The Insolvency and Bankruptcy Code, 2016 (IBC) is an
Indian law
The legal system of India consists of civil, common law and customary, Islamic ethics, or religious law within the legal framework inherited from the colonial era and various legislation first introduced by the British are still in effect in ...
which creates a consolidated framework that governs insolvency and bankruptcy proceedings for companies, partnership firms, and individuals.
Background
Prior to the IBC, the legislative framework for insolvency and restructuring was fragmented across multiple legislations, such as the
Companies Act 2013
The Companies Act 2013 is an Act of the Parliament of India on Indian company law which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company. The 2013 Act is divided into 29 chapters containing ...
, the Sick Industrial Companies (Special Provisions) Act, 1985,
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI Act), 1993, and others.
History
On 22 August 2014, the
Ministry of Finance A ministry of finance is a part of the government in most countries that is responsible for matters related to the finance.
Lists of current ministries of finance
Named "Ministry"
* Ministry of Finance (Afghanistan)
* Ministry of Finance and Eco ...
created the Bankruptcy Legislative Reforms Committee (BLRC). The committee was headed by
T. K. Viswanathan
T. K. Viswanathan (born 14 October 1948) is the Secretary General of the 15th Lok Sabha and Lok Sabha Secretariat, Parliament of India, i.e. the House of the People in the Indian Parliament. As Secretary General, he is also the Administrat ...
, and tasked with drafting a new bankruptcy law. The Committee submitted it
report which included a draft bill, on 4 November 2015. A modified version of the draft bill, after the incorporation of public comments, was introduced in the Sixteenth Lok Sabha Lok Sabha by Finance Minister
Arun Jaitley
Arun Jaitley (28 December 1952 – 24 August 2019) was an Indian politician and attorney. A member of the Bharatiya Janata Party, Jaitley served as the Minister of Finance and Corporate Affairs of the Government of India from 2014 to 2019. Jait ...
as the Insolvency and Bankruptcy Code, 2015. The bill was tabled on 23 December 2015. A Joint Parliamentary Committee on the Insolvency and Bankruptcy Code, 2015 (JPC) was set up and the bill was referred to it for detailed analysis. The JPC submitted it
report which included a new draft of the Bill, 28 April 2016. It was passed by the Lok Sabha on 5 May 2016, and by the Rajya Sabha on 11 May 2016. Subsequently, it received assent from President
Pranab Mukherjee
Dr. Pranab Mukherjee (11 December 193531 August 2020) was an Indian politician and statesman who served as the 13th president of India from 2012 until 2017. In a political career spanning five decades, Mukherjee was a senior leader in the India ...
and was notified in ''
The Gazette of India
''The Gazette of India'' is a public journal and an authorised legal document of the Government of India, published weekly by the Department of Publication, Ministry of Housing and Urban Affairs. As a public journal, the ''Gazette'' prints offic ...
'' on 28 May 2016.
Early cases
The first insolvency resolution order under this code was passed by
National Company Law Tribunal
The National Company Law Tribunal is a quasi-judicial body in India that adjudicates issues relating to Indian companies. The tribunal was established under the Companies Act 2013 and was constituted on 1 June 2016 by the government of India an ...
(NCLT) in the case of ''Synergies-Dooray Automotive Ltd'' on 14 August 2017. The plea for insolvency was submitted by company on 23 January 2017. The resolution plan was submitted to NCLT within a period of 180 days as required by the code, and the approval for the same was received on 2 August 2017 from the tribunal. The final order was uploaded on 14 August 2017 on the NCLT website.
Key Provisions
Insolvency Resolution : The Code outlines separate insolvency resolution processes for individuals, companies and partnership firms. The process may be initiated by either the debtor or the creditors. A maximum time limit, for completion of the insolvency resolution process, has been set for corporates and individuals. For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority of the creditors agree. For start ups (other than partnership firms), small companies and other companies (with asset less than Rs. 1 crore), resolution process would be completed within 90 days of initiation of request which may be extended by 45 days.
The Insolvency and Bankruptcy Code (Amendment) Act, 2019 has increased the mandatory upper Time limit of 330 days including time spent in legal process to complete resolution process.
Insolvency regulator: The Code establishes the
Insolvency and Bankruptcy Board of India
The Insolvency and Bankruptcy Board of India (IBBI) is the regulator for overseeing insolvency ''proceedings'' and entities like Insolvency Professional Agencies (IPA), Insolvency Professionals (IP) and Information Utilities (IU) in India. It w ...
, to oversee the insolvency proceedings in the country and regulate the entities registered under it. The Board will have 10 members, including representatives from the Ministries of Finance and Law, and the
Reserve Bank of India
The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible for ...
.
Insolvency professionals: The insolvency process will be managed by licensed professionals. These professionals will also control the assets of the debtor during the insolvency process.
Bankruptcy and Insolvency Adjudicator: The Code proposes two separate tribunals to oversee the process of insolvency resolution, for individuals and companies: (i) the
National Company Law Tribunal
The National Company Law Tribunal is a quasi-judicial body in India that adjudicates issues relating to Indian companies. The tribunal was established under the Companies Act 2013 and was constituted on 1 June 2016 by the government of India an ...
for
Companies
A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared go ...
and
Limited Liability Partnership firms; and (ii) the Debt Recovery Tribunal for individuals and partnerships.
Procedure
Time Limit
The IBC envisions that the entire CIRP process must take place within 180 days of the admission of the application. A CIRP must be mandatorily completed within 330 days, including any extension or litigation period.
Initiating the CIRP
In the case of a corporate debtor, an application for insolvency proceedings must be submitted to the Adjudicating Authority (AA), which is the NCLT. The application may be filed by a financial creditor (Section 7), an operational creditor (Section 9), or the corporate debtor (Section 10) itself. Section 11 enumerates the persons ''not entitled'' to make an application, such as corporate debtor who was in a CIRP at the time of the application, or had been in one recently.
The maximum time allowed to consider the application is 14 days. If the application is allowed, the AA: (i) declares a moratorium; (ii) causes a public announcement of the CIRP process and calls for the submission of claims; and (iii) appoints an Interim Resolution Professional (IRP).
Moratorium
On the date on which the insolvency commences, a ''moratorium'' is declared, and it remains in force until the end of the CIRP. The CIRP ends, either when the AA approves a resolution plan under Section 31(1), or when it passes a liquidation order under Section 33. The moratorium ensures that the CIRP has a free-rein and is the only mechanism through which claims are settled. It bars the institution of litigation against the corporate debtor, while at the same time suspending the corporate debtor's ability to move, sell, or transfer any of its assets. It bars actions both ''by'' and ''against'' the coporate debtor. However, the moratorium has certain exceptions, such as Section 14(2A), which allows the IRP to continue to supply of such goods and services as it considers necessary to preserve the value of the corporate debtor.
For the said period, the board of directors of the company stands suspended, and the promoters do not have a say in the management of the company. The IRP, if required, can seek the support of the company's management for day-to-day operations. If the CIRP fails in reviving the company, the liquidation process is initiated.
Amendments
* 2017 Amendment prohibits certain persons from submitting a resolution plan in case of defaults. These include: (i) wilful defaulters, (ii) promoters or management of the company if it has an outstanding non-performing debt for over a year, and (iii) disqualified directors, among others. Further, it bars the sale of property of a defaulter to such persons during liquidation.
High-value cases
References
{{Reflist
External links
Insolvency and Bankruptcy Code, 2016Official website of Insolvency and Bankruptcy Board of India (IBBI)
Acts of the Parliament of India 2016
Insolvency law by country
Financial regulation in India
2016 in Indian economy
Bankruptcy
Modi administration