Sections notified under the Bankruptcy Code

The Ministry of Corporate Affairs (‘MCA’), vide its Public Notice dated October 6, 2016[1] and October 10, 2016[2] issued the draft rules and regulations on recommendations of the working group[3] for public comments. The last day for submitting the comments was October 28, 2016 and October 31, 2016, respectively. On the next day itself, MCA, vide its notification dated November 1, 2016[4] notified the third tranche of sections. Sub-section (3) of section 1 empowers the Central Government for piecemeal enforcement of the provisions of the Code. Prior to notifying the third tranche of sections, MCA, has already notified two notifications dated August 5, 2016[5] and August 19, 2016[6].

Though the draft rules and regulations seems to be at very early stage, it becomes necessary for the Ministry to notify such sections pursuant to which the Central Government or the Board has been empowered to make rules and regulations, respectively.

The notification dated August 19, 2016 notified 6 definitions under section 3. The left over definitions have been notified by virtue of the notification dated November 1, 2016.

Section 196 deals with powers and functions of the Board; however, the same shall be performed by the Central Government until the Board has been duly constituted by virtue of section 244 of the Code. In order to discharge its function efficiently, the Board has been empowered to constitute such committee as it may deem fit under section 197.

Chapter VII of part IV deals with finance, accounts and audit. Section 223 deals with accounts and audit wherein the Board is required to maintain proper accounts and other relevant records as may be prescribed by Central Government in consultation with the CAG. The accounts of the Board shall be audited by CAG at such interval as may be specified.

Sections 239 and 240 empower the Central Government and the Board to make rules and regulations for carrying out the provisions of the Code. Consequently, the relevant clauses have been notified.

Section 244 deals with transitional provision. By virtue of this section the exercise the powers including power to make regulations and functions of the Board or such designated financial sector regulator shall be exercised by the Central Government.

Sections 245 to 255 provides for amendment in the existing Acts. In the third tranche of notification, MCA has notified 5 such sections.

Section 246 provides for amendment in the Central Excise Act, 1944, section 248 provides for amendment in the Customs Act, 1962 and section 250 provides for amendment in the Finance Act, 1994 – Prior to the Code, any amount due under the Central excise Act and Customs Act had first charge; however, exception was provided to section 529A of the Act, 1956, RDDBFI Act and SARFAESI Act. Now even the Code enters the queue. The position under the Code is completely different. Both sections 53 and 178 do not provide priority to amount due to the Central Government and the State Government.

Section 247 provides for amendment in the Income-tax Act, 1961 – Section 178 of the Income-tax Act, 1961 deals with company in liquidation. The liquidator appointed shall give notice to assessing officer who is entitled to assess the income of the company. The Assessing Officer shall within the prescribed time limit notify the liquidator an amount which in his opinion shall be sufficient to provide for any tax. The provision of the Income-tax Act reads as follows:

“(6) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force.”

Post amendment the same shall be read as:

“(6) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force except the provisions of the Insolvency and Bankruptcy Code, 2016.”

With the insertion of the expression “except the provisions” the Code gets the overriding effect.

Section 252 provides for amendment in the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 – The SICA Repeals Act was enacted to repeal the erstwhile SICA, 1985 and provide for transition from SICA, 1985 to the Act, 1956. Accordingly, the Companies (Second Amendment) Act, 2002 was introduced to amend the corresponding provisions of the Companies Act, 1956. However, both the Acts, i.e., SICA Repeals Act and the Companies (Second Amendment) Act, 2002 were never enforced. As per the amendment provided any appeal, reference or inquiry pending to or before the Appellate Authority shall stand abated and a reference shall be made to the NCLT under the Code within 180 days from the commencement of the Code. Also, no fees shall be payable for making such reference under the Code.

List of sections notified under the Bankruptcy Code are as follows:

[1] http://208.109.106.134/PUBLIC-NOTICE-Registration-regulations.jpeg

[2] http://208.109.106.134/Public-Notice-10102016.pdf

[3] Set-up by MCA for drafting rules and regulations for the insolvency resolution and liquidation of insolvent corporate persons.

[4] Notification No. S.O. 3355(E) Dated: 01/11/2016 – Insolvency Section; Same can be viewed at:  https://taxguru.in/corporate-law/govt-notifies-more-sections-under-bankruptcy-code.html

[5] Notification No. F.No. 30/7/2016-Insolvency Section; date of publishing in Official Gazette is same as date of notification.

[6] Notification No. S.O. 2746(E)  Dated- 30/8/2016-Insolvency Section; date of publishing in Official Gazette is same as date of notification. Same can be viewed at: https://taxguru.in/corporate-law/govt-notifies-12-provisions-insolvency-bankruptcy-code-2016.html