Problems before enactment of IBC, 2016

Initially there was Presidency Towns Insolvency Acts, 1909 which was applicable in Kolkata,
Chennai and Mumbai and the Provincial Insolvency Act 1920 for the rest of India, for
regulating the insolvency laws. The Act applied to individuals and partnerships but exempted
corporations from within its ambit.1

There has been a reservoir of laws on insolvency prior to the IBC that came and went, and
which apparently failed to resolve the complex bankruptcy issues. The Non-performing asset
crisis surmounted, however no one-stop solution emerged. From Sick Industrial Companies
(Special provisions), Act, 1985 to The Provincial Insolvency Act, 1920, The Presidency
Towns Insolvency Act, 1909, The Code of Civil Procedure, 1908, and the SARFAESI Act,
2002 the journey has been quick and full of potholes that effusively started, however later
failed to stick to the very purpose for which they were established. 2 Further, we had various
adjudicatory bodies/Tribunals to deal with such issues and matters under different Acts stated
above.3

So, this led to the unclear knowledge about the authority as to whom the parties should
approach in the related matters.4 This led to confusion as to which authority to approach in
related matters. There were overlapping decisions given by different authorities as different
stakeholders approached different authorities.5  Large number of stressed assets such as NPAs
with low recovery rates due to a lack of enabling environment for the enforcement of
creditor’s rights. Moreover, there was no adequate or credible data regarding the assets,
indebtedness etc. of companies which further heighten the problems. Hence large number of
legislations and non-statutory guidelines have made the recovery of debt a complex and time-
consuming process.

In Oswal Foods Limited case6, the debtor company had made two references to the BIFR,
while a creditor filed a winding up petition in the High Court. Similarly, in Jeevan Diesels

1
Poornika Kumari, What led to the enactment of Insolvency and Bankruptcy Code, 2016?, Legal Bites, (),
https://www.legalbites.in/enactment-insolvency-bankruptcy-code-2016/.
2
Daisy Roy, Comparative Analysis of the laws on Insolvency before and after the enactment of the Insolvency
and the Bankruptcy Code, I Pleaders, (), https://blog.ipleaders.in/laws-on-insolvency-before-and-after-the-ibc/.
3
Supra Note 01.
4
Id.
5
Prathiksharavi, Can two operational creditors file for CIRP at the same time?, I Pleaders, (),
https://blog.ipleaders.in/operational-creditors-cirp/.
6
Oswal Foods Limited, 2009 (95) SCL 194 (All).
and Electricals7, the Calcutta High Court had to consider whether a creditor could file a
winding up petition in the High Court while another creditor had initiated enforcement action
in the DRT under the RDDBFI Act. So, for the same matter, proceedings were going on in
different Tribunals and courts and by different parties. This is because of lack of clarity and
uniform act. Hence, leading to multiplicity of cases under different Acts in the same case.8

7
Jeevan Diesels & Electricals vs. The Hongkong & Shanghai Banking, APO 254 of 2014 and CP 845 of 2013.
8
Supra Note 01.