The Insolvency and Bankruptcy, 2016 (IBC) was introduced in Lok Sabha in
December 2015. It was passed by Lok Sabha on 5 May 2016 and by Rajya Sabha on 11
May 2016. The code got the assent of the Leader of India on 28 May 2016. Certain
game plans of the demonstration have come into power from 5 august and 19 august
2016. The Code has been amended a couple of times till June , 2020. The IBC is a
one stop answer for settling liquidations which prior was a long cycle that
didn't offer a fiscally appropriate strategy. IBC hopes to consolidate the
current framework by making a single law for indebtedness and liquidation. The
time frame before IBC had diverse scattered laws relating to indebtedness and
chapter 11 which caused inadequate and deficient results with baseless
The public authority presented insolvency and bankruptcy chapter code 2016 to
determine claims which included wiped out organizations. The code was a gigantic
upheaval in the insolvency and bankruptcy chapters, since it made a committee of
banks and committed settling experts for bankruptcy goal it additionally
acquired legal control the interaction. The IBC is the chapter law of India
which tries to consolidate the current structure by making of a solitary law for
both insolvency and bankruptcy in this way IBC resembles a summation of every
single existing demonstration and consequently it is a code and not a law.
Besides suggesting a proper judicial framework the code also established the
insolvency and bankruptcy board of India as the regulator, a licensed
professional administrator facilitates the insolvency resolution the person will
act as liquidator they are appointed by creditors, the adjudication of the
resolution for the companies is done by national companies law tribunal(NCLT)
and for individuals it is done by debt recovery tribunal(DRT), the code also has
10 members from ministry of finance law and RBI.
The NCLT earlier existed as a forum for adjudication of disputes for companies
but after the ibc came into force it became the adjudicating authority for
corporate insolvency resolution and resolution.An enormous caseload especially
at the NCLT seats in Delhi and Mumbai, has regularly prompted delays in settling
of questions. According to the government, as of December 31, 2020, as many as
21,259 cases were pending in with the NCLT. Under the IBC, more than 2,270 cases
were filled in court under the IBC in the first 9 months of the fiscal year. (PTI,
Notwithstanding, with new NCLT seats set up across different states and an
increment in seat strength at the Delhi and Mumbai seats, the circumstance is
probably going to improve.
Objectives Of The Insolvency And Bankruptcy Code, 2016
The objectives of IBC are to consolidate and amend all laws related to
insolvency in India, to expediate the insolvency and bankruptcy proceedings in
the country, to protect the interest of creditors and stakeholders of a company,
revival of company, promotion of entrepreneurship, increase the credit supply in
the economy, new speedy recovery system for banks, increasing the values of
assets of corporates, promotion of entrepreneurship.
According to sec. 2 of the code shall be applied for insolvency, voluntarily
liquidation or bankruptcy of any company, any limited liability partnership,
personal guarantors to corporate debtors, partnership firms and proprietorship
firms, individuals, such other body incorporated under any law for the time
being in force, as the central govt. may by notification specify in this behalf
the threshold limit for initiation of corporate insolvency resolution process is
Rs 1 crore and above.
Procedure To Resolve Insolvency In The Code
On occurrence of default resolution process can be initiated, it can be
initiated by the debtor or the creditor, the insolvency professional
administrates the process The professional gives monetary data of the indebted
person from the data utilities to the creditor and deal with the account
holder's resources. Sec. 12 of the Code expresses that any Insolvency Resolution
Process will be finished inside a period of 180 days from the date of
confirmation of the application to start the process Be that as it may, the NCLT
may provide one expansion which will not expand over 90 days.
initiation process A committee comprising of the creditors who loaned money to
the debtors will be framed by the insolvency professional. The creditors panel
will take a choice in regards to the fate of the debt owed to them. They may
decide to resuscitate the debt owed to them by changing the reimbursement
schedule, or sell (liquidate) the resources of the account holder to reimburse
the debt owed to them.
If a choice isn't required in 180 days, the debt holder's
assets go into liquidation. If the debtor goes to liquidation an insolvency
professional regulates the liquidation process . Continues from the offer of the
borrower's resources are circulated in a order of priority- 1) insolvency fixing
costs, including the compensation to the insolvency professional, 2) creditors
who are secured, whose loans are sponsored by collateral, dues of workers,
different employees, 3) creditors who are not secured, 4) dues to the state, 5)
priority shareowners 6) equity shareowners.
Amendments In The Insolvency And Bankruptcy Code, 2016
The government and the IBBI have likewise been proactive in explaining and
settling issues as and when they show up through the execution of the enactment.
This discloses regular amendments to both the IBC and different guidelines given
under it. The code has been amended 5 times The President has consented to the
proclamation of Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 on
June 6, 2018. The two main amendments would help both the real estate and the
for micro, small and medium enterprises (MSMEs).
Homebuyers recognized as
financial creditors giving them due in the committee of creditors. Accordingly,
presently home purchasers will be a necessary piece of the dynamic interaction.
Extraordinary provisions for MSMEs now the advertisers of MSMEs are permitted to
offer for their organizations as long as they are not defaulters at will and
don't draw in some other related preclusion. This has amended the irregularity
in the segment 29A of the current act which had banned promoters of defaulting
resources from bidding for their resources.
Impact Of Covid 19
Covid-19 had a threatening influence all over the world. The era of pandemic has
forced the government authority to bring combating measures such that they can
cure the increasing rates of havoc. Moreover they hold a strong intention to
blow out all the increasing Covid -19 cases worldwide. Therefore focusing over
the above mentioned objectives, a nationwide lockdown was declared by our Hon’ble Prime
The government of India passed Insolvency and Bankruptcy Code
(Amendment) Ordinance,2020 by suspending action of Sections 7, Section 9 and
Section 10.The outbreak of Covid-19 has created vast economic melt down which in
turn has directly resulted in downfall of many sectors such as MSMEs, tourism,
health care automobile. Therefore to cure the court matters in terms for IBC
shifted the gravity towards reconstruction and protection of several
stakeholders in the corporate world.
Highlights of the Amendment
- Insertion of Section 10A, which states that no application for
initiation of CIRP under Sections 7, 9 and 10 of IBC, shall be filed for any default
occurred on or after 25 March, 2020, for a period of six (6) months. This period
can be further extended, by notification, up to a maximum of one (1) year.
- A Proviso to Section 10A states that no application under Sections of 7,
9 and 10 shall “ever” be filed for initiation of CIRP for defaults occurring
during the said period, which is occurring between 25 March, 2020 to 24
- No Resolution Professional (RP) appointed for an already initiated CIRP is
allowed to file an application under Section 66 of the Code (for fraudulent or
wrongful trading). since as per the new Section 10A, the already commenced CIRPs
for defaults occurred after 25 March, 2020 are suspended from the date of the
The government announced a pre-packaged insolvency resolution mechanism for
micro, small, and medium enterprises in the IBC (amendment) Ordinance, 2021. The
inclusion of a pre-packaged insolvency resolution mechanism for MSMEs in the
Code is intended to alleviate the pain felt by MSMEs as a result of the
pandemic's effects and the special nature of their businesses, appropriately
understanding their needs. It offers a cost-effective, prompt, and reliable
alternative insolvency resolution mechanism for corporate persons categorised as
MSMEs, ensuring a positive signal to the debt market, job security, ease of
doing business, and the preservation of enterprise resources.
A three-judge bench of the Supreme Court held in P. Mohanraj & Ors. v MS Shah
Brothers Ispat Pvt Ltd
that the institution or continuation of a proceeding
under Section 138/141 of the Negotiable Instruments Act 1881 ('NI Act') will be
protected by the moratorium under S. 14 of the Insolvency and Bankruptcy Code,
2016 ('Code'). The National Company Law Tribunal ('NCLT') had temporarily halted
proceedings stemming from criminal charges filed against the corporate debtor
for dishonour of cheques.
The National Company Law Appellate Tribunal, Delhi ('NCLAT,
New Delhi') overturned the NCLT's decision, holding that a criminal law
provision does not fall within the scope of 'proceedings' under Section 14 of
the Code. The Supreme Court stated that the object of a moratorium, as stated in
the Insolvency Law Committee's February 2020 report, was to avoid the depletion
of the corporate debtor's assets during the Corporate Insolvency Resolution
As a result, quasi-criminal proceedings that could result in
the depletion of assets as a result of having to pay penalties for cheque
dishonour would affect the CIRP in the same way that a civil court action for
the value of a debt or other responsibility would. As a result, the Supreme
Court decided that the concept of "proceedings" under S.14 could not be limited
to civil cases. The Supreme Court also pointed out that S. 32A (which
extinguishes criminal liability with a change of management) included all
offences committed prior to the CIRP's inception, including S. 138 trials, which
would no longer be an offence qua the corporate debtor if new management was
The Supreme Court held in Laxmi Pat Surana v. Union Bank of India & Anr
. that an
application under Section 7 of the Code may be filed against a corporate
guarantor to a loan even if the principal borrower is not a corporate
individual, and that the debt owing will be a "financial debt" under Section
5(8) of the Code.
The Supreme Court has stated that when the principal creditor
defaults on its loan, the guarantor's status changes to that of a corporate
debtor. The Supreme Court also held that the limitation period for filing an
application under Section 7 of the Code must be calculated anew each time the
principal creditor, as well as the corporate guarantor, acknowledges the debt.
As any legislation will have a transformative impact, the IBC has achieved that
objective. not like its precursor regimes, the IBC has been adopted well by the
system and utilized in a fashion that's increasing stakeholder value.
The government has been proactive in guaranteeing that issues are dealt with
therefore the courts have also with the exception of some occasional stray
orders avoided overturning the choices of the COC. Sanguinely after the
Coronavirus pandemic is managed considerably the government will pull together
its endeavours on guaranteeing that the code is executed decisively and made
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Lexology. [online] Available at: https://www.lexology.com/library/detail.aspx?g=3fd828a8-8b4e-4826-a572-d552c9bda4f8
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[online] Available at: <https://www.prsindia.org/theprsblog/insolvency-and-bankruptcy-code-all-you-need-know>
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Available at: https://taxguru.in/corporate-law/basics-insolvency-bankruptcy-code-2016.html
- The Economic Times. 2021. Over 21,250 cases pending before NCLT at end of
December 2020. [online] Available at: <https://www.google.co.in/amp/s/m.economictimes.com/news/economy/policy/over-21250-cases-pending-before-nclt-at-end-of-december-2020/amp_articleshow/80754041.cms>
- Mohanty, P., 2021. Rebooting Economy 65: IBC has failed; will a bad bank
succeed?. [online] Google.co.in. Available at: <https://www.google.co.in/amp/s/m.businesstoday.in/lite/story/rebooting-economy-65-ibc-has-failed-will-a-bad-bank-succeed/1/430537.html>
Written By: Vivek Sharma
- P. Mohanraj & Ors. v MS Shah Brothers Ispat Pvt Ltd., AIR 2021 SC 152.
- Laxmi Pat Surana v. Union Bank of India & Anr., Civil Appeal no. 2734 of 2020.
- GIBS (Guru Gobind Singh Indraprastha University)
Author id: 12786