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Insolvency And Bankruptcy Code, 2016 - An outline

The Insolvency and Bankruptcy Code, 2016 (“IBC”) is the bankruptcy law of India which seeks to consolidate and amend the existing laws by creating a single law for insolvency and bankruptcy. Prior to IBC, India had various laws set up to punish the defaulters which include Indian Contract Act 1872, Companies Act 1913, 1956 and 2013, Presidency Towns Insolvency Act 1909, Recovery of debts due to Banks and Financial Institution Act 1993, Securitizations and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (“SARFAESI”), Limited Liability Partnership Act 2008 and Sick Industrial Companies (Special Provisions) Act 1985 (“SICA”). Not only IBC will facilitate a smooth and fast debt recovery mechanism, it will also improve the ease of doing business in India.

In Innovative Industries v. ICICI Bank[1] Hon’ble Justice R.F. Nariman has exhaustively dealt with the provisions of the Code. The Bankruptcy Reforms Act, 1978, adopted by the US and the Insolvency Act of 1986 applicable in the UK has served as a model for the present Code. Also in Mobilox Innovations Private Limited v. Kirusa Software Private Limited[2], the due note of Legislative Guide on Insolvency Law of the United Nations Commission on International Trade Law (UNCITRAL), 1999 has been taken.

As per World Bank’s Ease of Doing Business report[3] in India, it takes a normal 8 years to determine bankruptcy procedures. A new term “corporate insolvency resolution process” (“CIRP”) has come into picture which aims to bring about the dramatic shift in the insolvency regime. Section 12 of the IBC provides that CIRP must be finished within 180 days with the greatest time of expansion of additional 90 days by the NCLT.
Section 7 provides the procedure of initiation of corporate insolvency resolution process by a financial creditor. Sections 8 and 9 provide for the procedure of initiation of corporate insolvency resolution process by an operational creditor. Section 14 postulates a complete moratorium against enforcement of any security interest against the company or its assets, once the Adjudicating Authority admits the application under Sections 7 or 8 of the Code. An Interim Resolution Professional (“IRP”) shall be appointed by the Adjudicating Authority under section 16. Under section 17 once such appointment is done the management and affairs of corporate debtor comes in the hands of IRP.

Under section 21 after careful examination of all claims received against the corporate debtor and determination of his financial position, IRP constitutes a committee of creditors (“COC”). The COC shall comprise of all financial creditors and all the decisions of the COC shall be taken by a vote of not less than 75% of the voting share of the financial creditors. Thereafter, COC under section 22 appoints a Resolution Professional (“RP”) who shall manage the affairs of the company. The order of priority in which the proceeds from the sale of liquidation assets are distributed is mentioned under section 53 known as “Waterfall Mechanism”.

On 23rd November 2017 by an Ordinance section 29A was inserted. The section categorizes persons not to be eligible as resolution applicant.

* The article is submitted by Pintu Babu, 3rd year law graduate of Hidayatullah National Law University, Naya Raipur (C.G.).
[1] (2018) 1 SCC 407
[2] (2018) 1 SCC 353
[3]  accessed on 30 March 2018.

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