Insolvency and Bankruptcy Code, 2016

The Insolvency and Bankruptcy Code, 2016 (IBC) is a comprehensive framework in India designed to streamline insolvency and bankruptcy processes for companies, partnership firms, and individuals. It consolidates various fragmented laws into a single code, aiming to promote ease of doing business and expedite the resolution process.

Overview of the Insolvency and Bankruptcy Code, 2016

Purpose and Background

  • Prior to the IBC, insolvency laws in India were scattered across multiple acts, including the Companies Act, 2013, Sick Industrial Companies (Special Provisions) Act, 1985, and others. This fragmentation led to inefficiencies in resolving insolvency cases.
  • The IBC was introduced to create a unified framework for insolvency proceedings, ensuring timely resolution and reducing the burden on the judicial system.

History

  • In August 2014, the Ministry of Finance established the Bankruptcy Legislative Reforms Committee (BLRC), headed by T. K. Viswanathan, to draft a new bankruptcy law.
  • The committee submitted its report in November 2015, leading to the introduction of the Insolvency and Bankruptcy Code, 2015 in December of the same year.
  • Following detailed discussions and revisions by a Joint Parliamentary Committee, the final version of the IBC was passed by the Lok Sabha on May 5, 2016, and by the Rajya Sabha on May 11, 2016. It received presidential assent on May 28, 2016.

Early Cases

  • The first insolvency resolution under the IBC was ordered by the National Company Law Tribunal (NCLT) in the case of Synergies-Dooray Automotive Ltd on August 14, 2017. The resolution plan was submitted within the required 180 days.

Key Provisions

Insolvency Resolution Processes

    • The IBC establishes distinct processes for individuals, companies, and partnership firms, which can be initiated by either the debtor or creditors.
    • For corporate entities, the resolution process must be completed within 180 days, extendable by 90 days with creditor consent. For small companies and startups, the timeline is 90 days, extendable by 45 days.

    Insolvency Regulator

      • The Insolvency and Bankruptcy Board of India (IBBI) was established to oversee insolvency proceedings and regulate registered entities.

      Insolvency Professionals

        • Licensed professionals are responsible for managing the insolvency process and controlling the debtor’s assets.

        Adjudicating Authorities

          • The IBC designates two tribunals for insolvency resolution: the NCLT for companies and Limited Liability Partnerships, and the Debt Recovery Tribunal for individuals and partnerships.

          Procedure

          Time Limits

          • The Corporate Insolvency Resolution Process (CIRP) is mandated to be completed within 180 days of application admission, with an overall maximum of 330 days, including extensions and litigation.

          Initiating the CIRP

          • Applications can be filed by financial creditors (Section 7), operational creditors (Section 9), or the corporate debtor itself (Section 10). The NCLT has 14 days to decide on the application.

          Moratorium

          • Upon commencement of insolvency, a moratorium is declared, halting litigation against the debtor and restricting asset transfers. The moratorium remains in effect until the CIRP concludes or a liquidation order is issued.

          Amendments

          • The 2017 Amendment introduced restrictions on certain individuals from submitting resolution plans, including:
          • Wilful defaulters.
          • Promoters or management of the company with outstanding non-performing debts.
          • Disqualified directors.

          This amendment also prohibits the sale of a defaulter’s property to these individuals during liquidation.