The Insolvency and Bankruptcy Code
Updated: Mar 7, 2022
- Juhi Shah
The Insolvency and Bankruptcy Code, 2016 is an Act to consolidate and amend the laws relating to re-organisation and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. It extends to the whole of India.
Objective and Need of Insolvency and Bankruptcy Code, 2016
Point of the Indebtedness and Liquidation Code, 2016 gives a period-bound interaction to determine bankruptcy among organizations and people. Bankruptcy is a circumstance where an individual or organization cannot reimburse their exceptional obligation. Indebtedness and Liquidation Code of India was advised on 28th May, 2016 with the view to have a solitary systematized enactment for managing the various parts of an organization under a particular umbrella. The IBC was required in the nation to generally cover and revise the laws that SICA (Wiped out Mechanical Organizations Act) neglected to cover. The IBC is viewed as one of the best changes in the country after GST. Albeit the code is explicitly for wiped out organizations, it very well covers the liquidation of dissolvable organizations accordingly making it a total code on liquidation of organizations. The IBC was sanctioned as a basic structure square of India's movement to a developed market economy. It tends to the developing requirement for an extensive law that would be successful in settling the indebtedness of borrowers, boosting the estimation of resources accessible for banks, and facilitating the conclusion of unviable organizations. A key monetary change that this code has brought is that it has moved the overall influence from the lenders to the account holders.
Who all does IBC cover?
The provisions of the Act shall apply to the following in case of insolvency, liquidation, voluntary liquidation, or bankruptcy;
Limited Liability Partnership
The Code has successfully innovated and established three new institutional infrastructures which aid the Code to run as smoothly as possible.
a. IBBI- Insolvency and Bankruptcy Code of India: The objective of the code itself specifies the establishment of this Board. The board shall act as a Regulator.
b. IPAs- Insolvency Professional Agencies: Only the companies registered under Section 8 of The Companies Act, 1956 can approach The IBBI for registration as an Insolvency Professional Agency. The Insolvency Professional Agencies will develop professional standards, code of ethics and be the first level regulator for Insolvency professional’s members. This will lead to the development of a competitive industry for such professionals.
c. Insolvency Professional: To render services as an insolvency professional an individual has to be:
A member of the Insolvency Professional Agency, and
Registered with the IBBI
d. Information Utilities: An information utility shall provide such services as may be specified including core services like collecting and storing information on debts and defaults to any person if such person complies with the terms and conditions as may be specified by regulations.
AAs are the tribunals that adjudicate under the IBC. Section 5(1) of the IBC designates the National Company Law Tribunal (NCLT), constituted under section 408 of the Companies Act, 2013, as the AA for the resolution and liquidation of corporate persons. Section 60(1) of the IBC provides that the NCLT shall be the AA for the CIRP and liquidation of corporate persons, including CDs and their personal guarantors. The NCLT has various benches all over India, with each bench having territorial jurisdiction over the state where it is located, as well as (in some cases) certain other states. The Bankruptcy Law Reforms Committee, in its report of November 2015, recommended that NCLT benches should have jurisdiction over adjudications relating to corporate insolvency and liquidation, while the National Company Law Appellate Tribunal (NCLAT) should have appellate jurisdiction. For individual or partnership insolvency and bankruptcy, the AA designated by the IBC— according to section 79(1)—is the Debt Recovery Tribunal, constituted under the Recovery of Debts Due to Banks
and Financial Institution Act, 1993.
Under section 60(5), the AA has the jurisdiction to entertain or dispose of:
a. Any application or proceeding by or against the CD or corporate person
b. Any claim made by or against the CD or corporate person, including any claims filed
by or against any subsidiaries situated in India; and
c. Any question of priorities or any question of law or facts arising out of or in relation
to the insolvency resolution or liquidation proceedings of the CD or corporate person
under the IBC.
In an extremely brief timeframe, the IBC has taken extraordinary steps in giving an anticipated system that intends to give opportune, productive and fair goals of practical organizations and a straightforward liquidation measure, which perceives existing bank rights and regards the need of cases. It is at first sight that IBC is a complete enactment with an expedient and explicit technique for managing the issue of bankruptcy. The time-bound nature of IBC is a mutually advantageous arrangement as the assets of the Organizations are put at the opportune spot on the schedule, regardless of whether it is by instalment to banks or by twisting up. The Organization doesn't continue to run in misfortunes for interminable time-frame making a mishap the economy in entire and influencing the loan bosses exclusively. It is very much expected that the execution of the Code be just about as powerful true to form and satisfies its administrative purpose.
Juhi Shah is a second year student at Pravin Gandhi College of Law, Mumbai.