Insolvency and Bankruptcy Code, 2016

The Insolvency and Bankruptcy Code, 2015 was introduced in the Lok Sabha on 21 December 2015 by former Finance Minister, Late Arun Jaitley.[5] The Code was referred to a Joint Committee of Parliament on 23 December 2015, and recommended by the Committee on 28 April 2016.[6] The Code was passed by the Lok Sabha and the Rajya Sabha on 5 May and 11 May 2016 respectively. Subsequently, it received assent from President Pranab Mukherjee and was notified in The Gazette of India on 28 May 2016.[7]

The Code was passed by parliament in May 2016 and became effective in December 2016.[8] Section 243 of this Code repeals the Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920.[9]

The first insolvency resolution order under this code was passed by National Company Law Tribunal (NCLT) in the case of Synergies-Dooray Automotive Ltd on 14 August 2017 and the second resolution plan was submitted in the case of Prowess International Private Limited. 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.[8]

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.[10]

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.[11]

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.[9]

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.[9]

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 and Limited Liability Partnership firms; and (ii) the Debt Recovery Tribunal for individuals and partnerships.

A plea for insolvency is submitted to the adjudicating authority (NCLT in case of corporate debtors) by financial or operation creditors or the corporate debtor itself. The maximum time allowed to either accept or reject the plea is 14 days. If the plea is accepted, the tribunal has to appoint an Interim Resolution Professional (IRP) to draft a resolution plan within 180 days (extendable by 90 days). following which the Corporate Insolvency Resolution process is initiated by the court. 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.

Is the Insolvency and Bankruptcy Code a remedy to all Banking issues?

Insolvency and bankruptcy code bill was introduced in the Indian parliament by the NDA government in 2015 but got final clearance in May 2016 parliament session. It was believed that this bill will resolve all the banking issues present in the economy. The main reason to introduce this bill was to fasten up the long insolvency process which it did. After this bill, the insolvency process for the company is 180 days with an extension of 90 days, and for startups and small companies, it is 90 days with an extension of 45 days. The question is will it resolve all banking issues and the answer is no, as India's banking industry is going through a very difficult phase. Banks are merging up due to bad loans and all this hustle can't be simplified with this bill. IBC will only bad debts that are disclosed. Undisclosed bad loans or bad loans that get disclosed after the victim absconds remain untouched. And there are many incidents in past years in which creditors flew away from the country after being unable to pay off the loan that they took. But, the IBC did improve the economic system and the impact can be seen - the economy is clearly stabler. [8][12]

The First Schedule amends the Indian Partnership Act, 1932.

The Second Schedule amends the Central Excise Act, 1944.

The Third Schedule amends the Income-tax Act, 1961.

The Fourth Schedule amends the Customs Act, 1962.

The Fifth Schedule amends the Recovery of Debts due to Banks and Financial Institutions Act, 1993.

The Sixth Schedule amends the Finance Act, 1994.

The Seventh Schedule amends the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

The Eighth Schedule amends the Sick Industrial Companies (Special Provisions) Repeal Act, 2003.

The Ninth Schedule amends the Payment and Settlement Systems Act, 2007.

The Tenth Schedule amends the Limited Liability Partnership Act, 2008.

The Eleventh Schedule amends the Companies Act, 2013.

The Act 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.[13]

• First amendment to the IBC gives ability to home buyers to file insolvency and participate in the resolution process.[14]
• Proposed: An amendment to include a chapter on cross-boundary insolvency and resolution process.
• Proposed: Amendment to protect successful bidders from any risk of criminal proceedings for offences committed by previous promoters of companies concerned.[15]

• Insolvency and Bankruptcy Code, 2016
• Rules and Regulations
• Official website of Insolvency and Bankruptcy Board of India (IBBI)