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 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, 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 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.).
 (2018) 1 SCC 407
 (2018) 1 SCC 353
accessed on 30 March 2018.