Discover what sets the Insolvency and Bankruptcy Code (IBC) 2016 apart from previous insolvency laws in India. Learn about its organization and time-bound procedures.
What Sets Insolvency and Bankruptcy Code (IBC) 2016 Apart from previous Insolvency Laws in India?
In a Developing country like India, where entrepreneurship is rapidly increasing it was very important to have a proper law regulating the Insolvency matters in the nation.
Many acts were enacted like the Sick Industrial Companies Act 1985 (SICA), Recovery of Debts due to banks and Financial Institutions Act 1993 , The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI ACT) and The Companies Act, 2013. However, these legislations were unsystematic and there was an absence of a well-organized mechanism for the closure or reorganizing of infeasible firms. Various insolvency procedures resulted in an array of proceedings leading to delay in resolutions, and having so many procedures under various laws resulted in overlapping in some provisions and hence confusion, inefficiency, and contradiction were created.
All these factors demanded a single law that would deal with all the insolvency and bankruptcy cases under a single ceiling and make the legal procedure systematic, time-bound, and increase value maximization. This resulted in the enactment of the “Insolvency and Bankruptcy Code, 2016”.
As the Long Title states that “It is an act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate
persons, partnership firms and individuals in a time bound manner.”
The Insolvency and Bankruptcy Code, 2016 consists of total 255 sections which is organized in 5 Parts.
Part 1: Preliminary (Section 1 to 3) : It deals with Applicability and General Definitions applicable to the whole code.
Part 2: Insolvency Resolution and Liquidation for Corporate Persons (Section 4 to 77): It deals matters relating with Corporate Person (i.e. Company and LLP).
Part 3: Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms (Section 78 to 187): It deals matters in relation to Individuals and Firms but since the enforcement of the code, this part is not enforceable.
Part 4: Regulation of Insolvency Professionals, Agencies and Information Utilities (Section 188 to 223): It deals with Powers functions and internal working of the Professionals and Agencies under the code.
Part 5: Miscellaneous (Section 224 to 255)
The Insolvency and Bankruptcy Code (IBC) 2016 is one of the most successfully drafted legislations in India as it has distinguished different persons with different procedures to initiate Insolvency Process also known as Corporate Insolvency Resolution Process (CIRP) in a time bound manner with different criteria or threshold limits.
Section 6 of Part II of the Code deals with the Persons who can initiate CIRP which is classified as the financial creditor, the operational creditor and the Corporate Applicant.
Section 7 of Part II of the Code deals with the process of initiation of CIRP by the financial creditor.
Section 8 and 9 of Part II of the Code deals with the the Insolvency Resolution and Application by the Operational Creditor.
A separate process was made for the Operational Creditor as they tend to have a smaller amount and mostly that is recurring in nature.
Section 10 of Part II of the Code deals with the process of initiation of CIRP by the Corporate Applicant itself. (Previously known as the Corporate Debtor)
Section 12 of Part II of the Code deals with the time limit that is, required to be completed within 180 days (subject to a one-time extension by 90 days) from the date of acceptance of application by the NCLT.
However, the Insolvency and Bankruptcy Code (Amendment) Act, 2019 has laid down that the corporate insolvency resolution process shall mandatorily be completed within a period of 330 days from the insolvency commencement date.
At the same under Section 53 of the Code we have introduced a procedure for distribution of proceeds against their claims known as “Waterfall Arrangement” which is in a much organized manner as compared to earlier procedures.
Further IBC 2016 provides provision for different functionaries for the smooth functioning of the code, namely:
- Insolvency and Bankruptcy Board of India (IBBI)
- Adjudicating Authorities (AA)
- Insolvency Professionals (IPs)
- Insolvency Professional Agencies (IPAs)
- Information Utilities (IUs)
So, Keeping in view of the few above things that were highlighted about IBC 2016 , it sets the Code apart from any other Insolvency Law as it is a much way organized law and provides provision to get the procedures completed in a time bound manner which is one of the most essential aspects for a company under insolvency.
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