioned the validity of the security interest, as no records were available

in any information utility.

ABC Bank thereafter produced a Certificate of Registration of Charge along with

the original mortgage deed and sanction letter as supporting documents.

How can the existence of security interest be proved under IBBI (Voluntary Liquidation

Process) Regulations, 2017 ?

(2 marks)

3. (a) From the following, indicate the assets of the corporate debtor which (i) can/cannot

be used in liquidation. Substantiate your answer.

(i) An IT services company has outstanding invoices worth ` 8 crores from various

clients for software development services already delivered.

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(ii) A pharmaceutical company owns several patents for drug formulations, registered

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trademarks for its brand names, and proprietary manufacturing processes

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developed in-house and registered in company’s name.

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(iii) .A stockbroking firm has deposited shares as collateral margin with a clearing e m
em corporation (like NSE Clearing Ltd.) to settle trades on behalf of multiple
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(iv) A steel manufacturing company owns blast furnaces, rolling mills, and heavy

machinery worth ` 50 crores, all of which are registered in the company’s

name and fully paid for.

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(v) Sharma is a 30% shareholder of an insolvent private limited company. He

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owns a personal apartment and a car registered in his own name, purchased

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from his personal savings.

(vi) A diversified conglomerate holds a 25% stake in an associate company, PQR

Ltd., which is neither a subsidiary nor controlled by it. It also holds mutual

fund units and fixed deposits in its own name worth ` l5 crores.

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(vii) A logistics firm has taken 20 trucks on a long-term lease from a vehicle rental

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company with usage rights being conferred on the lessee.

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(viii) ABC Ltd., a holding company in India, is undergoing liquidation. It owns 80%

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of the shares of XYZ Pvt. Ltd. Bengaluru and also 60% of Global Tech

a Inc., San Jose, USA.

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(ix) A construction company owes ` l crore to a cement supplier. However, the
cement supplier also owes ` 40 lakhs to the construction company for a separate
warehousing contract.

(x) A hospitality company owns a five-star hotel building and the land on which
it stands, both registered in the company’s name.

(1 Mark Each = Total 10 Marks)

(b) Guardian Insolvency Professional Agency (‘‘Guardian’’) obtained its certificate of
registration from the Insolvency and Bankruptcy Board of India (‘‘Board’’) by submitting
falsified compliance documents. Subsequently, Guardian repeatedly failed to adhere to
Board regulations and contravened several provisions of the Insolvency and Bankruptcy
Code, 2016. Upon receiving complaints, the Board initiated proceedings against Guardian.
Before passing an order, the Board issued a show-cause notice, affording Guardian
a reasonable opportunity of being heard, as mandated under the IBC.

Following due deliberation by whole-time members exclusively, the Board concluded
that there were contraventions by Guardian which needs to be dealt punitively. What
are the grounds on which the Board can take cognizance of ? Also, what action
can the Board initiate.

(3 marks)

(c) What are the punitive measures that can be administered by the Adjudicating Authority
under the Code ?

(2 marks)

(d) Define the term ‘Control’ in the context of insolvency proceedings.

(2 marks)

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(e) Rajesh Kumar, a textile merchant, was adjudicated bankrupt following insolvency

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proceedings. Anand was appointed Bankruptcy Trustee to administer the estate.

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Upon assuming office, Anand identified several urgent matters : the business required

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laneeded arbitration; certain creditors sought compromise arrangements; and a mortgageable
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temporary

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property existed suitable for raising funds towards debt settlement. Additionally, a

contractual option over a warehouse formed part of the estate apart from other issues.

Before proceeding further, Anand wants to convene a meeting of the creditors.

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In such a situation, elucidate which are the acts of the Bankruptcy Trustee that require

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prior approval from creditors ?

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a (5 marks)

(f) Explain briefly on ‘‘Actions to avoid acts detrimental to creditors.’’

(3 marks)

4. (a) PQR Manufacturing Limited, a company engaged in the production of industrial equipment,

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defaulted on its financial obligations and insolvency proceedings were initiated against

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it before the National Company Law Tribunal under the Insolvency and Bankruptcy

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Code, 2016. A Resolution Professional was subsequently appointed to manage the

a affairs of the company and examine its financial records.

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While reviewing past transactions, the Resolution Professional discovered that

approximately one year before the commencement of insolvency proceedings, the company

had transferred a valuable warehouse property to another company closely connected

with its promoters. The property, which had a significantly higher market value, was

transferred for a consideration for below its estimated worth.

The Resolution Professional also observed that such transfer was not part of the ordinary

course of business of the company and that the transaction had the effect of substantially

reducing the asset base available to creditors during the insolvency process.

The transferee company, however, argued that the transaction was a valid commercial

arrangement entered into with the consent of the management of the corporate debtor.

In light of these facts, examine whether the Resolution Professional can challenge such

a transaction before the National Company Law Tribunal. Also explain the possible

powers of the tribunal if it finds that the transaction was detrimental to the interests

of the creditors.

(5 marks)

(b) A public sector bank, acting as a financial creditor, filed an application under

Section 7 of the Insolvency and Bankruptcy Code, 2016 before the National Company

Law Tribunal seeking initiation of the Corporate Insolvency Resolution Process (CIRP)

against a corporate debtor due to default in repayment of financial debt.

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Along with the application, the bank proposed the name of Mr. Rajiv Sharma, a

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registered Insolvency Professional, to be appointed as the Interim Resolution Professional

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(IRP).

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The corporate debtor objected to this proposal and contended that Mr. Sharma had
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ag earlier served as a senior employee of the same bank for nearly four decades before
his retirement and continued to receive pensionary benefits from it. According to the

debtor, such long association with the financial creditor could create a reasonable

apprehension of bias, and therefore the IRP might not act independently while conducting

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the insolvency resolution process.

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. that Mr. Rajiv Sharma was a duly registered
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e Insolvency and Bankruptcy Code and that mere
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The financial creditor, however, argued

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Insolvency Professional under the

past employment with the creditor cannot automatically disqualify him from being appointed

as IRP.

Assuming that the adjudicating authority accepted the objection and directed substitution

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of the proposed IRP, and the matter subsequently travelled in appeal up to the National

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Company Law Appellate Tribunal and later to the Supreme Court of India, analyse

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how the issue regarding independence and eligibility of the Interim Resolution Professional

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would be decided at each stage of the proceedings.

(8 marks)

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(c) Omega Infotech Private Limited, a corporate debtor, filed an application under Section

10 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of the Corporate

Insolvency Resolution Process (CIRP). The company submitted all required documents,

including financial statements and evidence of default.

However, certain creditors opposed the application, alleging that :

• Investigations were pending against the promoters for financial irregularities.

• There were allegations of fraud and mismanagement, and

• The application was filed to escape liability.

The Adjudicating Authority, taking note of these allegations, refused to admit the

application, stating that the conduct of the promoters and pending investigations made

the case unsuitable for initiation of CIRP.

Omega Infotech Private Limited challenged this decision before the appellate authority,

arguing that the application met all statutory requirements and that such external factors

should not influence admission under the Code. Examine the case study and provide

your expert view and quote the relevant case laws in support of your answer.

(6 marks)

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(d) ‘‘A resolution application may submit a resolution plan along with an affidavit stating

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that he is eligible under section 29A to the resolution professional prepared on the

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basis of the information memorandum. The resolution professional shall examine each
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resolution plan received by him to confirm that each resolution plan.’’

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laExplain the important requirements of the ‘Resolution Plan’ that are submitteda by the
ag Prospective Resolution Applicants.
(6 marks)

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