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.
Ease of doing business is the target of the Government, and IBC is one of such focused step taken in that direction. When we hear the word ease of doing business, it just mean easiness in doing business, but that is just an unfair explanation to the word, because it also includes easy process to exit a business. This will encourage more entrepreneurs to enter in to the market which will help nation’s growth and create employment opportunities.
The Insolvency and Bankruptcy Code was introduced in December 2015 and got the assent form Lok Sabha on May 5th2016 and Rajya Sabha on May 11th, 2016. The Code received the assent of the President of India on 28 May 2016. Some provisions of the Act have come into force from 5 August and 19 August 2016.
The Code has received the hammer of amendment many times. This is a one stop solution for resolving business failures and subsequent insolvencies. Such business situations was long process that will never offer economically viable arrangement. It was done to consolidate all the existing laws related to insolvency in India and to simplify the process of insolvency resolution.
The code have its jurisdiction over Companies under Companies Act, a Limited Liability partnership, Partnership firms and Individuals.
Under the Insolvency and Bankruptcy Code, any financial creditor or an operational creditor can initiate corporate insolvency process against a corporate debtor when the corporate debtor commits a default in repayment of debts. Default involves non repayment of debt when it has become due and payable.
Under the IBC, 'financial creditor' means any person to whom a 'financial debt' is owed and includes a person to whom such debt has been legally assigned or transferred to.
Insolvency and Bankruptcy Code, 2016 (IBC) defines Operational creditor as a person to whom an operational debt is owed including the debt that has been legally assigned or transferred. Operational Debt is debt may arise out of provision of goods or services or dues arising out of employment or dues arising under any law for time being in force and payable to the Centre/State Government. In common parlance the Operational Creditor debt emanates from transactions on operations.
Hence, when any financial or operational creditor is not honoured duly, he can initiate the insolvency proceedings against the corporate debtor.
Establishments Under The Act
The code sets out provisions for the establishment of three new institutional structures important for the smooth functioning of IBC:
a. IBBI- Insolvency and Bankruptcy Code of India: The objective of the code itself specifies the establishment of this Board. The board shall act as a Regulator.
b. IPAs- Insolvency Professional Agencies: Only the companies registered under Section 8 of The Companies Act, 1956 can approach The IBBI for registration as an insolvency Professional Agency. The Insolvency Professional Agencies will develop professional standards, code of ethics and be the first level regulator for Insolvency professionals members. This will lead to the development of a competitive industry for such professionals.
c. Insolvency Professional– To render services as an insolvency professional an individual has to be:
A member of the Insolvency Professional Agency, and
Registered with the IBBI
d. Information Utilities: An information utility shall provide such services as may be specified including core services like collecting and storing information on debts and defaults to any person if such person complies with the terms and conditions as may be specified by regulations.
The regulator's mandate is to regulate insolvency professionals, insolvency professional agencies and information utilities as well as to frame regulations under the IBC.
National Company Law Tribunal (NCLT) constituted under Section 408 of The Companies Act, 2013 is the adjudicating authority under the code and shall hear insolvency resolution cases for corporate persons.
NCLT is a quasi-judicial body established by the Government of India to settle disputes arising between civil corporations. Whereas, National Company Appellate Tribunal (NCLAT) is a higher tribunal where appeals can be lodged in case the parties are not satisfied with the decision of NCLT.
The tribunals came into existence as on 1st JUNE, 2016 by exercising the powers given in Article 245 of the Constitution, enforced by the government.
The Code also recognizes Debt Recovery Tribunal (DRT) constituted under Section 3 (1) of the Recovery of Debts Due to Banks and Financial Institutions as the adjudicating authority for the purpose of insolvency resolution and bankruptcy cases for partnership firms and individuals. The Tribunal came into being for the purpose of expeditious adjudication and recovery of debts
The Adjudicating Authority may in the furtherance of the issue either declare a moratorium or cause a public announcement or Appoint an interim resolution professional for investigation and finding solutions.
IBC lays down strict time frame for each and every process for resolution process right from admission of application, appointment of Interim Resolution Professional, lodging of claim, formation of Creditors Committee, consideration of resolution plan and submission of plant to adjudicating authority and its approval thereof.
The IBC has 255 sections and 11 Schedules. IBC is divided into 4 parts i.e.
Preliminary (Part I);
Insolvency Resolution and Liquidation of Corporate Persons (Part II);
Insolvency Resolution and Liquidation of Individuals and Partnership Firms (Part III);
Regulation of insolvency professionals, agencies and information utilities (Part IV).