Insolvency And Bankruptcy Code, 2016
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The Insolvency and Bankruptcy Code, 2016 (IBC) is an Indian law 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 (No. 18 of 2013) is an Act of Parliament, Act of the Parliament of India which forms the primary source of Indian company law. It received presidential assent on 29 August 2013, and largely superseded the Companies Act 19 ...
, 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 ministry or other government agency in charge of government finance, fiscal policy, and financial regulation. It is headed by a finance minister, an executive or cabinet position . A ministry of finance's portfoli ...
created the Bankruptcy Legislative Reforms Committee (BLRC). The committee was headed by T. K. Viswanathan, 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 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 Pranab Kumar Mukherjee ( ; born, 11 December 1935 – 31 August 2020) was an Indian statesman who served as the president of India from 2012 until 2017. He was the first person from West Bengal to hold the post of President of India. In a pol ...
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. It is published weekly by the Directorate of Printing Department of Publication, a subordinate office of the Ministry of Housing and Urban ...
'' on 28 May 2016.


Early cases

The first insolvency resolution order under this code was passed by National Company Law Tribunal (NCLT) in the case of ''Synergies-Dooray Automotive Ltd.'' in CP(IB)No. 01/HDB/2017 on 14 August 2017, reported in
017 017 may refer to: * DOL-017, GameCube console * '' Global Underground 017'', DJ mix album * Road FC 017, 2014 Mixed Martial Arts event * Swift 017.n, racing car * Tyrrell 017, Formula One racing car See also * 17 (disambiguation) Seventeen o ...
ibclaw.in 23 NCLT. 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. The First case under Indian Insolvency law before Supreme Court was in
Innoventive Industries Ltd. v. ICICI Bank and Anr
''


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, 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 Reserve Bank of India, abbreviated as RBI, is the central bank of the Republic of India, and regulatory body responsible for regulation of the Indian banking system and Indian rupee, Indian currency. Owned by the Ministry of Finance (India), Min ...
. 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 for
Companies A company, abbreviated as co., is a legal entity representing an association of legal people, whether natural, juridical or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specifi ...
and Limited Liability Partnership firms; and (ii) the Debt Recovery Tribunal for individuals and partnerships.


Procedure


Time Limit

The IBC envisions that the entire Corporate Insolvency Resolution Process (CIRP) 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. The Hon'ble Supreme Court in ''Committee of Creditors of Essar Steel India Ltd.'' ''v. Satish Kumar Gupta & Ors.,'' reported at ''(2019) ibclaw.in 07 SC,'' has struck down the upper limit of 330 days holding that it may be open in some cases for the Adjudicating Authority and/or Appellate Tribunal to extend time beyond 330 days.


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 Adjudicating Authority: (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 corporate 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


External links


Insolvency and Bankruptcy Code, 2016



Official website of Insolvency and Bankruptcy Board of India (IBBI)
{{Webarchive, url=https://web.archive.org/web/20170519213853/http://ibbi.gov.in/ , date=19 May 2017 Acts of the Parliament of India 2016 Insolvency law by country Financial regulation in India 2016 in Indian economy Bankruptcy Modi administration