IBBI REGULATIONS 2018: AN OVERVIEW

Insolvency and Bankruptcy code was enacted to bring a proper legislation to regulate the
process of insolvency and bankruptcy in India. The Code is organised into five parts with 255
sections. Insolvency and Bankruptcy is normally considered the same but both have distinct
meanings. Insolvency is the situation where a part is unable to repay his liabilities in the form
of debts that arouse during the course of business. Whereas Bankruptcy is the state of a
person or entity who cannot repay its creditors. Thus, if insolvency is not resolved it results in
bankruptcy. Before the enactment of this code in 2016, different provisions of different
legislations were governing the process of insolvency and bankruptcy. That includes laws
like Sick Industrial Companies (special provision) Act, 1985 (“SICA”), SARFAESI Act,
2002, the Recovery of Debts due to Banks and financial institutions Act, 1993 (“RDDBFI
Act”), Companies Act, 1956 as well as Companies act,2013. This created difficulty, delay in
resolution of the issues resulting in clogging of cases. The various legislations involved
usually made it loose clarity of process and jurisdiction. These unclear matters made it
difficult even for the people to file cases.

In Oswal Foods Limited case, situation arose where the debtor company had made two
references to the BIFR, while a creditor filed a winding up petition in the High Court. Hence
leading to multiplicity of cases under different Acts in the same case. Further in Jeevan
Diesels and Electricals v. HSBC, 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. Thus came a
consolidated, single law that deals with the matter. A strong insolvency code covers two
purposes that is, it saves businesses that are operable and provides exit opportunity for which
are not. This code brings a time-bound, market directed mechanism to resolve insolvency and
to provide exit options. This helps in the speedy resolution of issues relating to stressed assets
in India. The matters arising under this code is handled by NCLT and Debt Recovery
Tribunal.

Let’s have a quick look at insolvency and bankruptcy laws of other countries, compared with
India. IBC is a young and growing law compared to the laws around the world. The regulator
of the code Insolvency and Bankruptcy board is working on bringing improvements to the
code through new regulations. In the United Kingdom it is regulated by the Insolvency Act of
1966 and The Insolvency Rules of 1986. Individuals and companies are dealt under the
Insolvency Act of 1966 and are divided into following categories:

 Group I- deals with Company Insolvency

 Group II- deals with Insolvency of Individuals and
 Group III- deals with Miscellaneous matters bearing on both Company & Individual
Insolvency

In the United States of America, a Federal Law called the “Bankruptcy Code” governs
bankruptcy in the country. This is a uniform law that deals with all the related cases.

In India the IBC applies to

 Company established under the Companies Act 2013 or any other previous laws,
 Limited Liability Partnership incorporated under Limited Liability Partnership Act
2008
 Such other body specified by central government from time to time,
 Personal guarantor to corporate debtor
 Partnership firms and proprietary firms
 Individuals other than person referred to in clause (e).

India has not adopted the United Nations Commission on International Trade law Model Law
on Cross Border Insolvency. The Insolvency and Bankruptcy Code of India does not have
extra territorial jurisdiction thus makes it difficult to handle cases with respect to insolvency
and bankruptcy of MNC’s having assets abroad.

The main observation made during comparison is that during the time of insolvency process
in US the control of the entity will continue in the hand of the entity itself that is “Debtor in
Possession”. Whereas in UK and India during the process the management is handed over to
a resolution professional.

The Insolvency Professional (IPs), Information Utilities (IUs), Adjudicating Authorities

(AAs), Insolvency and Bankruptcy Board of India (IBBI) are together known as ‘The Four
Pillars of IBC Infrastructure’. The fourth pillar was established under section 188, a
governing agency known as Insolvency and Bankruptcy board of India. This is the regulatory
body constituted under the code for the regulation and supervision of different agencies
working under the code such as Insolvency Professional Agencies (IPA), Insolvency
Professionals (IP) and Information Utilities (IU) and also regulates the transactions
conducted. Established on 1 October 2016, the board consists of 10 members to be appointed
by the government:

• a chairperson;

• three members from among the officers of the Central Government not below the rank of
Joint Secretary or equivalent, one each to represent the Ministries of Finance, Corporate
Affairs, and Law, ex-officio;

• one member nominated by the Reserve Bank of India (RBI), ex-officio; and

• five other members nominated by the Central Government, of whom at least three are
fulltime members.

IBBI issues regulations whenever it finds necessary to rectify the loopholes present in the
code and also to further simplify the procedures. Now with this regulation making power the
IBBI can make regulations concerning its own function or other service providers under IBC.
Under section 240(1) of IBC, it empowers the IBBI to issue regulations in accordance with
the rules and sections of IBC. Section 240(2) gives the matters that may be regulated. IBBI
notified a regulation in 2018 to be known as the Insolvency and Bankruptcy Board of India
(Mechanism for Issuing Regulations) Regulations, 2018.

Chapter II of the regulation deals with the making of regulation. Regulation 4 gives the
procedure for public consultation. It states that:

For the purpose of making regulations, the Board shall upload the following, with the
approval of the

Governing Board, on its website seeking comments from the public:

(a) draft of proposed regulations;

(b) the specific provision of the Code under which the Board proposes regulations;

(c) a statement of the problem that the proposed regulation seeks to address;

(d) an economic analysis of the proposed regulations under regulation 5;

(e) a statement carrying norms advocated by international standard setting agencies and the
international best practices, if any, relevant to the proposed regulation;
(f) the manner of implementation of the proposed regulations; and

(g) the manner, process and timelines for receiving comments from the public.

What this provision say is that, the board will now upload the draft of the regulations
proposed, before the official publication or notification, in its website along with other
necessary documents and information so that it is possible for the public to view the
regulation and after thorough study and analysis, submit what they feel about the new
regulations through their comments to the regulators. They are allowed to complete this task
within 20 days. Then the board shall upload the comments received from the public along
with their general response on the comments with the permission of the governing body. If
the governing body approves any regulations, then it shall be notified officially to the public
and enforced duly. But if any regulation is formed which is substantially different from the
current regulations, then it shall repeat the above process of public consultation. After the
approval the regulation shall be notified and enforced after 30 days from notification.
Regulation 5 also provides that the board should conduct an economic analysis of the
proposed regulations so that it can estimate the costs that may be incurred, accrual of benefits
to the society, economy, the stakeholder and on the board, directly or indirectly, due to these
regulations. It should also comply with objectives of the code. Regulation 7 states that they
shall conduct the review of these regulations every three-year keeping in view of the
following:

(a) its objectives;

(b) its outcome;

(c) experience of its implementation;

(d) experience of its enforcement and the related litigation;

(e) global best practices, if any;

(f) its relevance in the changed environment; and

(g) any other factor considered relevant by the Board.

The last chapter talks about some miscellaneous provisions which says that if in the opinion
of the board, an urgent situation has come up to draft new regulations or amendment the
existing regulations as per the need of the hour then it shall proceed with the approval of the
governing body without following the above-mentioned regulation. The board can also
provide guidance and clarifications on its regulations when any party request for it or the
board takes Suo motu cognizance of the matter.

Thus, it can be concluded that this new introduction in the regulation is a great help to the
public. We people are bound by these regulations so it is only fair that we the public get a
chance to review and suggest correction through comments in the newly drafted regulations
before it comes into force. This regulation has brought in more transparency to the process
and thus helping the stakeholders to trust in the system and also to encourage their future
participation.