IBC

The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks
to consolidate the existing framework by creating a single law for insolvency and bankruptcy. The
Insolvency and Bankruptcy Code, 2015 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.[1] The Code received
the assent of the President of India on 28 May 2016.[2] Certain provisions of the Act have come
into force from 5 August and 19 August 2016.[3] The bankruptcy code is a one stop solution for
resolving insolvencies which previously was a long process that did not offer an economically
viable arrangement. The code aims to protect the interests of small investors and make the
process of doing business less cumbersome.

The Insolvency and Bankruptcy Code, 2015 was introduced in the Lok Sabha on 21 December
2015 by Finance Minister, Arun Jaitley.[5] The Code was referred to a Joint Committee of
Parliament on 23 December 2015, and recommended by the Committee on 28 April 2016.[6] The
Code was passed by the Lok Sabha on 5 May 2016 and by the Rajya Sabha on 11 May 2016.
The Code received assent from President Pranab Mukherjee on 28 May, and was notified in The
Gazette of India on 28 May 2016.[7]
The Code was passed by parliament in May 2016 and became effective in December 2016.[8] It
aimed to repeal the Presidency Towns Insolvency Act, 1909 and Sick Industrial Companies
(Special Provisions) Repeal Act, 2003, among others.[9]
The first insolvency resolution order under this code was passed by National Company Law
Tribunal (NCLT) in the case of Synergies-Dooray Automotive Ltd on 14 August 2017 and the
second resolution plan was submitted in the case of Prowess International Private Limited. The
plea for insolvency was submitted by company on 23 January 2017. The resolution plan was
submitted to NCLT within a period of 180 days as required by the code, and the approval for the
same was received on 2 August 2017 from the tribunal. The final order was uploaded on 14
August 2017 on the NCLT website.

Insolvency Resolution : The Code outlines separate insolvency resolution processes for
individuals, companies and partnership firms.The process may be initiated by either the debtor or
the creditors. A maximum time limit, for completion of the insolvency resolution process,has been
set for corporates and individuals. For companies, the process will have to be completed in 180
days, which may be extended by 90 days, if a majority of the creditors agree. For start ups (other
than partnership firms), small companies and other companies (with asset less than Rs. 1 crore),
resolution process would be completed within 90 days of initiation of request which may be
extended by 45 days.[10]
Insolvency regulator: The Code establishes the Insolvency and Bankruptcy Board of India, to
oversee the insolvency proceedings in the country and regulate the entities registered under it.
The Board will have 10 members, including representatives from the Ministries of Finance and
Law, and the Reserve Bank of India.[9]
Insolvency professionals: The insolvency process will be managed by licensed professionals.
These professionals will also control the assets of the debtor during the insolvency process.[9]
Bankruptcy and Insolvency Adjudicator: The Code proposes two separate tribunals to
oversee the process of insolvency resolution, for individuals and companies: (i) the National
Company Law Tribunal for Companies and Limited Liability Partnership firms; and (ii) the Debt
Recovery Tribunal for individuals and partnerships.
A plea for insolvency is submitted to the adjudicating authority (NCLT in case of corporate
debtors) by financial or operation creditors or the corporate debtor itself. The maximum time
allowed to either accept or reject the plea is 14 days. If the plea is accepted, the tribunal has to
appoint an Interim Resolution Professional (IRP) to draft a resolution plan within 180 days
(extendable by 90 days). following which the Corporate Insolvency Resolution process is initiated
by the court. For the said period, the board of directors of the company stands suspended, and
the promoters do not have a say in the management of the company. The IRP, if required, can
seek the support of the company’s management for day-to-day operations. If the CIRP fails in
reviving the company the liquidation process is initiated.

The Bill prohibits certain persons from submitting a resolution plan in case of defaults. These
include: (i) wilful defaulters, (ii) promoters or management of the company if it has an outstanding
non-performing debt for over a year, and (iii) disqualified directors, among others. Further, it bars
the sale of property of a defaulter to such persons during liquidation.[12]
The Central Government is planning to make amendments to IBC in terms of filing insolvency by
home buyers.

IBC & NPA

Reserve Bank of India (RBI), which is the central bank of India, looks after many tasks like financial
supervision of the country, managing foreign exchange, issue of currency and detection of fake
currency, preparing developmental goals for the government and so on. But the primary task of a
central bank is to “look after monetary policy of country”. RBI regulates the supply of money in the
country through indicators like Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) and Repo
rate. CRR is the cash that a bank has to maintain in its coffers, while SLR is the money a bank has to
put in safe assets like government bonds, securities and gold. RBI has fixed CRR at 4 % and SLR at
19.5 % so almost a quarter of the bank’s money is in safe hands. The remaining money the bank lends
to people and corporations to earn interest, which is how banks earn profits.

The main reason for NPA (non performing assets) accumulation is nonpayment by the banks’ clients.
In simpler terms, it is like a shopkeeper giving a customer some goods on credit, and the customer is
not able to pay back to the shopkeeper. Most of the non performing assets in India are loans by
government banks, because the management of these banks gives loan to companies without checking
the viability of the project or the ability of the client to pay back. They do so because companies bribe
these employees, and the employees get money without any liability on them for the default in
repayment of loan. Successive corrupt Congress governments in the past have played an important
role in developing huge NPAs for India because of their inability, or rather, unwillingness to take
strong actions on corrupt bank management. India has the second largest share of bad debts in the
world with 9.6% gross NPA. Only Italy is ahead of us with 16.4 % of NPA, while other major
countries like the US, China, and Japan have 1.1, 1.7, and 1.3 % of NPA ( non performing assets )
respectively. Most of non performing assets in India are with public sector banks, and countries like
America do not have large NPAs because their banks are private. Private banks generally do not
develop bad debts because if their management lent to a client who is a potential defaulter, then the
liability would be on their shoulders, not the government’s. In the case of public sector banks,
government keeps pumping money into them from the taxpayer’s pocket, and hence, these banks keep
getting bailed out and revived rather than shutting down operations.
The PM Modi led government took strong decisions to wipe out NPAs from Indian banking industry.
The Insolvency and Bankruptcy Code (IBC) is proving to be the most powerful weapon against the
NPA problem, even the Economic Survey 2018 said the new Insolvency and Bankruptcy code (IBC)
was helping improve the health of banking sector. Under the IBC law,  National Company Law
Tribunal (NCLT) has approved Tata Steel’s bid to acquire the bankrupt Bhushan steel. This is the
second biggest dissolution of stressed assets by NCLT under the newly adopted Insolvency and
Bankruptcy (IBC) Code. Anil Agrawal led Vedanta Resources was the first successful bidder under
this new law when it took over the ownership of bankrupt Electrosteel Steels for an aggregate amount
of Rs 1,805 crore (USD 275.7 million) and additional funds of Rs 3,515 crore (USD 536.9 million) by
way of debt. Bhushan Steel and Electrosteel were both among the first twelve companies which were
referred by RBI to National Company Law Tribunal for proceedings under Insolvency and
Bankruptcy Code, the other being Essar Steel, Alok Industries, Amtek Auto etc. The proceedings for
these companies are under process, and RBI expects to write back 1 lach crore after 12 NPA cases
referred to insolvency board get solved. Finance Minister Piyush Goyal hailed the IBC for improving
banking sector.
This will bring a lot of money back to government banks because these are major defaulters. PNB
said it had the second highest exposure to Bhushan Steel and will benefit greatly from this acquisition.
PNB sources say that the ledger outstanding to Bhushan Steel was Rs 3,857.49 crore. Principal
Economic Advisor to Finance Ministry Sanjeev Sanyal applauded the historic resolution in a series of
tweets:
38 more cases of insolvency have been referred by banks to IBC Board following the RBI’s directive.
These cases are expected to be resolved very soon under the IBC law which will improve the health of
the banking sector so taxpayer’s money can be saved and set aside for developmental purposes. The
gross NPAs of all the banks in the country amounted to Rs. 8, 40, 958 crores in December, led by
industry loans and followed by services and agriculture sectors. Earlier, exit from the business was
one of the most tedious things to do, thanks to socialist business laws which were the hallmark of
previous governments. These laws helped in creating large non performing assets or NPA s, which
was the largest problem faced by the Indian government and Reserve Bank of India in the previous
decades. India reached 100th rank in 2018 from 130th in 2017 in Ease of Doing Business Index due to
this law. The efforts by the PM Modi led government to reform India’s economy is working on the
ground with 7.7% GDP growth in the last quarter, with most of the agencies predicting more than 8%
GDP growth for India in the upcoming fiscal year.

Tables
 Countries NPAs

Italy 16.4%

India 9.6%

US 1.1%

China 1.7%

Japan 1.3%

Company Debt Date of Referral to NCLT

Jet Airways `1 Billion (US$14 million) June 2019

Monnet Ispat `102.37 billion (US$1.5 billion) June 2017

Amtek Auto `127.22 billion (US$1.8 billion) July 2017

Electrosteel `130 billion (US$1.9 billion) July 2017

Alok Industries `290 billion (US$4.2 billion) June 2017

Bhushan Steel `440 billion (US$6.4 billion) 26 July 2017

Lanco Infra `450 billion (US$6.5 billion) August 2017

Essar Steel `490 billion (US$7.1 billion) June 2017

Bhushan Power & Steel `492 billion (US$7.1 billion) June 2017