The Insolvency and Bankruptcy Code(IBC), 2015 was introduced in the Lok Sabha on 21 December 2015 by former Finance Minister, Late Mr. Arun Jaitely.
•The IBC was passed by parliament in May 2016 and became effective in December 2016.
The code Includes the best practices following around the world including USA & UK.
Section 243 of this Code repeals the Presidency Towns Insolvency Act,1909 and Provincial Insolvency Act, 1920.
•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 corporate and individuals. For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority (i.e. 75%) of the creditors agree.
For start ups (other than partnership firms), small companies and other companies (with asset less than Rs. 1 crore), resolution process would be completed within 90 days of initiation of request which may be extended by 45 days.
•The Insolvency and Bankruptcy Code (Amendment) Act, 2019 has increased the mandatory upper Time limit of 330 days including time spent in legal process to complete resolution process.
Bankrupt individuals would be barred from contesting elections.
Under new Law, a debtor could be jailed for up to five years for concealing property or defrauding creditors.
•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 RBI.
•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: (i) the National Company Law Tribunal for Companies and Limited Liability Partnership; and (ii) the Debt Recovery Tribunal for individuals and partnerships.
•Procedure •A plea for insolvency is submitted to the adjudicating authority (NCLT in case of corporate debtors) 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 (IRP) to draft a resolution plan within 180 days (extendable by 90 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, then liquidation process is initiated.