Insolvency and bankruptcy Code (IBC) 2016 was implemented via an act of
Parliament. It got Presidential assent in May 2016.
Centre brought the IBC in 2016 to resolve claims concerning insolvent companies.
The bankruptcy code is a one stop answer for resolving insolvencies, which
formerly was an extended procedure that did not provide an economically possible
arrangement. The code objectives to defend the interests of small investors and
make the procedure of doing business much less cumbersome. The IBC has 255
sections and 11 Schedules.
IBC is meant to address the bad loan troubles that have been affecting the
The IBC procedure has modified the debtor-creditor relationship. some of primary
cases were resolved in years, whilst a few others are in advanced levels of
It offers for a time-sure system to resolve insolvency. when a default in
repayment occurs, creditors gain control over debtor's property and have to take
decisions to resolve insolvency. under IBC, debtor and creditor both can start
'recovery' proceedings in opposition to each other.
Companies have to complete the entire insolvency exercise within 180 days under
IBC. The deadline may be extended if the creditors do no longer raise objections
at the extension. For smaller companies, which includes start-ups with an annual
turnover of Rs. 1 crore, the complete exercise of insolvency should be completed
in 90 days and the closing date may be extended by 45 days, if debt resolution
does not manifest the company goes for liquidation.
Who regulates and monitors the resolution proceedings?
The Insolvency and bankruptcy Board of India regulate the IBC proceedings. The
IBBI contains of ten members, hosting representatives from the finance ministry,
law ministry, and the RBI. The diverse board can take comprehensive and informed
choices for an efficient resolution.
IBBI appoints Insolvency professionals (IPs), who as licensed individuals
facilitate the proceedings by way of dealing with the assets of the debtor and
make sure the flow of data between the creditors and debtors for better
The code, for adjudication of proceedings of the resolution, establishes
quasi-judicial authorities or tribunals for imposing orders as in step with the
interpretation of the regulation. national company law Tribunal (NCLT) oversees
the proceedings for companies and LLPs. Debt recovery Tribunal (DRTs) reap the
same for partnerships and people.
How does the Code works?
The code applies to corporations, partnerships, and individuals. underneath IBC,
both the creditors and the debtors can appeal for resolution. as soon as the
application is accepted, the creditors take over the assets of the debtor. The
stated committee of creditors (CoC), which constitutes the lenders to the
defaulter, is formed by the officers overseeing the resolution. CoC decides the
future of the outstanding debt on the debtor's balance sheet.
The committee may additionally choose to restructure the terms of the debt or
recover a portion via selling the assets of the debtor. Following the initiation
of the corporation Insolvency resolution process, the Board of directors and the
promoters lose control of the management and stand suspended.
The time-frame for completion of resolution for corporations is 180 days
(extendable by 90 days as per mutual agreement). In exceptional cases, the
time-frame may be prolonged at the discretion of the tribunal to the outer
restriction of 330 days. The time limit for start-upsor micro-enterprises with
revenue of less than Rs. 1 crore is 90 days (extendable by 45 days). Failure to
achieve resolution or recovery in the stipulated time limit pushes the defaulter
High Profile cases associated with IBC.
- Dewan Housing:
First financial service provider company referred to IBC by the central
bank. The creditor's claim stands at Rs 88,000 crore.
- Jet airways:
overall amount owed to creditors is Rs 30,000 crores. The IBC proceedings
have exceeded the time frame of 270 days. however, the NCLT had given an
extension of another 90 days in March. CoC of Jet airways is hesitant to
enter liquidation because the coronavirus pandemic will not yield better
prices for an asset sale.
- Bhushan steel:
Tata steel was selected as the highest bidder and purchased 73 percent of
Bhushan steel through its subsidiary Bamnipal steel (BNPL). the amount owed
was Rs 57,160 crore. Tata steel acquired the stressed company for Rs 35,200
crore, and the the rest of the debt was converted to equity.
- Reliance Communications:
For the final verdict, Reliance Jio will undertake control of tower and
fibre assets of Reliance Infratel. UV Asset Reconstruction Co Ltd (UVARC)
will get a share of assets in RCom and Reliance Telecom (Spectrum). the
entire outstanding amount was Rs 33,000 crore, and the settled amount under
IBC turned out to be Rs 23,000 crore.
- Essar steel:
The final verdict paved the way for Arcelor Mittal and Nippon steel Japan to
form a joint venture and complete takeover of Essar steel. The outstanding
debt was Rs 49,000 crores to financial creditors. The recovery amount stood
at a whopping Rs 40,000 crore.
Eligibility for resolution applicants:
The IBC, as originally enacted, allows any person to be a resolution applicant
i.e. any person can submit a resolution plan for a corporate debtor against whom
a corporate insolvency resolution process has been initiated. Under section
25(2)(h) of the IBC, a resolution professional ("RP") is required to invite
prospective lenders, investors, and any other persons to put forward resolution
plans. These provisions are sought to be amended by the IBC amendment.
The IBC amendment requires an RP to invite only those applicants to put up a
resolution plan who fulfil the criteria as laid down by using him with the
approval of the committee of creditors, having regard to the complexity and
scale of operations of the business of the corporate debtor and such other
conditions which may be specified by means of the Insolvency and bankruptcy
Board ("IBBI"). Section 29A within the IBC sets out certain disqualification
Notably, a person is disqualified to submit a resolution plan if the person or
any other individual acting together or in concert with such individual, has an
account which is classified as a non-appearing asset (NPA) or if such person is
a promoter or in management or control of a corporate debtor whose account has
been classified as an NPA and 1 (one) year has lapsed from the date of
classification until the date of commencement of the corporate insolvency
resolution procedure of the corporate debtor. as a result, existing promoters
might find it very difficult to bid for his or her very own companies.
But, such folks can submit a resolution plan in the event that they make payment
within such duration decided by means of committee of creditors (not exceeding
30 (thirty) days) of all overdue amounts with interest thereon and charges
relating to NPA accounts before submission of resolution plan.
A person shall additionally no longer be eligible as a resolution applicant,
if such individual, or any other person acting together or in concert:
- is an undischarged bankrupt;
- is a wilful defaulter in accordance with the guidelines of Reserve bank
of India under the Banking regulation Act, 1949;
- has been convicted for any offence punishable with imprisonment for 2
(two) years or more;
- is disqualified to act as a director underneath the companies Act, 2013;
- has been subject to any disability, corresponding to the above, under
any law in a jurisdiction outside India;
- has executed an enforceable guarantee in favour of a creditor in
respect of a corporate debtor towards which an application for insolvency
resolution made by such creditor has been admitted;
- has been a promoter or in the management or control of a corporate
debtor wherein a preferential transaction, undervalued transaction,
extortionate credit transaction or fraudulent transaction has taken place
and in respect of which an order has been made by NCLT under the IBC;
- is prohibited by Securities and exchange Board of India ("SEBI") from
trading in securities or accessing the securities markets
Penalties for unspecified offences under IBC:
The IBC amendment inserted a new section 235A for enforcing a fine for
contravention of the IBC or the rules and regulations made thereunder, and for
which no penalty or punishment is furnished. For such contraventions, the fine
shall not be less than Rs. 1,00,000 (Rupees one lac) and extending to Rs.
2,00,00,000 (Rupees two crore) may be imposed.
Award Winning Article Is Written By: Mr.Tushar Chauhan
Authentication No: MR344622918927-21-0323
Please Drop Your Comments