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Overview of India's Insolvency and Bankruptcy Code

The Insolvency and Bankruptcy Code (IBC) 2016 is a comprehensive law relating to insolvency and bankruptcy in India. It provides a time-bound and efficient resolution process for insolvent entities and aims to promote entrepreneurship, maximize the value of assets, and balance the interests of all stakeholders.

Essentially, the Code provides for three categories of petitioners who can initiate an insolvency process:
  1. Financial Creditor:
    A financial creditor is defined u/s 5(7) of The Code as any person to whom the corporate debtor owes a financial debt. Financial creditors apply to NCLT after default made by the company with relevant documents.
  2. Operational Creditor:
    An operational creditor is defined u/s 5(20) of The Code as any person to whom the corporate debtor owes an operational debt. The minimum amount of debt owed to an operational creditor to file an application for insolvency remains INR 1 Cr. Operational creditors send a notice to the company after default, asking them to give representation within 10 days. Then the company needs to inform them by highlighting the dispute or pay the money. If the company does not pay the money, then the operational creditor applies to NCLT with relevant documents.
  3. Corporate Debtor:
    A corporate debtor is defined u/s 3(8) of The Code as any person that owes a debt to another. The corporate debtor, on its own, applies to NCLT with books of account.
National Company Law Tribunal (NCLT) can accept or reject the petition. NCLT if accept the petition then CIRP process will start which should be end within 180 days but additional 90 days will be given (270 days). Then extra 60 days but within 330days mandatory need to end.

After that within 14 days NCLT appoint Interim Resolution Professional(IRP). Then IRP need to form committee of creditor within 30 days and that Committee of Creditors consists of Financial Creditor, 18 operational Creditor,1workmen dues, I salary dues. Then within 7 days of forming the committee of creditor the 1st meeting should be held in that meeting. Committee of Creditor will decide that Interim Resolution Professional need to form Resolution Professional (RP) or not. For making IRP to RP need 66% vote.

If Committee of Creditor were not agreeing to make them RP then they will again approach to NCLT for appointing to new RP. After that all powers and control of Board of Directors transfer to Resolution Process.

After appointment of RP announced the appointment in newspaper and also mentioned about that if anyone having any idea of resolution then give their suggestions and takes their dues money. When Resolution Professional gets the resolution plan give that plan to committee of creditors. Then Committee of Creditors can approve that plan or reject that plan. For approving that plan need 66% vote.

Then that plan send to NCLT which can be accepted by NCLT and ends the CIRP Process. Otherwise NCLT can reject the plan then they need to find another resolution plan within 330days else company will be started winding up.

Award Winning Article Is Written By: Ms.Pooja Chaudhary
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