Brief History and Rationale behind the IBC
The bankruptcy code is a one stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement. The code aims to protect the interests of small investors and make the process of doing business less cumbersome.
Previously in India there were different laws which used to deal with the insolvency & bankruptcy these laws are as follows:
> Presidency Towns Insolvency Act 1909
> Provincial Insolvency Act 1920
> Indian Partnership Act 1932
> The Companies Act 1956
> Sick Industrial Companies (Special Provisions) Act 1985
> Recovery of Debts Due to Banks and Financial Institutions Act, 1993
> The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 etc.
For the purpose of making single window clearance some of the Acts mentioned above were deleted & some Acts were amended to get them alien with The Insolvency and Bankruptcy Code, 2016 (IBC).
Impact of the Code on other Legislations:
Other laws which were developed /amended to get them alien with the IBC 2016 are as follows:
> Indian Partnership Act 1932
> The Companies Act 2013
> Recovery of Debts Due to Banks and Financial Institutions Act, 1993
> The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
> Central excise Act 1944
> The customs Act 1962
> The Income Tax Act 1961
> The payment and Settlement Systems Act, 2007
> The Limited Liability Partnership Act, 2008
The Insolvency and Bankruptcy Code, 2016 (IBC) is the law which seeks to consolidate the laws relating to insolvency and bankruptcy resolution for corporates, limited liability partnerships, partnership firms, individuals and other body corporates as may be notified by the Central Government from time to time.
The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha in December 2015. It was passed by Lok Sabha on 5 May 2016 and by Rajya Sabha on 11 May 2016. The Code received the assent of the President of India on 28 May 2016. And certain provisions of it came into force on later dates. The Code has 255 sections and 11 Schedules.
Why is it called a Code not an Act?
The Code is combination of different existing laws.
To make code new laws are included and old (existing) laws may be deleted or amended to get them alien with the Code.
But the Act is a decision passed into law, or Act can be statute or decision by legislature after a bill has been passed & received the assent of the president.
The Insolvency and Bankruptcy Code (IBC) 2016 is not single law made to deal with insolvency & bankruptcy matters. It is combination of existing laws applicable to insolvency & bankruptcy.
This is the reason; it is called Code not an Act.
Applicability & Non Applicability of the Code (Geographically & Organizational Basis)
The Insolvency and Bankruptcy Code (IBC) 2016 is applicable on whole India including the state of Jammu & Kashmir.
The Insolvency and Bankruptcy Code (IBC) 2016 is applicable on each and every company & body corporate operating within India except Banking, All India Financial Institutions & Non Banking Financial Companies.
Reasons to introduce The Insolvency and Bankruptcy Code (IBC) 2016:
The main reasons to introduce this code are as follows:
> To make single window clearance.
> To make corporate insolvency process time bound.
> To boost the object of ease of doing business in India.
> To provide timely relief to the creditor community.
> To build trust of foreign investors & creditors.
> To reduce the burden of High Courts & other civil courts.
> To establish an Insolvency and Bankruptcy Board of India as a regulatory body.
Adjudicating authorities prior to IBC 2016
> Board for Industrial & Financial Reconstruction (BIFR)
> Debt Recovery Tribunals (DRT)
> High Courts, & Other Civil Courts,
Above authorities were common to all irrespective of the type of person (Natural or Artificial person).
Adjudicating authorities after IBC 2016
After IBC 2016 adjudicating authorities are as follows:
Thus the term insolvency is common to both bankruptcy & liquidation.
Distinguishing features of Insolvency & Bankruptcy Code (IBC) 2016
Some of the main distinguishing features of this code are as follows:
> Single chain of authority e.g. IBBI (Insolvency & Bankruptcy Board of India)
> Single window clearance e.g. NCLT or DRT as the case may be.
> Establishment of information utility.
> Time bound process.
> Comprehensive law.
> Establishment of Insolvency professional agency.
> Enlarging the role of professionals like CS, CMA, CA, and Advocates etc.
> Category of creditors clearly defined. E.g. Financial & Operational creditors.
> Availability of fast track insolvency process for corporate persons.
> Declaration of moratorium.
Time specified under the Code to complete Corporate insolvency & resolution process: Section 12 of the Code provides timelines for the completion of the CIRP within a period of 180 days plus 90 days further extension. Thus CIRP must be completed to a maximum of 270 days from the ICD.
Minimum amount of default: Minimum amount of default to apply for corporate insolvency resolution process under the code is one (1) lakh rupees.
Corporate insolvency & resolution process
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Application by corporate/operational creditors along with copy of demand notice or record of default submitted with information utility as the case may be.
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Acceptance/rejection of application by NCLT
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If accepted NCLT will declare moratorium
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Notice of acceptance or rejection
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Public announcement
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Appointment of interim resolution professional
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Constitution of committee of creditors by interim resolution professional
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Appointment of final resolution professional
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Preparation of information memorandum
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Submission of resolution plan by resolution applicant
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Approval of resolution plan by committee of creditors
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Approval of resolution plan by NCLT
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After approval of NCLT order of moratorium shall cease to have effect
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Initiation of resolution plan
Conclusion: After whole discussion above it is clear that how much important was to introduce a comprehensive law to make a time bound insolvency & bankruptcy process so that trust could be generated among creditors community & foreign investors. And also to reduce burden of various adjudicating authorities, documentation process etc to achieve the goal of ease of business in India.
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Author Details :
Name: Ashwani Singh Bisht
Stage: Company Secretary Professional Exam passed
Current Job Profile: Trainee in a Practicing Company Secretaries Firm (Hyderabad)
