Open Access Research Article
A Study On Insolvency And Bankruptcy Code, 2016 (By-Adv. Koppolu Chaitra)
Published Paper
Article Details
A Study On
Insolvency And Bankruptcy Code, 2016
Authored
By-Adv. Koppolu Chaitra
Assistant
Professor
Sathyabama
School of Law, Sathyabama University
Chennai
603103
Mobile
No : 7030466808
Email
Id : chaitra3c@gmail.com
Abstract
The Indian
insolvency framework underwent a significant transformation with the adoption
of the Insolvency and Bankruptcy Code, 2016. Similar to other nations
throughout the world, our nation also faced a number of economic challenges as
a result of the unanticipated pandemic scenario. The insolvency regime has also
been impacted by this extraordinary circumstance. In order to address the
problems with the insolvency regime during this pandemic crisis, the
legislature has developed regulations. The goal of the current article is to
examine the concerns and challenges of corporate insolvency resolution in India
during the epidemic. The goal of the study is to give a summary of the major
problems in this field. The author attempts to assess the effectiveness of the
ordinances and highlights any flaws.
Introduction
Any country's legal system is always
crucial to its ability to thrive economically. If the nation's legal system is
well-designed and well implemented, the nation's international standing will
undoubtedly be solid.
The implementation of the IBC is
India's second-most important legal change after the Goods and Services Tax.
It's because the IBC gives India a new sense of identity and economic respect
on a global scale while also making India a force to be reckoned with in the
legal arena. This code has a good effect on all fronts, including the economic
and non-economic ones. Since the code has been approved, India's economic
standing has significantly improved due to increased FDI, more M&A
transactions, and improved ease of doing business in India.
One of India's most significant
economic changes, the Insolvency and Bankruptcy Code, 2016 is thought to have
had a substantial impact on credit risk management. IBC, 2016 unifies and
updates the Indian law governing the insolvency resolution process. Lenders, financial
institutions, corporations, and professionals all seem to be affected by the
Code's introduction, offering them the opportunity to work as resolution
professionals. Insolvent entities are intended to be wound up more quickly,
distressed entities are intended to be saved, and investors are intended to
have an easier exit.
Objectives
Of The Study
The study was conducted in order to
further the following major goals:
1. To examine the 2016 Insolvency and
Bankruptcy Code's distinctive elements and legal structure.
2. To determine how India's
macroenvironment will be affected by the Insolvency and Bankruptcy Code.
Need Of The
Study
This
Paper main goal is to explore the 2016 Insolvency and Bankruptcy Code's
key sections. This paper highlights diverse stakeholders' points of view,
difficulties encountered, and multiple benefits of the reform's implementation
in India. This report also demonstrates how IBC is very creative in enhancing
India's reputation on the international stage.
Insolvency
And Bankruptcy Code (IBC), 2016
A. Background:
Next to the GST, the "Insolvency
and Bankruptcy Code, 2016" is regarded as the biggest economic change. The
Insolvency and Bankruptcy Code 2016 is a significant piece of legislation that
unifies the legal framework governing individual restructuring and liquidation
(including incorporated and unincorporated entities).
By consolidating and amending the
laws relating to the reorganisation and insolvency resolution of corporate
persons, partnership firms, and individuals in a timely manner and for the
maximisation of value of such persons' assets and matters connected therewith
or incidental thereto, the new law seeks to promote entrepreneurship,
availability of credit, and to balance the interests of all stakeholders. The
laws governing the insolvency of businesses and limited liability entities
(including limited liability partnerships and other entities with limited
liability) are intended to be consolidated.
B. CROSS - BORDER INSOLVENCY
There are various difficulties with
the legal framework controlling cross-border insolvencies. The first is the
lack of a thorough structure for cross-border insolvency. Resources are wasted
as a result of the resulting conflicts across legal systems. Additionally, it
leads to different treatment of domestic and foreign debtors. A few prominent
attempts to address these issues have been made. These include the NAFTA
Transnational Insolvency Project, the International Bar Association
Cross-Border Insolvency Concordat, the EC Regulation on Insolvency Proceedings
(Council Regulation (EC) No 1346/2000 of May 29, 2000), and the UNCITRAL Model
Law on Cross-Border Insolvency.
C. jurisdictional Parameters
This section aims to outline the
potential standards on which the jurisdiction of Courts in cross-border
insolvencies may be established, without reference to any specific legal
system.
The place of incorporation:
This method establishes jurisdiction
based on the insolvent debtor's location of incorporation. Although
predictability is undoubtedly increased, there is concern that this may
frequently identify a jurisdiction that has little to no true relationship to
the bankrupt company (Irit Ronen-Mevorach). European courts have frequently
operated under the assumption that the location of a company's incorporation is
where its primary interests are. This assumption can be refuted, though
(Eurofood IFSC Ltd case).
D. The location of principal assets:
One of the least reliable criteria
for choosing the venue for international insolvency proceedings is the
asset-based test. The majority of the time, determining the company's
international assets takes time and money. Additionally, asset-based
jurisdiction cannot be established before the insolvency process has started.
Because of this, the initial determination of jurisdiction is unpredictable and
subject to fraud.
E. Injunction
Cross-border insolvencies allow
creditors to file lawsuits in local courts rather than through centralised
liquidation proceedings in order to get priority over other claims against the
corporation. It is feared that this will lead to an uneven distribution of
assets and the unjust prejudicial treatment of some creditors at the expense of
other creditors. One strategy for resolving this issue is the use of anti-suit injunctions.
The Privy Council ruled in Aerospatiale v. Lee Kui Jak that English courts have
the authority to issue anti-suit injunctions to safeguard the integrity of
ongoing insolvency procedures before the Court. One situation where the issuing
of such an injunction is justified is to prevent someone from trying to get the
sole benefit of particular foreign assets through foreign procedures.
E. UNCITRAL Model Law
The UNCITRAL Model Law makes an
effort to offer a cutting-edge legal framework for the control of international
insolvency. The model law is especially pertinent to India because various
expert committees, including the J J Irani Committee, have advocated its
implementation with appropriate amendments.
To protect the interests of all
parties involved, the UNCITRAL Model Law offers a legal framework for
coordinating cross-border insolvency processes. The Model Law accomplishes this
goal in three ways: first, by requiring judicial cooperation; second, by giving
a foreign insolvency administrator or a similar representative standing in
local proceedings; and third, by guaranteeing that claims from both abroad and
within the country are treated equally.
The Model Law is applicable in
situations where a foreign creditor seeks to start insolvency proceedings
before a local court, when a local court requests assistance from a foreign
court or foreign representative, and finally when the same debtor company is
involved in parallel insolvency proceedings in various jurisdictions. However,
the Model Law does not compromise the sovereignty of other countries.
F. Recognition of Foreign
Proceedings:
The Model Law stipulates that
recognition of international insolvency proceedings is necessary (Articles 25
and 26). This is done in order to guarantee the efficient application of the
other clauses pertaining to parity of treatment and access to foreign
creditors. A "Foreign Main Proceeding" (FMP) or "Foreign
Non-Main Proceeding" (FNP) is a foreign proceeding (FNMP). The relief that
a foreign court may provide is determined by this classification. A foreign
action that takes place in the debtor's home country or the location of the
debtor's "centre of its principal interest" is referred to as an FMP
in the Model Law.
Conclusion
The use of insolvency legislation can
aid COVID-19-affected debtors who are in financial difficulties by protecting
their firm's value and helping them restructure their debts28. In fact, several
writers have asserted that bankruptcy law, particularly for big businesses, is
not the issue; rather, it is the answer.
Concerns are raised about the
circumstances of pending cases when the settlement plans have already been
authorised. It becomes challenging to accomplish the true goal that the code
aims to achieve in situations where the pandemic condition introduces financial
constraints and makes it tough to move forward with the already approved plan.
Additionally, the operational creditors of the corporate debtor may suffer as a
result of the reduced threshold limit and the general prohibition on filing
applications. In addition,
Furthermore, there is a higher risk
of abuse of these rules because it is not stated anywhere how to tell if a
default happened as a result of Covid-19 problems. While considering the
legislative actions done in other nations, like as Singapore, it was decided
that a panel of assessors would decide if a party's inability to fulfil the
contractual obligations for which relief is requested was due to the pandemic.
Similar actions can be conducted in India, where regulatory tribunals could be
given this authority. Using this strategy, it will be guaranteed that only the
party in need will receive relief without having to demonstrate that it is
unable to fulfil its commitment.
Although bankruptcy law can other
legal systems. Using these special criteria, some penalties may even be
opportunistically applied to debtors. Additionally, the additional
restructuring options permitted by other laws are now available due to the
pandemic situations and revisions to the current insolvency system. Therefore,
steps to apply other methods of restructuring or reorganising in the most
effective way must also be considered.
References
1. ‘Valecha, Javish & Xalxo, Ankita
Anupriya. “Overview of the Insolvency and Bankruptcy Code, 2016 & the
Accompanying Regulations”, Journal on Contemporary Issues of Law, Vol-3,
Issue-4, ISSN 2455-4782, 2017.
2. Goel, Shivam. “The Insolvency and
Bankruptcy Code, 2016: Problems & Challenges”, Imperial Journal of
Interdisciplinary Research (IJIR), Vol-3, Issue-5, ISSN: 2454-1362, 2017.
3. Wadhwa, Rakesh. “Insolvency and
Bankruptcy Code”, 2016” The Journal of Corporate Professionals (ICSI), Vol-46,
Issue-9, ISSN 0972-1983, September 2016.
4. Balasubramanian, N. “Insolvency and
Bankruptcy Code – A look from a common man’s perspective”, The Journal of
Corporate Professionals (ICSI), Vol-46, Issue-9, ISSN 0972-1983, September
2016.
5. Sriram, G. “The Insolvency and
Bankruptcy Code, 2016” ”, The Journal of Corporate Professionals (ICSI),
Vol-46, Issue- 9, ISSN 0972-1983, September 2016.
6. Chaudhary, V.K. & Kapoor, Alka.
“Corporate Insolvency Resolution Process – Brief analysis and challenges”, The
Journal of Corporate Professionals (ICSI), Vol-46, Issue-9, ISSN 0972-1983,
September 2016’.
Article Information
A Study On Insolvency And Bankruptcy Code, 2016 (By-Adv. Koppolu Chaitra)
Author Name: Adv. Koppolu Chaitra
Title: A Study On Insolvency And Bankruptcy Code, 2016
Email Id: chaitra3c@gmail.com
- Journal IJLRA
- ISSN 2582-6433
- Published 2022/07/05
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International Journal for Legal Research and Analysis
- Abbreviation IJLRA
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