Conducting business through a company structure has long been regarded as the most favorable option, as it allows members to limit their personal liabilities. The doctrine of corporate personality grants company specific rights and obligations. However, when a company's liabilities is more than its assets, it might face financial collapse. To aid such companies in their recovery, several laws were previously in place in India. In 2016, the country's insolvency framework underwent a significant transformation. The Indian Parliament passed the Insolvency and Bankruptcy Code (IBC) in May 2016, which became operational in December of the same year.

The IBC streamlined various pre-existing laws and introduced a unified framework for addressing insolvency and bankruptcy issues. It encompasses both the insolvency resolution and liquidation procedures for individuals and corporate entities. This paper aims to critically evaluate the IBC's implementation during its first year, drawing on past experiences and reforms, to assess the law's effectiveness and explore its future potential in India's evolving insolvency regime.

The paper is divided into six sections. It begins with an introduction, followed by an exploration of the historical development of insolvency and bankruptcy reforms in India, along with an analysis of their impact. The third section provides an overview of the Insolvency and Bankruptcy Code (IBC), explaining the reasons for its enactment and outlining its key features, as well as the challenges encountered in its implementation.

Next, the paper delves into the moratorium period under Section 14 of the IBC, examining its significance and offering a detailed analysis of whether this "calm period" is considered mandatory or directory in nature. Additionally, the paper discusses the broader implications of the IBC, the future of companies after the dissolution of the Board for Industrial and Financial Reconstruction (BIFR), and the effectiveness of the insolvency resolution process. The paper concludes with a final summary of all the topics.
 
Introduction
For generations, India's economy has been fundamentally supported by its capital and debt markets. These markets have offered a conducive environment for small businesses, large corporations, and multinational companies to establish and grow their operations within the country. Esteemed banks play a crucial role in financing the debt market by employing highly effective banking strategies under the guidance of the Reserve Bank of India (RBI).

Considering challenges related to credit shortages and the ability to recognize and manage debts, assets are generally classified into two main categories: Standard Assets and Non-performing Assets. "Standard assets refer to assets where interest and installments have been paid on time. A non-performing asset (NPA) is one where the interest or principal remains overdue for 180 days or more, based on the terms agreed upon by the lender and borrower[1]." The disparity in information among banks regarding credit facilities, along with struggling industries and fraudulent activities by industrialists, has contributed to the rise of "bad loans," "stressed assets," or "non-performing assets" (NPAs).

When a company goes bankrupt, banks are often forced to write off these loans, which has, over time, hindered economic growth. To tackle this issue, the government introduced two key laws: the Recovery of Debts Due to Banks and Financial Institutions Act of 1993 (DRT Act) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act of 2002 (SARFAESI Act). These laws improved the debt recovery process by allowing creditors to enforce their security interests without needing court intervention.

However, this mechanism is primarily beneficial for secured creditors[2]. Despite the establishment of a legal framework, numerous cases of corporate debtors failing to repay their obligations persisted. Recognizing this challenge, and with the objective of improving India's position in the World Bank's Ease of Doing Business rankings, the government eventually introduced the Insolvency and Bankruptcy Code (IBC) in 2016. This code replaced two laws, amended 11 others, and consolidated around 13 existing regulations. Its primary goal was to enhance value creation and speed up the debt recovery process.

In the current scenario, creditors-both financial and operational—have various methods to recover debts. The Insolvency and Bankruptcy Code (IBC) provides an additional avenue for addressing insolvency. The first case under the IBC in India was initiated by ICICI Bank against Innoventive Industries Ltd. When an applicant initiates the insolvency resolution process, they are also required to propose a resolution plan. However, regardless of who initiates the process, the approval of the resolution plan depends on the financial creditors. One key feature of the IBC is the ability to initiate insolvency proceedings if a corporate debtor fails to pay debts amounting to Rs. 1 lakh or more. This offers the defaulting company an opportunity to explore alternative solutions early in the default stage, preventing the debt from reaching dangerous levels.

Additionally, the fear of losing control over the company serves as a deterrent for corporate debtors, encouraging them to avoid defaults unless absolutely necessary. This, in turn, reduces the likelihood of defaults and the buildup of non-performing assets (NPAs). Moreover, the Code establishes clear criteria for determining when a default has occurred, unlike the Companies Act of 1956/2013, where such criteria were less defined. The involvement of creditors, who form the Committee of Creditors, is a critical aspect of the resolution process.

The second case involves Bharati Defence and Infrastructure Ltd, against which Edelweiss Asset Reconstruction Company initiated an insolvency resolution process in the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC). This move by Edelweiss was aimed at preventing winding-up petitions from unsecured creditors and was made possible by the repeal of the Sick Industrial Companies Act (SICA), which had led to the dissolution of the Board for Industrial and Financial Restructuring (BIFR).

Recently, however, Bharati Defence and Infrastructure (previously known as Bharati Shipyard) has received backing from creditors, with Edelweiss Asset Reconstruction Company taking the lead. They have submitted a revival plan under the IBC 2016 to support the company's recovery[3].

The primary aim of this paper is to shed light on three key aspects: first, the challenges that the new Bankruptcy Code may encounter during its transition phase of implementation; second, whether the Code, which sets timelines for expedited insolvency resolution and places the responsibility of drafting and submitting the resolution plan on the applicant, offers the corporate debtor a fair opportunity to recover and rehabilitate, or leaves them entirely at the mercy of the committee of creditors (primarily the financial creditors); and third, whether the introduction of this Code has rendered companies like Bharati Development & Infrastructure Ltd. vulnerable to liquidation applications from even unsecured operational creditors.

The researcher concludes that an effective insolvency resolution framework should provide creditors the ability to take proactive steps before a financial situation becomes irreversible, potentially averting crises in the future. This view aligns with the perspective of Mr. M. S. Sahoo, Chairman of the Insolvency and Bankruptcy Board of India (IBBI).

However, the researcher also asserts that the existing problem of mounting non-performing assets (NPAs) should be addressed separately by developing a distressed asset trading market in India. The World Bank assesses the ease of doing business across various countries using ten objective criteria, one of which is insolvency. In the previous year's "Doing Business" report, India's performance was notably poor, ranking 136th out of 190 countries.

This was mainly due to its low recovery rates and the complexity of its insolvency resolution process[4]. However, the country saw a significant improvement in its ranking, jumping from 136th to 100th, following multiple government-led reforms. One key reform was the introduction and enforcement of a consolidated insolvency and bankruptcy framework. India stands out as the first country to achieve such rapid progress within a short timeframe.

History Of The Evolution Of Insolvency And Bankruptcy Reforms In India

Meaning
Insolvency refers to a condition where an individual, family, or business is unable to meet its debt obligations on time, often leading to the need to declare bankruptcy. This situation arises when an entity's cash inflows are lower than its outflows. For individuals, this means their income is insufficient to cover their debts, while for businesses, it indicates that the company's assets and incoming funds are less than its liabilities[5].

Insolvency and bankruptcy are distinct concepts. Insolvency refers to the situation where a debtor is unable to fulfill their financial obligations, whereas bankruptcy is the legal process initiated after a court has officially recognized this insolvency and issued orders to address it. In other words, bankruptcy is a formal legal mechanism through which an insolvent individual or entity seeks financial relief. The primary causes of insolvency generally stem from inadequate management and financial difficulties.

Some common reasons include the following:

• The company's failure to recognize the evolving market conditions led to an inability to adapt to changing demands.
• Bad debts.
• The management's inability to develop the necessary skills, coupled with poor accounting practices and a lack of proper data systems, contributed to the challenges faced.
• Loss of long-term financing and insufficient cash flow.
• Additionally, other factors such as cascading effects from insolvencies and high overhead costs played a role.

However, it has been noted that larger organizations tend to have a greater chance of survival, receiving remedial assistance, and settling their debts with creditors[6].

Insolvency Laws In India

The origins of insolvency laws in India can be traced back to English law. Initially, provisions concerning insolvency were included in Sections 23 and 24 of the Government of India Act of 1800. In 1828, India witnessed the enactment of its first specific insolvency legislation, which applied to the presidency towns of Bombay, Madras, and Calcutta. Following this, the Indian Insolvency Act of 1848 was introduced, distinguishing between traders and non-traders.

The jurisdiction over insolvency matters was then assigned to the High Courts, but it was limited to the presidency towns. In 1909, the Presidency Towns Insolvency Act was enacted. Before 1907, there was no legislation addressing insolvency issues in non-presidency areas, prompting the introduction of the Provincial Insolvency Act that same year. This act was later replaced by the Provincial Insolvency Act of 1920. Both of these acts remained in effect until they were ultimately repealed by the Insolvency and Bankruptcy Code (IBC).

"Bankruptcy and Insolvency" is included in the Concurrent List of the Indian Constitution[7], allowing both the Central and State Governments to legislate on the matter. Entry 43 of List I pertains to the incorporation, regulation, and winding up of trading corporations, which encompass banking, insurance, and financial institutions, but explicitly excludes co-operative societies.

Meanwhile, Entry 44 of List I addresses the incorporation, regulation, and winding up of corporations, regardless of their trading nature, provided their objectives are not limited to a single State, though it excludes universities. Additionally, Entry 32 of List II refers to the incorporation, regulation, and winding up of corporations that are not mentioned in List I. Utilizing the powers granted under the Union List, the Parliament introduced the first legislation addressing corporate insolvency in India, namely the Companies Act of 1956.

However, this Act did not specifically mention insolvency or bankruptcy; it only referred to a corporation's "inability to pay debts[8]." The Companies (Amendment) Act of 2003 aimed to amend various provisions related to insolvency in the Companies Act of 1956.

However, these changes faced legal challenges that prevented them from being implemented. In 2013, a new Companies Act was enacted, introducing significant modifications to the corporate insolvency process. Unfortunately, many of these modifications were not put into effect for an extended period. Additionally, the Companies Act of 2013 included Chapter XIX, which focused on the revival and rehabilitation of distressed companies.

This chapter was designed to broaden the revival and rehabilitation framework, encompassing all types of companies, in contrast to the Sick Industrial Companies (Special Provisions) Act (SICA), which was limited to "sick industrial" companies. However, this chapter has since been repealed, as the entire procedure for reviving or rehabilitating corporate debtors or distressed companies is now addressed under the Insolvency and Bankruptcy Code (IBC).

With the globalization of the economy, corporate insolvency has become increasingly important. This highlighted the necessity for reforms in insolvency legislation.

The primary goals of these reforms were to:

• Restore a debtor company to a profitable operational state whenever possible.
• Enhance the overall return to creditors when the company cannot be saved.
• Create a fair and balanced framework for prioritizing claims and distributing assets among creditors, which may involve reallocating rights.
• Provide a means to identify the reasons for failure and hold accountable those responsible for mismanagement.
• Place the company's assets under external management.
• Promote collective action rather than individual efforts.
• Address certain transactions, fraudulent transfers, liquidation, and dissolution issues.

Recent evolution

The current legal framework governing insolvency and bankruptcy in India has developed over time, influenced by various committees established periodically to provide recommendations and insights. Some of the notable and recent committees include:

• T. Tiwari Committee

  In 1981, the Reserve Bank of India (RBI) expressed significant concern regarding the substantial funds tied up in non-performing assets from distressed industrial companies, which resulted in losses in production, revenue, and jobs. In response to this issue, a committee chaired by T. Tiwari was formed. The committee proposed strategies for the early identification of sick and potentially sick industrial firms, as well as for the rapid assessment and implementation of preventive and remedial actions. This led to the recommendation for the establishment of the Sick Industrial Companies (Special Provisions) Act of 1985 (SICA).
  
  Additionally, a Board for Industrial and Financial Reconstruction was set up, but ultimately it did not achieve its intended objectives over time. The RBI recognized that sick industrial companies were significantly impacting the economy by tying up funds that could otherwise be used productively. To address this, a specialized committee was established to create a systematic approach to identifying troubled companies early and taking action to rehabilitate them. This resulted in the formulation of SICA, intended to provide a framework for the rehabilitation of these companies. However, despite these efforts, the Board that was created to oversee these processes was ineffective in the long term, failing to resolve the issues associated with sick industries.
   

• Justice V.B. Balakrishna Eradi Committee

  The Tiwari Committee's work was succeeded by the Justice V.B. Balakrishna Eradi Committee Report in 1999, which recommended the establishment of a National Company Law Tribunal (NCLT) tasked with overseeing the rehabilitation and revival of distressed industrial companies. The report also proposed amendments to the Companies Act of 1956, which were enacted but remained unnotified. Additionally, it advocated for the adoption of the UNCITRAL Model Law for Cross-Border Insolvency, emphasized the importance of promoting voluntary company winding up, and suggested that the criteria for assessing a company's financial distress should include its inability to meet debt obligations.
   

• N L Mitra Committee

  In 2001, the Advisory Group on Bankruptcy Laws was formed, led by Dr. N. L. Mitra. Appointed by the RBI, this committee made various recommendations for reforming bankruptcy laws, including a key suggestion to unify the existing fragmented laws into a comprehensive code. Unfortunately, no action was taken to implement these proposals.
   

• J. J. Irani Committee

  The J.J. Irani Committee Report of 2005 was formed to assess and update the existing Company Law, with a particular focus on creating a transparent framework for insolvency and restructuring processes that aligns with international standards. The Committee suggested modifications to the law aimed at streamlining the restructuring and liquidation procedures to make them more efficient. Its recommendations sought to establish a unified framework for addressing corporate insolvency through a dedicated judicial authority. The J.J. Irani Committee was tasked with evaluating the Indian Company Law and ensuring that it met global standards for managing corporate insolvency.

The main goal was to improve the speed and effectiveness of the processes involved in restructuring financially troubled companies or liquidating their assets when necessary. By proposing a single, comprehensive system for handling these situations, the Committee aimed to simplify the legal framework and ensure that there was a specialized authority in place to oversee and adjudicate insolvency cases. This approach was intended to facilitate better resolution of corporate financial distress and enhance investor confidence in the business environment.

Bankruptcy Law Reforms Committee (BLRC)

Led by Mr. T.K. Viswanathan, this committee produced a report divided into two sections: the first focused on the rationale, design, and recommendations, while the second presented a detailed draft of the Insolvency and Bankruptcy Bill applicable to all entities. The report proposed significant modifications to the existing framework, and the Insolvency and Bankruptcy Code of 2016 was developed based on these suggestions.

The Insolvency And Bankruptcy Code 2016: Features And Challenges

In India, the landscape of insolvency for both corporations and individuals was marked by several overlapping laws and adjudicative bodies. The primary legislation governing corporate insolvency included the Companies Act of 1956 and 2013, the Sick Industrial Companies (Special Provisions) Act of 1985 (SICA), the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002 (SARFAESI), and the Recovery of Debts due to Banks and Financial Institutions Act of 1993 (RDDBFI Act).

Consequently, there were four key adjudicative authorities: the High Courts, the Company Law Board, the Board for Industrial and Financial Reconstruction (BIFR), and the Debt Recovery Tribunals (DRTs). This overlapping jurisdiction among the various bodies led to systemic delays and added complexities to the insolvency process.
Similar to the U.S. Bankruptcy Code, India sought to establish a comprehensive framework for insolvency legislation.

As previously discussed, the country's insolvency and bankruptcy laws have undergone numerous amendments and efforts to tackle urgent issues without considering long-term implications. The latest initiative was the formation of the Bankruptcy Law Reform Committee (BLRC), which culminated in the introduction of the Insolvency and Bankruptcy Code (IB Code) in 2016.

The Code serves as an all-encompassing insolvency framework that applies to companies, partnerships, and individuals (excluding financial institutions)[9]. Previously, the winding-up process for companies in India was governed by the Companies Act of 1956 and overseen by the courts. However, with the implementation of the Companies Act of 2013 and the introduction of the Insolvency and Bankruptcy Code in 2016, this procedure is now managed by the National Company Law Tribunal (NCLT)[10].

The Insolvency and Bankruptcy Code abolished two laws: the Presidency Towns Insolvency Act of 1909 and the Provincial Insolvency Act of 1920[11]. Additionally, it made amendments to 11 other legislations.

Section of IB Code 2016	Amended Act	Schedule B of IB Code 2016
245	Indian Partnership Act 1932	I
246	Central Excise Act 1944	II
247	Income- tax Act 1961	III
248	Customs Act 1962	IV
249	Recovery of Debts due to Banks and Financial Institutions Act 1993	V
250	Finance Act 1994	VI
251	Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002	VII
252	Sick Industrial Companies (Special Provisions) Repeal Act 2003	VIII
253	Payment and Settlement Systems Act 2007	IX
254	Limited Liability Partnership act 2008	X
255	Companies Act 2013	XI

A significant feature of the Code is the establishment of a moratorium, which is announced publicly. This allows creditors of the company to assess the viability of the corporate debtor and to negotiate a revival plan. If revival is not possible, the Code facilitates a swift liquidation process[12]. Additionally, the Code introduces time-bound resolution procedures. With the implementation of the Code, the uncertainties surrounding jurisdictional overlaps have been resolved, as the National Company Law Tribunal (NCLT) is designated as the sole authority for corporate matters, while the Debt Recovery Tribunal (DRT) handles individual cases[13]. The Code outlines a two-stage process for addressing insolvency.

The initial stage involves the insolvency resolution process, which can be initiated by financial creditors, operational creditors, or the corporate debtor itself. A default of at least ₹1 lakh is required to begin this process, although the government may increase this threshold to ₹1 crore. Prior to the introduction of the Code, insolvency was not clearly defined, and the sole basis for initiating winding up under the Companies Act of 1956 and 2013 was the company's inability to settle its debts. The second stage is the liquidation process, which occurs if the insolvency resolution plan fails or if the company's financial creditors opt to wind up the company.

The Code establishes an institutional framework that includes a new regulatory body, the Insolvency and Bankruptcy Board of India[14], along with insolvency professional agencies, resolution professionals, information utilities, and adjudicatory mechanisms[15]. These entities serve as regulators and intermediaries to support a structured and timely process for insolvency resolution and liquidation[16]. While the Code has introduced significant changes to the insolvency and liquidation framework, its implementation faces several practical challenges.

These include the need to balance the interests of various creditor categories—such as financial versus operational creditors and secured versus unsecured creditors—ensuring prompt debt recovery or winding up when necessary, and managing accumulated non-performing assets (NPAs). Additionally, a potential obstacle is the requirement for creditor consent prior to the sale of corporate debtors' assets by insolvency professionals, which may hinder their ability to perform effectively. It remains to be seen whether the safeguards established by the Code are adequate to fulfill its intended objectives in practice.

The Moratorium Under The IB Code 2016

Conflicts often arise between debtors and creditors when a debtor fails to meet payment obligations. While both parties would benefit from negotiating to maximize their respective interests, their differing objectives can lead them to take individual actions aimed at safeguarding their investments. Such actions can result in the debtor's assets being depleted, creating a more chaotic and unstable environment. The Insolvency and Bankruptcy Code (IB Code) offers a structured legal framework for both creditors and debtors, allowing for a more organized resolution process overseen by a neutral third party[17].

Chapter II of the IB Code of 2016 addresses the provisions related to the corporate insolvency resolution process (CIRP). When an application for initiating the CIRP is accepted, the adjudicating authority[18] will announce a moratorium period[19]. Section 14 of the Code outlines the implications of this moratorium declaration, which includes various prohibitions.

1. The initiation of new legal actions or the continuation of existing lawsuits or proceedings against the corporate debtor. This includes any efforts to enforce judgments, decrees, or orders issued by various authorities, such as courts, tribunals, or arbitration panels. The intention behind this provision is to halt all legal proceedings that may affect the corporate debtor's ability to reorganize or recover.
    
2. Any actions taken by the corporate debtor that involve the transfer, encumbrance, alienation, or disposal of its assets. This encompasses any legal rights or beneficial interests associated with those assets. The purpose of this restriction is to prevent the corporate debtor from diminishing its asset base, ensuring that all stakeholders retain access to the corporate debtor's resources during the resolution process.
    
3. Any actions aimed at foreclosing on, recovering, or enforcing a security interest that has been created by the corporate debtor in relation to its property. This includes activities conducted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. By prohibiting these actions, the law seeks to maintain the status quo regarding the corporate debtor's secured obligations, allowing for a fair evaluation and resolution of claims against the debtor's estate.
    
4. The recovery of any property by an owner or lessor when such property is currently occupied by, or in the possession of, the corporate debtor. This provision aims to ensure that property owners and lessors cannot reclaim their assets during the corporate debtor's restructuring process, thereby promoting an orderly and equitable handling of claims against the corporate debtor's estate.

The rationale for implementing a moratorium or "calm period" under the Bankruptcy Law Reforms Committee[20] is to grant a reasonable timeframe for evaluating the future of a company. During this period, all creditors of the corporate debtor are required to pause their claims, which enhances the company's prospects of continuing operations while also preventing individual creditors from taking enforcement actions that could result in disorder. However, the application and extent of the moratorium provisions remain unclear, as they have not yet been examined by the courts. In the case of Innoventive Industries Ltd v ICICI Bank Ltd (2017), the Supreme Court noted that the purpose of the moratorium is "to provide the debtors a breathing spell in which he is to seek to reorganize his business."

The moratorium period resembles Section 22 of the Sick Industrial Companies Act (SICA), which allowed for an automatic stay on all legal actions against sick companies undergoing revival. However, unlike Section 22 of SICA, which granted excessive protection to distressed industrial firms and often delayed their winding-up, the provisions regarding the moratorium establish a maximum duration of 180 days.

This period can be extended by the Adjudicating Authority for an additional 90 days[21], during which time, as previously mentioned, there will be a stay on all creditor claims, the powers of the Board will be suspended, and the company's management must report to the insolvency professional. With the enactment of the Insolvency and Bankruptcy Code (IBC) in 2016, SICA has been repealed, leaving sick industrial companies with no option to seek relief from the Board for Industrial and Financial Reconstruction (BIFR)[22]. Currently, the only recourse available to these corporate entities is to file for an insolvency resolution plan under the IBC.

Guarantors and the moratorium period under the Code

A recent issue has emerged regarding the liability of guarantors in cases where companies are undergoing a moratorium under the Insolvency and Bankruptcy Code (IB Code). In two recent decisions, the National Company Law Appellate Tribunal (NCLAT) supported the National Company Law Tribunal's (NCLT) view that the moratorium does not apply to third parties, including guarantors of the corporate debtor. In the case of Alpha & Omega Diagnostics (India) Ltd v. Asset Reconstruction Co of India Ltd[23], the security provided to creditor banks involved properties owned by the promoters.

The key question before the NCLT [24]was whether properties belonging to parties other than the corporate debtor fall under the moratorium defined by the Code. The NCLAT determined that the moratorium does not cover assets that do not belong to the corporate debtor, as Section 14(1)(c) specifically pertains to the property of the corporate debtor[25].

In a separate appeal[26] to the NCLAT, a related issue emerged concerning personal property used as collateral for a creditor. The NCLAT clarified that the moratorium established under the Code applies solely to the assets of the Corporate Debtor. Conversely, in the case of Sanjeev Shriya v. State Bank of India[27], the Allahabad High Court suspended actions against the guarantor of the corporate debtor in a Debt Recovery Tribunal.

This decision was based on the intent of the Code to facilitate its effective enforcement. The court noted that excluding guarantors from the moratorium could hinder the harmonization of the Code's provisions and undermine its goal of completing the insolvency resolution process within a specific timeframe. However, including guarantors in the moratorium might render the guarantees provided by the corporate debtor redundant.

Therefore, it is essential to clearly define the scope of the moratorium or the calm period to prevent further legal disputes. In summary, the primary aim of the moratorium is to stabilize the assets of the Corporate Debtor.

This allows creditors to gain a clearer understanding of the financial situation of the Corporate Debtor and provides them with the chance to develop a resolution plan that maximizes debt recovery[28].

The IB Code 2016: Its Effects On Sick Companies And The Insolvency Resolution Process

The Sick Industrial Companies Act of 1985 was the first legislation in India aimed at addressing the revival of distressed companies. While it was a commendable initiative, it had significant limitations. A key issue was its focus solely on "industrial companies."

Arun Jaitley criticized the SICA, stating that it ultimately failed because the process of reviving a company in India became excessively complicated, undermining its purpose, which was to facilitate either revival or liquidation. Subsequent to this, amendments were made to the Companies Act of 1956, and the SICA was repealed through the 2003 Act, which was never put into effect. When the Companies Act of 2013 was introduced, it included an entire chapter (Chapter XIX) dedicated to the "Revival and Rehabilitation of Sick Companies."

However, this chapter was also never notified. Following the introduction of the Insolvency and Bankruptcy Code (IBC), this chapter was ultimately removed from the Companies Act of 2013. In summary, the legislative attempts to address the revival of sick companies in India have faced numerous challenges and have undergone significant changes over the years, culminating in the repeal of previous provisions in favour of the IBC framework.

It's noteworthy that the SICA (Sick Industrial Companies Act) was overridden by the RDDBFI Act, which was then superseded by the SARFAESI Act, allowing secured creditors to enforce their rights without court intervention. Subsequently, the Insolvency and Bankruptcy Code (IBC) repealed SICA, removing the protections previously afforded to companies and borrowers, often referred to as defaulters. These companies, which had declared their net worth as eroded, could seek relief from lenders through the BIER (Board for Industrial and Financial Reconstruction), as discussed in section 22.

 However, the IBC has dissolved the BIER, making companies more susceptible to winding-up petitions if they do not develop a feasible revival plan within the specified timeframe. Furthermore, the IBC expands the scope of creditor-applicants—covering financial, operational, secured, and unsecured creditors—allowing even unsecured creditors to initiate the insolvency resolution process, a significant change from the previous regime.

The new legislation offers assistance to various types of creditors aiming to address their concerns. However, the final decision to approve the revival plan or proceed with the liquidation of the corporate debtor rests with the financial creditors, requiring a 75% majority vote. This provision can be seen as beneficial for businesses genuinely striving to alleviate their financial difficulties. For others, this law may serve as an incentive to either settle their debts or risk losing control of their company.
 
Conclusion And Suggestions
The failure of certain business plans is a fundamental aspect of a market economy. In such cases, the most effective and practical approach would be to establish a prompt mechanism that allows financiers to negotiate and create new arrangements. If this option is not feasible, the most favourable outcome for both financiers and society would be liquidation.

When such processes are implemented effectively, the debt recovery system can function smoothly. However, as past experiences have shown, it is essential to tackle the current non-performing asset (NPA) issue separately, as resolving insolvency and managing NPAs are two related but distinct challenges. Therefore, it is recommended that developing a distressed asset trading market in India is crucial at this time.

The Insolvency and Bankruptcy Code (IBC) is undoubtedly significant and relevant in today's context, as it has replaced the outdated system governing insolvency and bankruptcy in India. It can be asserted that we now have a unified and thorough legal framework that offers a timely resolution for debts, aligning with international standards.

This development is likely to enhance the certainty and predictability of corporate transactions and help improve India's position in the World Bank's "Doing Business" report. However, the key to its success lies in its careful implementation. As the Code is still in its early stages, it is anticipated that its functionality will prioritize the effective implementation of the law over its rapid operationalization.

End Notes:

1. The Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions (2003), (RBI Notification No.RBI/2015-16/94) (amended on 30 June 2015). See http://rbi.org.inISCRIPTSIBSViewMasCirculardetails.aspx?id=9901 [Accessed 18 September 2024].
2. Non-Performing Assets (NPAs) and Restructuring of Advances of 21 November 2012 (RBI No.RBI/2012-13/304/). See www.rbi.org.in/ScriptslNotificationUser [Accessed 26 September 2024].
3. R. Joel, "Creditors throw lifeline to help sinking Bharati. Economic Times" 11 April 2017 at http://economictimes.indiatimes.com/articleshowl58122027.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst [Accessed 28 September 2024].
4. Ease of Doing Business, World Bank Group at http://www.doingbusiness.org/rankings?region=south-asa [Accessed 28 September 2024].
5. See https://www.greenwaybankruptcy.com/articles/the-dfference-between-nsovency-and-bankruptcyl [Accessed 19 September 2024].
6. See http://www.mbcindia.com/image/l8%20.pdf [Accessed 30 September 2024].
7. Entry 9 of List III of the Seventh Schedule, (art.246 - Seventh Schedule to the Constitution).
8. See s.271 of the Companies Act 1956.
9. This paper only deals with corporate insolvency and will not discuss other kinds of insolvency procedures covered by the Code.
10. Debt Recovery Tribunals are set up under RDDBFI Act, 1993.
11. Section 243 of the IB Code 2016.
12. Section 12 of the IB Code 2016.
13. Section 60 of the IB Code 2016.
14. Section 188 of the IB Code 2016 provides for establishment and incorporation of the IBBI.
15. Part II of the IB Code provides for Insolvency Resolution and Liquidation for Corporate Persons.
16. Section 6 of the IB Code 2016.
17. The neutral third party here is the insolvency resolution professional; As per s.5(27) of the IB Code 2016 "resolution professional", for the purposes of Pt II (Insolvency resolution and liquidation for corporate persons), means "an insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional".
18. National Company Law Tribunal constituted under s.408 of the Companies Act 2013.
19. Section 13 of the IB Code 2016.
20. The report of the Bankruptcy Law Reforms Committee Volume I: Rationale and Design, November 2015 at http://ibbi.gov.in/BLRCReportVol1_04112015.pdf [Accessed 30 September 2024].
21. Section 12 of IB Code 2016.
22. The Board for Industrial and Financial Reconstruction established under the Sick Industrial Companies (Special Provisions) Act 1985 in 1987 to determine the sickness of industrial companies and assist in the revival of such identified units and shut down others.
23. Company Appeal (AT) (Insolvency) No.116 of 2017.
24. NCLT, Mumbai.
25. Section 4 (1)(c): "On the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002".
26. Schweitzer Systemtek India Pvt Ltd v Phoenix ARC Pvt Ltd Company Appeal (AT) (Insolvency) No.129 of 2017.
27. Civil Writ Petition No.30285 of 2017.
28. See http://www.nishithdesai.com//nformat/on/news-storage/news-deta/lS/art/c/e/guarantors-and-the-moratorium-under-the-bankruptcy-codean-on-going-battle.html [Accessed 1 October 2024].