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This enactment paves the way for the complete overhaul of the Insolvency and Bankruptcy
mechanism in India, which at present is governed primarily through the provisions of SICA and
the Companies Act. The other enactments like RDDB Act (DRT Act) and the SARFAESI will
continue to remain in force.
For the purpose of implementing the IBC, it is necessary to put in place the enabling
infrastructure i.e. Insolvency Regulator, Insolvency Professional Agencies, Insolvency
Professionals and Information Utilities etc. which may take some time and unless these structures
are put in place the IBC will not be notified. This may take at least 6 -12 months' time. Upon
notification of IBC, the SICA Repeal Act will also be notified and BIFR/AAIFR will cease to exist.
In the meanwhile, the Government, in exercise of the powers conferred U/s 1 (3) of the
Companies Act 2013, has w.e.f 01st June 2016, notified several positions of the Act of 2013
including those relating to the Constitution of the NCLT and NCLAT and dissolution of the
Company Law Board (CLB). Accordingly, eleven benches of NCLT have been constituted with
district territorial jurisdiction and the CLB stands dissolved w.e.f 1st June 2016.
The NCLT will initially deal with the CLB matters and also the provision relating to Class Action
Suits, investigation of a Company's account, freezing of assets shall be governed by NCLT and
appeals therefrom would be before NCLAT. All the matters relating to Compromise,
Arrangement, Winding up, Reduction of share capital will continue to be under
the purview of High Court, which would subsequently get transferred to NCLT,
as and when the relevant provisions are notified by the Central Government.
On notification of the IBC, the cases relating to restructuring and revival
pending before the BIFR/AAIFR shall abate and fresh Corporate Insolvency
Resolution Process (CIRP) applications will have to be filed before the NCLT.
Insolvency Regulator (IR) The Code proposes to establish an Insolvency Regulator to be called
as The Insolvency and Bankruptcy Board of India to regulate the Insolvency Professionals,
Insolvency Professional Agencies and Information Utilities and powers to appoint RPs in case
the NCLT asks them to appoint an RP.
Insolvency Professionals (IP) The Code proposes to create a new class of professional to be
called as Insolvency Professionals to conduct the insolvency process and to manage the affairs
of Corporate Debtor (CD) (the Corporate Peron i.e. the Distressed Borrower Company/LLP)
during the Corporate Insolvency Resolution Process (CIRP).
would collect, Initiation of Corporate Insolvency Resolution Process (CIRP) Any creditor (whether financial
collate, or operational) of the Corporate Debtor (CD) may initiate CIRP by filing an application to
Adjudicating Authority (NCLT) for commencing the process of resolution (restructuring/revival)
authenticate and of the Corporate Debtor. The application for CIRP shall be filed by the Financial Creditors (FC) u/s
disseminate 7; by the Operational Creditor (OC) u/s 9 and/or by the CD u/s 10.
financial Process for Insolvency Resolution
information from
I. Post the fling of application for initiation of CIRP the AA (NCLT) shall, within a period of 14
companies / LLPs / days, take a decision on the admission of the same or reject the said application. The CIRP
Partnership Firms shall be deemed to have commenced from date of admission of the said application and the
entire process has to be completed with 180 days (extendable by 90 days) from the date of
/ individuals and
admission of CIRP application.
financial and
ii. Upon commencement of the CIRP the AA (NCLT) shall, by an order, declare a moratorium till
operational
the completion of CIRP (maximum 180-270 days) prohibiting initiation of any suit or
creditors of such continuation of any suit or proceeding or execution of any judgment or decree against the
entities. CD (section 14(1)(a)), disposal or alienation, in any manner by the CD of its assets or legal
rights or beneficial interest in them (section 14(1)(b)), any
action u/s 13(4) of SARFAESI by the secured lenders (section
14(1)(c)), recovery of any property which is in possession of the
CD, whether or not owned by CD (section 14(1)(d). However
the declaration of moratorium shall not result in suspension or
termination of essential goods or services to the CD (Section
14(2)).
i. In case the resolution plan is rejected by the AA (NCLT) for non-compliance with the requisites
of section 30(4) or no plan is received within the stipulated time frame of 180 days or 270 days,
the AA (NCLT) may pass orders for liquidation of the CD and issue a public announcement to
that effect. (Section 33)
ii. The AA may also direct liquidation of CD in the event the RP communicates to the AA that even
during the pendency of the CIRP, the CC has decided to liquidate the company, or on
determination by the AA (on an application filed by any person) that the provisions of
resolution plan have been contravened by the CD.
iii. Upon passing of order of liquidation of CD by the AA the RP shall act as Liquidator and shall
receive and collect claims of creditors, verify them and accordingly accept or reject the same
and run the liquidation process in accordance with the provisions of the IBC.
The Code also provides for priorities [waterfall] wherein the proceeds from the realization of
assets of the CD are to be distributed to its creditors in case of liquidation. The priority as
envisaged in the code is as follows:
b. the following debts which shall rank equally between and among the following:
(i) Workmen dues for the period of twenty-four months preceding the liquidation
commencement date; and
(ii) Debts owed to a secured creditor in the event such secured creditor has relinquished
security in the manner set out in section 52;
c. wages and any unpaid dues owed to employees other than workmen for the period of twelve
months preceding the liquidation commencement date;
e. the following dues shall rank equally between and among the following:
(i) any amount due to the Central Government and the State Government including the
amount to be received on account of the Consolidated Fund of India and the
Consolidated Fund of a State, if any, in respect of the whole or any part of the period of
A comprehensive two years preceding the liquidation commencement date;
attempt to try to (ii) Debts owed to a secured creditor for any amount unpaid following the enforcement of
restructure/ revive security interest;
a Company in a f. any remaining debts and dues;
time bound g. preference shareholders, if any; and
manner of 180-
h. equity shareholders or partners, as the case may be.
270 days and if no
such Corporate
Restructuring CROSS BORDER
Plan is approved
or implemented
INSOLVENCY
within the The code also covers certain provisions related to cases of Cross-Border Insolvency which
envisage that:
stipulated time,
then the a) The Central Govt. may enter into an agreement with the government of any country outside
India for enforcing the provisions of insolvency code
Company would
b) Application of provision of insolvency code in relation to assets or property of corporate
go into liquidation
debtor or debtor, including personal guarantor of a corporate debtor, as the case may be,
situated at any place in a country outside India with which reciprocal arrangements have
been made, shall be subject to such conditions as may be specified.
As such it may be noticed that the code is a comprehensive attempt to try to restructure/ revive a
Company in a time bound manner of 180-270
days and if no such Corporate Restructuring
Plan is approved or implemented within the
stipulated time, then the Company would go
into liquidation. In case of liquidation of a
Corporate Debtor, the Personal Guarantor can
file for and be declared as an insolvent before
the NCLT itself [Section 60(2)] and be free of
the earlier debt / Personal Guarantee
obligations and can restart his commercial life
in due course without the obligation as a
Guarantor haunting him forever.