INSOLVENCY AND BAKRUPTCY CODE, 2016

Prior to the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as IBC), India had
no singular law dealing with a company in financial distress. The legal framework was
fragmented due to the existence of multiple acts (SICA, SARFAESI, RDDBFI). This led to
unnecessary delays, confusion and conflicts. Its detrimental effects could be gauged from
India’s low rank on the Ease of Doing Business Index in 2015. Therefore, the introduction of
a code such as IBC, which codified laws relating to insolvency and bankruptcy was essential.

The IBC promotes entrepreneurship, protects the interests of all stakeholders and provides
time bound resolution to insolvency proceedings. The provisions are applicable to
Individuals, Unlimited Partnership Firms, Limited Liability Partnerships and Companies.

CORPORATE INSOLVENCY RESOLUTION PROCEDURE:

An application for the initiation of Corporate Insolvency Resolution Procedure (CIRP) can be
initiated by:
1. Financial Creditors
2. Operational Creditors
3. Corporate Applicant

CIRP has to be concluded within 180 days. It can be extended by 90 days, but has to be
compulsorily concluded within 330 days. This ensures timely resolution of disputes.
Recognizing the challenges of completing IBC processes as a result of the COVID-19
outbreak, by way of a notification dated April 20, 2020, the IBBI amended the CIRP
Regulations to insert regulation 40C, which states that subject to provisions of the IBC, the
period of lockdown imposed by the Central Government in the wake of the COVID-19
outbreak shall not be counted in the timeline of any CIRP activity that could not be
completed due to the lockdown.

After approval of the application by the Adjudicating Authority (Here-NCLT), a moratorium

is declared, followed by the appointment of the Interim Resolution Professional (IRP) and a
public announcement. The Committee of Creditors, on the first meeting after their formation,
appoint a Resolution Professional. The entire management of the Corporate debtor’s concern
is first in the hands of the IRP, and then the RP. The Resolution Professional receives the
resolution plan, and coordinates with the Committee of Creditors. On approval of this plan by
the COC and the NCLT, the plan is implemented. However, if the plan is rejected by the
COC, it leads to liquidation. In case of liquidation, a liquidator is appointed to carry out the
liquidation process. It ends in dissolution of the Corporate Debtor.

The Corporate Debtors are also eligible for the Pre-Packaged Insolvency Resolution
Procedure, in case of MSMEs. This is a type of restructuring in which the creditors and
debtors enter into an informal agreement before submitting it for approval. This ensures faster
resolution, which is one of the aims of the IBC.

Moreover, a corporate person may also apply for voluntary liquidation, subject to the
fulfillment of the conditions laid out in Section 59(3) of the Code.

All appeals can be filed with the NCLAT. Further appeal can be made to the Supreme Court.
INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUALS AND
PARTNERSHIP FIRMS:

The major difference between the insolvency proceedings of corporate persons and
individuals & partnership firm is that the application by corporate persons is filed with NCLT
whereas application by individuals & partnership firms is filed with DRT.

The application for insolvency resolution may be filed by the creditor or the concerned debtor
himself. Once an application is filed with DRT for initiating insolvency proceedings, an
interim moratorium is declared and a Resolution professional shall be appointed to carry
forward and supervise the entire process. The RP will verify claims, and submit the report
along with suggestions for admission or rejection to the DRT.

On admission, a moratorium is declared and a public notice is issued. The RP along with the
debtor comes up with a repayment plan, which is subject to the approval of the creditors and
the DRT. Approval of the same results in its implementation.

On time-bound and successful implementation of the approved repayment plan the resolution
professional shall approach the concerned adjudicating authority for seeking a discharge
order for debts as are mentioned in the repayment plan.

All appeals can be made to the DRAT.

Despite recent debates regarding the inefficiencies, the Code has improved insolvency
resolution proceedings, and has streamlined and clearly defined the laws relating to
insolvency and bankruptcy.

REFERENCES:

https://www.mondaq.com/india/insolvencybankruptcy/829988/ibc-insolvency-and-
bankruptcy-code-2016-the-bankruptcy-law-of-india

https://muds.co.in/insolvency-resolution-process/