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INSOLVENCY BANKRUPTCY CODE 2016
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INSOLVENCY
BANKRUPTCY CODE 2016
AUTHORED BY
- SUBODH KUMAR SARKAR
ABSTRACT
Any business
is an organization, the word organization is derived from the
word organ which indicates that any
organization has many properties of an organ.
Like any organ,
the organization has to either
grow or decay.
It can be seen from our articles in respect of Insolvency bankruptcy code 2016 how it is significant and playing vital role
to bring sea changing to prevent corporate bodies from premature death although, it is organization is in nascent stage. There was no single law in
India that dealt with insolvency and bankruptcy.
S.O.2618(E).-In exercise
of the powers conferred by the proviso
to sub-section (3) of section
1 of the Insolvency and
Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby appoints the
5th of August, 2016 as the date on which the provisions of sections 188 to 194 (both inclusive) of the said Code shall come into force.
The provisions of this Code shall apply
to—any company incorporated under the Companies
Act, 2013 or under
any previous company law; any other
company governed by any special
Act for the time
being in force, except in so far as the said provisions are inconsistent
with the provisions of such special Act; any Limited Liability Partnership incorporated under the Limited
Liability Partnership Act, 2008; such other body incorporated under any law for the time being in
force, as the Central Government may, by notification, specify in this behalf;
and partnership firms and individuals, in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the
case may be.
The vision of law (as given in press
release of Government of India) is to encourage entrepreneurship and
innovation. Some business ventures will always fail, but they
will be handled rapidly and swiftly. Entrepreneurs and lenders
will be able to move on, instead
of bogged down with decision
taken past. Liquidation of corporate
debtor is last resort, resolving
corporate insolvency is primary objects
and not recovery
of money. Liquidation of corporate debtor should be matter of last option as
Insolvency Code recognizes a wider public interest in resolving corporate
insolvencies and its objects not mere recovery
of monies due and outstanding. Necessity has been raised
to know and to study insolvency code,
IBBI Insolvency Bankruptcy Board Of India) board, procedure, eligibility, NCLT (National Company
Tribunal) and its constitution power and function.
It is to remember that
Insolvency Code is not a substitute for recovery forum but a process within
quick time bound programme need to supply oxygen
on priority basis.
It is very much significancy to know the liquidation
process when Corporate Resolution utterly failed. Ther are also introduction of Pre-packaged
insolvency Resolution Process scheme and
Limited Liability Partnership Act-2008 which has been meant for small business and professionals. These
abovementioned topics have been necessities to know about Insolvency Bankruptcy
code 2016.
A) INTRODUCTION:
This is a
matter of critical importance: India is one of the youngest republics in the
world, with a high concentration of the most dynamic
entrepreneurs. Yet these
game changers and growth drivers
are crippled by an environment that takes some of the
longest times and highest costs by world standards to resolve any problems that arise while repaying dues on
debt. This problem leads to grave consequences: India has some of
the lowest credit compared to the size of the economy. This is a troublesome
state to be in, particularly for a young emerging economy
with the entrepreneurial dynamism of India[1]. Such dynamism not only needs reforms,
but reforms done urgently. The Committee was seized of this, and focused on a
two-phase mandate over its tenure. The first
phase was to examine the existing bankruptcy framework, and
whether there were policy and legal changes that could yield
immediate effect. The focus here was on the problems of insolvency and
bankruptcy under the Companies Act, 2013. The outcome of the deliberations of
the Committee led to the Interim Report of the Committee that was put out for
public comments at the end of February, 2015 (Ministry of Finance,
2015). The limited liability
company is a contract
between equity and debt. As long as debt obligations
are met, equity owners have complete control, and creditors have no say
in how the business is run. When default takes
place, control is supposed to
transfer to the creditors; equity owners have
no say. This is not how companies in
India work today. For many decades, creditors have had low power when faced
with default. Promoters stay in control of the company
even after default.
Only one element
of a bankruptcy framework has been
put into place:
to a limited extent, banks
are able to repossess fixed
assets which were pledged
with them This approach has many
strengths:- Asset stripping by
promoters is controlled after and before default; the promoters can make a proposal that involves buying back the
company for a certain price, alongside a certain debt restructuring; others in the economy
can make proposals to buy the company at a certain
price, alongside a certain
debt restructuring; all parties knows
that if no deal is struck within the stipulated period, the company will go into liquidation. This will help avoid delaying
tactics. The inability of promoters to steal from the company, owing to the supervision of the IP, also helps reduce the incentive to have a slow lingering death; the role of the adjudicator will be on process
issues: To ensure that all financial creditors were indeed on the creditors
committee, and that 75% of the creditors
do indeed support the resolution plan. This was the primary
object of Insolvency
Bankruptcy code 2016
There was no single law in India that
dealt with insolvency bankruptcy. Provisions relating to insolvency and
bankruptcy for companies could be found in the Sick Industrial Companies
(special Provisions) Act,1985, The Recovery
of debt Due to Banks and Financial Institution Act,1993, the Securitization Reconstruction of Financial Assets
and Enforcement of security Interest Act2002and the companies Act, 2013. All said acts was not so effective to
recover its due in time and creditor used to suffer with heap of burden of non-
performing assets. This non-performing asset creates bad effect suffered with
unwanted provision which eaten away the large amount profit, CAR (capital
adequacy ratio) less than standard level many more factors lead to weak
creditor. Dissertation, we shall see The Bankruptcy Law Reform Committee.
Recommendations, Insolvency and Bankruptcy code2016, Insolvency Resolution
process and amendments, its sections rules regulation, related party, some
important definitions and eligibility under this code and IBC has power to ride
over other laws. Necessity has been raised to know and to study insolvency
code, IBBI Insolvency Bankruptcy Board Of India) board, procedure, eligibility, NCLT (National Company
Tribunal) and its constitution power and function. It is to remember
that Insolvency Code is not a substitute for recovery forum but a process within
quick time bound programme need to supply oxygen on priority basis. It
is very much significancy to know the liquidation process when Corporate
Resolution utterly failed.
A)
PREAMBLE OF THE CODE:
Section I Short title, extent and commencement.
1. This
Code may be called the Insolvency and Bankruptcy Code, 2016.
2. It
extends to the whole of India:
3. It shall come into force on such
date as the Central
Government may, by notification in the Official
Gazette, appoint: Provided that different dates may be appointed for different provisions of this Code and any reference
in
any such provision to the commencement of this Code shall be construed as a reference to the commencement
of that provision.
An Act to consolidate and amend the laws relating
to: -
Recognition and insolvency resolution of
a)
corporate persons,
b)
partnerships firms and
Ø to promote entrepreneurship,
availability of credit and balance the interests of all stake holders including alteration in of in the
order of priority payment of Government dues and
Ø to
establish an Insolvency and Bankruptcy Board
of India, and
Ø for matters connected therewith or incidental thereto
B)
SOME IMPORTANT DEFINITIONS:
In this Code, unless
the context otherwise requires, --
(1)
"Board"
means the Insolvency and Bankruptcy Board of India established under
sub-section (1) of section 188;
(2)
"bench" means
a bench of the Adjudicating Authority;
(3)
"bye-laws" mean the bye-laws
made by the insolvency professional agency under section
205
(4)
"charge" means an interest
or lien created on the property or assets of any person or any of its undertakings
or both, as the case may be, as security and includes a mortgage;
(5)
"Chairperson" means the Chairperson of the Board;
(6)
"claim" means--
(a)
a
right to payment, whether or not such right is reduced to judgment, fixed,
disputed, undisputed, legal, equitable, secured or unsecured
(b)
right to remedy for breach of contract under any law for the time being in force, if such breach gives
rise to a right to payment, whether or not such
right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed,
secured or unsecured;
(7)
"corporate
person" means a company as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited
Liability Partnership Act, 2008 (6 of 2009),
or any other person incorporated with limited liability under any law for the time being in force but shall
not include any financial service provider[3];
(8)
"corporate debtor" means a corporate
person who owes a debt to any person;
(9)
"core services" means services rendered
by an information utility for--
(a)
accepting electronic submission of financial
information in such form and manner as may be specified ( b) safe and accurate recording of
financial information;
(10)
"creditor" means any person
to whom a debt is owed and includes a financial creditor,
an operational creditor, a
secured creditor, an unsecured creditor and a decree-holder;
(11)
"debt" means a liability or obligation in respect of a claim which is due from any person
and includes a financial debt and
operational debt;
(12)
"default"
means non-payment of debt when whole or any part or instalment of the amount of
debt has become due and payable and
is not 1[paid] by the debtor or the corporate debtor, as the case
may be;
3) "financial information", in relation
to a person, means one or more of information,
(15)
"financial product" means securities,
contracts of insurance, deposits, credit arrangements including loans and
advances by banks and financial institutions, retirement benefit plans, small
savings instruments, foreign currency contracts other than contracts to exchange one currency (whether
Indian or not) for another
which are to be settled
immediately, or any other instrument as may be prescribed;
(16)
"financial service
provider" means a person engaged
in the business of providing financial services in terms
of authorisation issued or registration granted by a financial sector
regulator;
(17)
"financial sector
regulator" means an authority or body constituted under any law for the time being
in force to regulate
services or transactions of financial sector
and includes the Reserve Bank of India,
the Securities and Exchange Board of India, the Insurance
Regulatory and Development Authority of India, the Pension Fund Regulatory
Authority and such other regulatory authorities as may be notified by the
Central Government;
(18)
"insolvency professional" means a person
enrolled under section 206 with an insolvency professional agency as its member and registered with the
Board as an insolvency professional under section 207;
(19)
"insolvency
professional agency" means any person registered with the Board under
section 201 as an insolvency professional agency;
(20)
"information utility" means a person
who is registered with the Board as an information utility under section 210;
(21) "prescribed" means prescribed by rules made by the Central Government;
(22) "secured creditor" means a creditor in favour of whom security
interest is created;
(23)
"security interest" means right, title or interest
or a claim to property, created in favour
of, or provided for a secured creditor by a transaction which secures payment or performance of an
obligation and includes
mortgage, charge, hypothecation,
assignment and encumbrance or any other agreement or arrangement securing
payment or performance of any obligation of any person:
(24)
"specified" means specified by regulations made by the Board under
this Code and the term "specify" shall be construed accordingly.
C)- SECTION-4 .APPLICATION OF THIS PART.
This Part
shall apply to matters relating to the insolvency and liquidation of corporate
debtors where the minimum amount of the default
is one crore rupees, provided
that the Central
Government may, by notification,
specify the minimum amount of default of higher value which shall not be more than one crore rupees. Provided further that the Central Government
may, by notification, specify such minimum amount of default of higher value,
which shall not be more than one crore rupees, for matters relating to the
prepackaged insolvency resolution process of corporate debtors under Chapter
III-A.
Notification 24-3-2020: The Central government hereby specifies one crore rupees
as minimum amount default
for the purposes of said section[4].
SECTION-6; PERSONS WHO MAY
INITIATE CORPORATE INSOLVENCY
RESOLUTION PROCESS.
Where any
corporate debtor commits a default, a financial creditor, an operational
creditor or the corporate debtor itself may initiate corporate insolvency
resolution process in respect of such corporate debtor in the manner as
provided under this Chapter[5].
D)
-SECTION-7.
INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS BY FINANCIAL CREDITOR.
(1)
A financial
creditor either by itself or jointly with 1[other financial
creditors, or any other person on behalf
of the financial creditor, as may be notified by the Central
Government,] may file an application for initiating corporate insolvency
resolution process against a corporate debtor before the Adjudicating Authority
when a default has occurred.
Explanation. --For the purposes of this sub-section,
a default includes a default in respect of a financial debt owed not only to
the applicant financial creditor but to any other financial creditor of the
corporate debtor.
(2)
The
financial creditor shall make an application under sub-section (1) in such form
and manner and accompanied with such fee as may be prescribed.
(3) The
financial creditor shall,
along with the application furnish--
(a) record
of the default recorded with the information utility or such other record or evidence
of default as may
be specified;
b) the name of the resolution professional proposed to act as an interim
resolution professional; and
(c) any other information as may be specified by the Board.
(4)
The Adjudicating Authority shall, within
fourteen days of the receipt
of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the
financial creditor under sub-section (3).
Case Law:
Urban Infrastructure Trustee limited VS Neelkanth Township and construction
pvt, Ltd. C P NO 69/IBP/NCLT/ Mail MAH?2017-01/03/2017
Uniformity between amount
of default and amount claimed: NCLT, Mumbai Bench observed that in the
application filed by financial creditor, the amount claimed was Rs226+ crores
and the default occurred Rs 51 crores. The Bench held that, there should be parity between
“the amount of default occurred and amount claimed to be in default hence dismissed the
application with leave to the fresh
application restricting the claim to Rs 51 crore to which record is available[6].
E)
SECTION -8 INSOLVENCY RESOLUTION
BY OPERATIONAL CREDITOR:
(1)
An
operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved
in the default to the corporate debtor
in such form and manner as may be prescribed[7].
(2)
The
corporate debtor shall, within a period of ten days of the receipt of the
demand notice or copy of the invoice mentioned in sub-section (1) bring to the
notice of the operational creditor
a) existence
of a dispute, [if any, or] record of the pendency of the suit or arbitration
proceedings filed before the receipt of such notice or invoice in relation to
such dispute;
(b) the
[payment] of unpaid
operational debt
(i)
by sending
an attested copy of the record of electronic transfer
of the unpaid amount from the bank account
of the corporate debtor; or
(ii)
by
sending an attested copy of record that the operational creditor has encashed a
cheque issued by the corporate debtor.
Explanation: For the purposes of this section, a
"demand notice" means a notice served by an operational creditor to
the corporate debtor demanding [payment] of the operational debt in respect of
which the default has occurred.
F) SECTION- 9
INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS BY CORPORATE
APPLICANT.
(1)
Where a corporate debtor
has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency resolution process with the
Adjudicating Authority.
(2)
The
application under sub-section (1) shall
be filed in such form, containing such particulars and in such manner and
accompanied with such fee as may be prescribed.
1 [(3) The corporate
applicant shall, along with the application furnish
the information relating
to--
(a) its
books of account
and such other documents relating
to such period as may be specified; and
(b) the
resolution professional proposed
to be appointed as an interim resolution professional.
(c)
the
special resolution passed by shareholders of the corporate debtor or the
resolution passed by at least three-fourth of the total number
of partners of the corporate
debtor, as the case may be, approving filing of the application.]
(1)
The
Adjudicating Authority shall, within a period of fourteen days of the receipt
of the application, by an order-(a) admit the application, if it is complete; 2[and no disciplinary proceeding is pending against
the proposed resolution
professional]; or (b) reject the application, if it is incomplete: 2[or
any disciplinary proceeding is pending against the proposed resolution
professional:]
Provided that Adjudicating Authority
shall, before rejecting an application, give a
notice to the applicant to rectify the defects in his
application within seven days from the date of receipt of such notice from the
Adjudicating Authority[8].
(2)
The
corporate insolvency resolution process shall commence from the date of
admission of the application under sub-section (4) of this section.
LIQUIDATION PROCESS:
G)
SECTION -33. INITIATION OF
LIQUIDATION. —
(1) Where the Adjudicating Authority[9], —
(a) before the expiry of the insolvency resolution process period
or the maximum period permitted for completion of the corporate insolvency resolution process
under section 12 or the fast track
corporate insolvency resolution process under section
56, as the case may be, does not receive
a resolution plan under sub-section (6) of section 30; or
(b)
rejects the resolution plan under section
31 for the non-compliance of the requirements specified therein, it shall—
(i)
pass an order requiring
the corporate debtor
to be liquidated in the manner as laid down in this Chapter;
(ii)
issue a public announcement stating that the corporate debtor
is in liquidation; and
(iii)
require such order to be sent to the authority with which the corporate debtor
is registered.
(2)
Where the resolution professional, at any time during the corporate insolvency resolution process
but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision
of the committee of creditors 1[approved by not less than sixty-six
per cent. of the voting
share] to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order
as referred to in sub-clauses (i),
(ii) and (iii) of clause (b) of sub-section (1).
2[Explanation. —For the purposes
of this sub-section, it is hereby declared
that the committee of creditors may take the decision to liquidate the corporate debtor,
any time after its constitution under sub-section (1) of section 21 and before
the confirmation of the resolution plan, including at any time before the preparation of the
information memorandum.]
(3)
Where the resolution plan approved by the Adjudicating Authority 3[under section
31 or under sub-section (1) of section
54L,] is contravened by the concerned
corporate debtor, any person other than the corporate debtor, whose interests
are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order
as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
(4)
On receipt
of an application under sub-section (3), if the Adjudicating Authority determines that the
corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i),
(ii) and (iii) of clause (b) of sub-section (1).
(5)
Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding
shall be instituted by or against the corporate debtor:
Provided that
a suit or other legal proceeding may be instituted by the liquidator, on behalf
of the corporate debtor, with the
prior approval of the Adjudicating Authority.
(6)
The
provisions of sub-section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central
Government in consultation with any financial sector regulator.
(7)
The order
for liquidation under
this section shall be deemed
to be a notice of discharge to
the officers, employees and workmen of the corporate
debtor, except when the business
of the corporate debtor is continued during the liquidation process by
the liquidator.
NCLT
H)-NATIONAL COMPANY LAW TRIBUNAL:
"The
Central Government has constituted National Company Law Tribunal (NCLT) under
section 408 of the Companies Act,
2013 (18 of 2013) w.e.f. 01st June 2016. In the first phase the Ministry of
Corporate Affairs has set up eleven Benches, one Principal
Bench at New Delhi and ten other Benches at New Delhi, Ahmedabad, Allahabad,
Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. These
Benches are headed by the President Chief Justice (Retd.)
Ramalingam Sudhakar and comprises of sixteen Judicial Members and nine Technical
Members at different locations. Subsequently, more Benches at Cuttack, Jaipur,
Kochi, Amravati, and Indore have been setup and new members have joined"[10].
At present, Chief Justice
(Retd) Ramalingam Sudhakar, Hon'ble President
The National Company Law Tribunal (NCLT) is a quasi-judicial body in India
that adjudicates issues relating to Indian Companies The tribunal, established
under the Companies Act 2013was constituted on 1 June 2016 by the government of
India and is based on the recommendation of the V Balakrishna Eradi committee
on law relating to the insolvency and the winding up of companies.
All
proceedings under the Companies Act, including proceedings relating to
arbitration, compromise arrangements, reconstructions and winding up of
companies, are to be before the National Company Law Tribunal (NCLT). The NCLT
bench is chaired by a Judicial member, who is to be a serving or retired High
Court Judge, and a technical member, who must be from the Indian Corporate Law
Service (ICLS) cadre.
The National
Company Law Tribunal is the adjudicating authority for the insolvency
resolution process of companies and Limited Liability Partnership under the
Insolvency Bankruptcy Code 2016[11].
No criminal
court shall have jurisdiction to entertain any suit or proceeding in respect of
any matter which the Tribunal or the Appellate Tribunal
is empowered to determine by or under
this Act or any other law for the time being in force and no injunction
shall be granted by any court or other authority in respect of any action taken
or to be taken in pursuance of any power conferred by or under this Act or any
other law for the time being in force, by the Tribunal or the Appellate
Tribunal.
CONCLUSION:
The insolvency Bankruptcy code at its nascent
stage and still is evolving.
It has been navigating uncharted
waters for the past seven years. In this journey, many milestones have been achieved and a lot many
things to be earned. Failure of business of the firm has
various reasons but success takes a big flight and sets an example to others.
This code helping entrepreneurs to come out from imminent
danger and giving
safe landing. Factors, that is risk in business it with uncertainty.
This code helps creditors, stake holders, even corporate debtor to identify the
reason and comes out from danger. This code is time bound and helps
not only corporate debtor but it also takes care of all kind of creditors and
contributory of business firm. In compare to the previous recovery policies it
is much more effective and keep pace for further amendment to the code to have more effectiveness. Already this code
improved upon on recovery which resulted good flow of fund financial market
that positiveness of economy. This code by helping corporate body helping
society from unemployment. However, one of the excellence works is performing.
[1]
https://acrobat.abode.com/id/urn:aaidsc:AP:1eb3c7e0-4f9f-45fa-b741-ce146c849594
visited on03-092024
[2] Compendium on the Insolvency and Bankruptcy Code,2016
forwarded by Dr Navrang Saini Chairperson, IBBI 4th edition2022 Commercial Law
publisher (india ) Pvt. Ltd page no xxii.
[3] https://www.indiacode.nic.in/handle
visited on 05--2024
[4] Compendium on the Insolvency and
Bankruptcy Code,2016 forwarded by Dr Navrang Saini Chairperson, IBBI 4th
edition2022 Commercial Law publisher (india) Pvt. Ltd page no2.1.21
[5] Compendium on the Insolvency and Bankruptcy Code,2016
forwarded by Dr Navrang Saini Chairperson, IBBI 4th edition2022 Commercial Law
publisher (india) Pvt. Ltd page no2.1.40
[6] Compendium on the Insolvency and
Bankruptcy Code,2016 forwarded by Dr Navrang Saini Chairperson , IBBI 4th
edition2022 Commercial Law publisher (india ) Pvt. Ltd page no2.1.40
[7] Compendium on the Insolvency and Bankruptcy Code,2016
forwarded by Dr Navrang Saini Chairperson , IBBI 4th edition2022 Commercial Law
publisher (india ) Pvt. Ltd page no2.1.54
[8] Compendium on the Insolvency and
Bankruptcy Code,2016 forwarded by Dr Navrang Saini Chairperson , IBBI 4th
edition2022 Commercial Law publisher (india ) Pvt. Ltd page no2.1.57
[9] Compendium on the Insolvency and Bankruptcy Code,2016
forwarded by Dr Navrang Saini Chairperson , IBBI 4th edition2022 Commercial Law
publisher (india ) Pvt. Ltd page no2.1.165
[10] https://nclt.gov.in
visited on06-8-2024
[11] https://en.wickpedia.orgn/wiki/national
company tribunal visited06--92024
Article Information
INSOLVENCY BANKRUPTCY CODE 2016
Authors: SUBODH KUMAR SARKAR
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/09/16
- Issue 7
About Journal
International Journal for Legal Research and Analysis
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- ISSN 2582-6433
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