Insolvency and Bankruptcy Code, 2016


The Insolvency and Bankruptcy Code, 2016 is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha in December 2015. It was passed by Lok Sabha on 5 May 2016 and by Rajya Sabha on 11 May 2016. The Code received the assent of the President of India on 28 May 2016. Certain provisions of the Act have come into force from 5 August and 19 August 2016. The bankruptcy code is a one stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement. The code aims to protect the interests of small investors and make the process of doing business less cumbersome.
The IBC has 255 sections and 11 Schedules.

History

The Insolvency and Bankruptcy Code, 2015 was introduced in the Lok Sabha on 21 December 2015 by former Finance Minister, Late Arun Jaitley. The Code was referred to a Joint Committee of Parliament on 23 December 2015, and recommended by the Committee on 28 April 2016. The Code was passed by the Lok Sabha and the Rajya Sabha on 5 May and 11 May 2016 respectively. Subsequently, it received assent from President Pranab Mukherjee and was notified in The Gazette of India on 28 May 2016.
The Code was passed by parliament in May 2016 and became effective in December 2016. Section 243 of this Code repeals the Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920.
The first insolvency resolution order under this code was passed by National Company Law Tribunal in the case of Synergies-Dooray Automotive Ltd on 14 August 2017 and the second resolution plan was submitted in the case of Prowess International Private Limited. The plea for insolvency was submitted by company on 23 January 2017. The resolution plan was submitted to NCLT within a period of 180 days as required by the code, and the approval for the same was received on 2 August 2017 from the tribunal. The final order was uploaded on 14 August 2017 on the NCLT website.

Key features

Insolvency Resolution : The Code outlines separate insolvency resolution processes for individuals, companies and partnership firms. The process may be initiated by either the debtor or the creditors. A maximum time limit, for completion of the insolvency resolution process, has been set for corporates and individuals. For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority of the creditors agree. For start ups, small companies and other companies, resolution process would be completed within 90 days of initiation of request which may be extended by 45 days.
The Insolvency and Bankruptcy Code Act, 2019 has increased the mandatory upper Time limit of 330 days including time spent in legal process to complete resolution process.
Insolvency regulator: The Code establishes the Insolvency and Bankruptcy Board of India, to oversee the insolvency proceedings in the country and regulate the entities registered under it. The Board will have 10 members, including representatives from the Ministries of Finance and Law, and the Reserve Bank of India.
Insolvency professionals: The insolvency process will be managed by licensed professionals. These professionals will also control the assets of the debtor during the insolvency process.
Bankruptcy and Insolvency Adjudicator: The Code proposes two separate tribunals to oversee the process of insolvency resolution, for individuals and companies: the National Company Law Tribunal for Companies and Limited Liability Partnership firms; and the Debt Recovery Tribunal for individuals and partnerships.

Procedure

A plea for insolvency is submitted to the adjudicating authority by financial or operation creditors or the corporate debtor itself. The maximum time allowed to either accept or reject the plea is 14 days. If the plea is accepted, the tribunal has to appoint an Interim Resolution Professional to draft a resolution plan within 180 days. following which the Corporate Insolvency Resolution process is initiated by the court. For the said period, the board of directors of the company stands suspended, and the promoters do not have a say in the management of the company. The IRP, if required, can seek the support of the company's management for day-to-day operations. If the CIRP fails in reviving the company the liquidation process is initiated.
Is the Insolvency and Bankruptcy Code a remedy to all Banking issues?
Insolvency and bankruptcy code bill was introduced in the Indian parliament by the NDA government in 2015 but got final clearance in May 2016 parliament session. It was believed that this bill will resolve all the banking issues present in the economy. The main reason to introduce this bill was to fasten up the long insolvency process which it did. After this bill, the insolvency process for the company is 180 days with an extension of 90 days, and for startups and small companies, it is 90 days with an extension of 45 days. The question is will it resolve all banking issues and my answer is no, as our country's banking industry is going through a very difficult phase, many banks are merging up due to bad loans and all this hustle can't be simplified with this bill only as IBC will resolve the claiming process only for those bad debts that are disclosed but the main issue is undisclosed bad loans or bad loans that get disclose after the victim run away. And there are many incidents in past years in which creditors flew away from the country after being unable to pay off the loan that they took. But still IBC improved the economic system and changes can be seen, the economy is more stabilized after IBC and we need more policies like IBC and PCA to resolve all the banking issues present in the Indian economy.

Amendments made by the Insolvency and Bankruptcy Code, 2016 to other Acts

The First Schedule amends the Indian Partnership Act, 1932.
The Second Schedule amends the Central Excise Act, 1944.
The Third Schedule amends the Income-tax Act, 1961.
The Fourth Schedule amends the Customs Act, 1962.
The Fifth Schedule amends the Recovery of Debts due to Banks and Financial Institutions Act, 1993.
The Sixth Schedule amends the Finance Act, 1994.
The Seventh Schedule amends the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
The Eighth Schedule amends the Sick Industrial Companies Repeal Act, 2003.
The Ninth Schedule amends the Payment and Settlement Systems Act, 2007.
The Tenth Schedule amends the Limited Liability Partnership Act, 2008.
The Eleventh Schedule amends the Companies Act, 2013.

Amendments to the Insolvency and Bankruptcy Code

The Act prohibits certain persons from submitting a resolution plan in case of defaults. These include: wilful defaulters, promoters or management of the company if it has an outstanding non-performing debt for over a year, and disqualified directors, among others. Further, it bars the sale of property of a defaulter to such persons during liquidation.
CompanyDebtDate of referral to NCLTDate of ResolutionRecovery AmountNotesReference
Essar SteelJune 2017Dec 2019SC delivered its final verdict and cleared way for Arcelor Mittal India and Nippon Steel Japan to form a joint venture to complete the takeover by end of Dec 2019.
Bhushan Steel26 July 2017May 2018Tata Steel, through its wholly owned subsidiary Bamnipal Steel Ltd, has acquired 72.65 per cent controlling stake in Bhushan Steel Ltd for around Rs 36,400 crore. The company was selected as the highest bidder in March 2018 to buy a controlling stake in Bhushan Steel, as part of bankruptcy proceedings.
ElectrosteelJuly 2017Acquired by Vedanta India Ltd.
Amtek AutoJuly 2017July 2020NCLT approved a bid by US-based hedge fund Deccan Value Investors LP.
Lenders agreed to a 80% haircut and the amount is payable over next seven years.
Bhushan Power & SteelJune 2017Committee of Creditors cleared way for JSW Steel Ltd takeover, but the process is halted after ED uncovered fraud in financial dealings of the company by previous promoters.
Alok IndustriesJune 2017March 2019Joint bid by Reliance Industries Limited and JM Financial Asset Reconstruction Co was approved by NCLT Ahmedabad last year.
Lanco InfraAugust 2017Ordered for liquidation.
Jet AirwaysJune 2019Synergy Group & Prudent ARC have submitted EoI but neither of them have submitted bids. Bidding date most likely to be extended.
Reliance CommunicationsJune 2019Jan 2020Reliance Jio will get the tower and fiber assets of Reliance Infratel Ltd for Rs 4,700 crore, UV Asset Reconstruction Co Ltd will get assets of RCom and Reliance Telecom for Rs 14,000 crore.
Dewan Housing Finance LtdNov 29, 2019First financial company to be referred to NCLT under IBC by RBI.