In India, the Insolvency and Bankruptcy Code (IBC) was introduced in 2016 to address the issue of sick companies and debt recovery. The IBC aims to provide a timely and efficient mechanism for the resolution of corporate insolvency, which maximizes the value of assets, balances the interests of all stakeholders, and promotes entrepreneurship.

Under the IBC, when a company defaults on its debt, a resolution process is initiated, which involves the appointment of an insolvency professional to take control of the company's assets and formulate a resolution plan. The plan can result in either the revival of the company or the sale of its assets to recover the debt. If the plan is approved by the creditors, it is implemented, and the company is revived. If the plan is not approved, the company is liquidated, and the proceeds are used to repay the creditors.

In addition to the IBC, there are other laws and regulations in India that deal with debt recovery, such as the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT Act) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). These laws provide banks and financial institutions with the power to recover their debts without going through the courts.

Overall, the IBC and other debt recovery laws in India aim to provide a transparent, efficient, and predictable mechanism for the resolution of corporate insolvency and the recovery of debt.

Meaning of Sick company

The Term "Sick Companies" refers to those companies that are unable to meet their financial obligations and are on the verge of closure. There are various legislations in India that deal with sick companies, including the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), the Insolvency and Bankruptcy Code, 2016 (IBC), and the Companies Act, 2013.

Under the Sick Industrial Companies (Special Provisions) Act, 1985, a company is considered "sick" if it has accumulated losses equal to or exceeding its entire net worth, and it has been unable to repay its debts for a period of at least three consecutive quarters. The Act provides for the appointment of a Board for Industrial and Financial Reconstruction (BIFR) to examine the company's financial situation and recommend measures for its revival. The BIFR has the power to order the winding up of the company or suggest a scheme for its rehabilitation.

The Insolvency and Bankruptcy Code, 2016 provides a mechanism for the resolution of insolvency and bankruptcy cases. Under the Code, a company is considered "sick" if it is unable to pay its debts when they become due or if it has defaulted on its payments for more than 90 days. The Code provides for the appointment of an Insolvency Resolution Professional (IRP) to take over the management of the company and suggest a resolution plan. If the resolution plan is not approved by the creditors, the company may be liquidated.

The Companies Act, 2013 also provides for the revival of sick companies. Under the Act, a company is considered "sick" if it has defaulted on the repayment of its debts and is unable to meet its financial obligations. The Act provides for the appointment of a Company Liquidator to take over the management of the company and sell its assets to repay its creditors. The Act also provides for the initiation of a scheme of revival and rehabilitation for the company, which may include the restructuring of its debts, the infusion of fresh capital, and the appointment of new management.

Nature of Sick Company

Under Indian law, sick companies can be classified into two broad categories based on their nature. These are:

1. Industrial Sick Companies:
   These are companies that operate in the manufacturing sector and are unable to operate profitably due to various reasons, such as outdated technology, inadequate market demand, lack of funds, etc. Industrial sick companies are mainly dealt with under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), which provides for the identification, protection, and revival of such companies.
    
2. Financially Sick Companies:
   These are companies that are unable to pay their debts and meet their financial obligations. Financially sick companies can operate in any sector, including manufacturing, services, and trading. These companies are mainly dealt with under the Companies Act, 2013 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

The nature of sick companies can also be further classified based on the causes of their sickness. These causes include external factors such as changes in government policies, market fluctuations, economic slowdown, etc., and internal factors such as mismanagement, fraud, embezzlement, etc. The identification of the causes of sickness is important for formulating a revival plan for the company.

Based on potential of debt recovery of Sick Companies can be further classified into two more classification:

1. Potentially viable sick companies:
   Potentially viable sick companies are those that have the potential to be revived and become profitable with the right intervention and support. These companies may be facing financial difficulties due to factors such as mismanagement, a lack of funds, or a decline in demand for their products or services. Under the various Indian laws, such companies are given an opportunity to be restructured and rehabilitated through mechanisms such as debt restructuring, infusion of new capital, or change in management.
    
2. Non-viable sick companies:
   Non-viable sick companies are those that have no realistic chance of being revived or generating sufficient revenues to meet their expenses. These companies may have been suffering from long-term financial losses, poor management, or structural problems in their business model. Under the Indian laws, such companies may be subject to liquidation, closure, or amalgamation with another company.

The nature of sick companies is important to determine the appropriate intervention mechanism to be applied. For potentially viable sick companies, the focus is on restructuring and rehabilitation, while for non-viable sick companies, the focus is on liquidation or closure. The objective is to protect the interests of various stakeholders, including employees, creditors, and shareholders, while ensuring the long-term viability of the company.

Modes of Debt Recovery of Sick Company
Debt recovery and restructuring are crucial processes in the Indian economy, as they help to revive sick companies, reduce the burden on the banking sector, and promote economic growth. In this answer, I will explain the procedures under various Indian legislation for debt recovery and restructuring of sick companies.

Debt Recovery
Debt recovery refers to the process of recovering the unpaid loans or dues from a borrower. There are several laws in India that govern debt recovery, including the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), and the Insolvency and Bankruptcy Code, 2016 (IBC).

Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act)
The RDDBFI Act provides a speedy and effective mechanism for the recovery of unpaid loans or dues from borrowers. The Act established Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunals (DRATs) to facilitate the recovery process. The DRTs have jurisdiction over the recovery of debts from banks and financial institutions, while the DRATs hear appeals against the orders of the DRTs.

The process of debt recovery under the RDDBFI Act starts with the issuance of a notice to the borrower demanding the repayment of the loan or dues. If the borrower fails to repay within 60 days, the bank or financial institution may file an application before the DRT for the recovery of the debt. The DRT then issues a summons to the borrower, and after hearing both parties, passes an order for the recovery of the debt.

Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)
The SARFAESI Act provides for the securitization and reconstruction of financial assets and enforcement of security interest. The Act empowers banks and financial institutions to take possession of the security provided by the borrower and sell it to recover the unpaid loans or dues.

Under the SARFAESI Act, the bank or financial institution must first issue a notice to the borrower demanding the repayment of the loan or dues. If the borrower fails to repay within 60 days, the bank or financial institution may take possession of the secured assets and sell them to recover the unpaid loans or dues. The borrower has the right to appeal against the possession notice before the Debt Recovery Tribunal (DRT).

Insolvency and Bankruptcy Code, 2016 (IBC)

The IBC is a comprehensive law that provides for the insolvency and bankruptcy of companies, partnerships, and individuals. The Act provides for a time-bound process for the resolution of insolvency and bankruptcy cases, with the aim of promoting the maximization of the value of the assets of the debtor and balancing the interests of all stakeholders.

The IBC provides for two main procedures for debt recovery � the corporate insolvency resolution process (CIRP) and the liquidation process. Under the CIRP, the debtor's management is suspended, and a resolution professional is appointed to manage the affairs of the debtor. The resolution professional invites resolution plans from interested parties, and the plan that maximizes the value of the debtor's assets is accepted by the creditors. If no resolution plan is accepted, the debtor goes into liquidation.

Key features of "Insolvency and Bankruptcy Code,2016"

The Insolvency and Bankruptcy Code (IBC), 2016 is a comprehensive legislation that provides for a time-bound and effective resolution of insolvency and bankruptcy cases. The IBC has been enacted to address the shortcomings of the existing laws relating to insolvency and bankruptcy, and to promote a robust and efficient insolvency regime in India.

Reason we need the IBC when we have so many different legislations:

1. Fragmented Legal Framework:
   Prior to the enactment of the IBC, there were multiple laws and forums dealing with the insolvency and bankruptcy of companies and individuals, such as the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), and the Companies Act, 2013. The fragmented legal framework led to delays and confusion in the resolution of insolvency and bankruptcy cases. The IBC has consolidated and streamlined the various laws into a single code, making the process more efficient and effective.
    
2. Speedy Resolution:
   One of the key features of the IBC is the time-bound process for the resolution of insolvency and bankruptcy cases. The IBC provides for a maximum of 180 days for the resolution of a case, which can be extended by 90 days in certain circumstances. This is in contrast to the earlier laws, which did not have any specific timeline for the resolution of cases. The time-bound process ensures that the interests of all stakeholders, including the creditors, debtors, and employees, are protected in a timely manner.
    
3. Focus on Resolution:
   The IBC is focused on the resolution of insolvency and bankruptcy cases, rather than liquidation. The objective of the IBC is to maximize the value of the assets of the debtor and balance the interests of all stakeholders. The IBC provides for the appointment of a resolution professional, who manages the affairs of the debtor during the resolution process. The resolution professional invites resolution plans from interested parties, and the plan that maximizes the value of the debtor's assets is accepted by the creditors. The focus on resolution ensures that the debtor continues as a going concern, and that the interests of all stakeholders are protected.
    
4. Cross-Border Insolvency:
   The IBC also provides for the regulation of cross-border insolvency, which was not addressed by the earlier laws. The IBC enables the Indian courts to cooperate with the foreign courts in insolvency and bankruptcy matters. This is particularly important in today's globalized economy, where many companies have operations in multiple jurisdictions.
    
5. Professionalization of Insolvency Resolution:
   The IBC provides for the professionalization of the insolvency resolution process. The resolution professional is a qualified and experienced professional who manages the affairs of the debtor during the resolution process. The IBC also provides for the establishment of Insolvency Professional Agencies (IPAs) and Insolvency Professional Entities (IPEs), which provide training and certification to insolvency professionals. This ensures that the insolvency resolution process is conducted in a professional and transparent manner.

Process of Recovery of Debts

The process of debt recovery of sick companies in India involves several steps, which are outlined below:

• Identification of sick companies:
  The first step in the debt recovery process is to identify sick companies. This can be done through the use of various indicators, such as declining sales, high debt levels, and negative cash flows.
   
• Financial restructuring:
  Once a sick company has been identified, the next step is to explore the possibility of financial restructuring. This can involve the rescheduling of debt, reduction of interest rates, and conversion of debt into equity.
   
• Corporate debt restructuring:
  If financial restructuring is not possible, the next step is to explore the possibility of corporate debt restructuring (CDR). CDR involves the restructuring of the company's debt in coordination with its creditors.
   
• Asset reconstruction:
  If financial and corporate debt restructuring are not possible, the next step is to explore the possibility of asset reconstruction. This involves the transfer of the company's assets and liabilities to a new entity, which is then responsible for the recovery of the debt.
   
• Insolvency proceedings:
  If none of the above measures are successful, the final step is to initiate insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). This involves the appointment of a resolution professional, who is responsible for the resolution of the company's debt.

The above steps are not necessarily sequential and can be taken concurrently. The debt recovery process of sick companies in India is a complex and time-consuming process that requires the coordination of various stakeholders, including creditors, debtors, and insolvency professionals.

The role of the National Company Law Tribunal (NCLT) in debt recovery

The National Company Law Tribunal (NCLT) is a quasi-judicial body that was established in India in 2016 under the Insolvency and Bankruptcy Code (IBC) to adjudicate on corporate disputes and insolvency cases. The NCLT has an important role to play in the recovery of debts owed by sick companies. In this article, we will discuss the role of the NCLT in debt recovery, particularly with reference to sick companies.

Sick companies are those that are not able to meet their financial obligations due to various reasons such as mismanagement, internal disputes, or external factors. These companies are a major concern for the Indian economy as they are unable to generate profits, pay their debts, or provide employment opportunities. The NCLT plays a crucial role in the recovery of debts from these sick companies.

Under the IBC, a creditor can initiate the debt recovery process by filing an application before the NCLT. The application should provide details of the debt owed by the sick company, the amount of the debt, and the reasons for non-payment. The NCLT then issues a notice to the debtor company, and the debt recovery process starts.

The NCLT has the power to appoint an interim resolution professional (IRP) to manage the affairs of the debtor company during the debt recovery process. The IRP takes over the management of the company and prepares a resolution plan that includes a proposal for the repayment of the debt. The resolution plan is then submitted to the NCLT for approval.

Once the resolution plan is approved, the debtor company is required to implement the plan and repay the debts as per the terms of the plan. If the debtor company fails to implement the resolution plan, the NCLT may initiate the liquidation process. During the liquidation process, the assets of the debtor company are sold off, and the proceeds are distributed among the creditors.

The NCLT has been effective in resolving disputes related to sick companies and debt recovery. It has been able to reduce the time and cost involved in the resolution of corporate disputes and has helped in the recovery of debts from sick companies. However, there have been some challenges and criticisms of the NCLT's functioning, such as the backlog of cases and delays in the resolution process.

Conclusion
In conclusion, the recovery of debts from sick companies is a crucial aspect of the Indian economy. The Insolvency and Bankruptcy Code (IBC) has been a game-changer in this regard, providing a comprehensive legal framework for debt recovery and corporate insolvency. The IBC has empowered creditors to initiate the debt recovery process against sick companies, and the National Company Law Tribunal (NCLT) has been instrumental in resolving disputes related to debt recovery.

The NCLT has been effective in implementing the IBC and has helped in reducing the time and cost involved in the resolution of corporate disputes. Its powers to appoint an interim resolution professional, approve resolution plans, and initiate liquidation proceedings have been crucial in the recovery of debts from sick companies. However, there have been challenges and criticisms of the NCLT's functioning, such as the backlog of cases and delays in the resolution process.

Besides the IBC, there are other debt recovery laws in India, such as the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, which empower creditors to recover debts from defaulting borrowers. However, the IBC has proven to be more effective in dealing with the resolution of insolvency cases.

Overall, the IBC has been a positive development for the Indian economy, and the NCLT has played a crucial role in the recovery of debts from sick companies. However, there is still a need for further improvements in the functioning of the NCLT and the implementation of the IBC to ensure that the debt recovery process is efficient, timely, and equitable for all stakeholders involved.