INSOLVENCY AND BANKRUPTCY CODE, 2016

1. Who all does IBC apply to?

- Section 2 of Insolvency and Bankruptcy Code, 2016 provides that IBC applies to
Companies incorporated under the Companies Act 2013, any other company governed
by a special act, Limited Liability Partnership, Partnership Firms, and individuals.

2. What class(s) of people can file an application under IBC for initiating insolvency
proceedings against a company? Under which section(s) can the
said application(s) be filed? What is the minimum amount of default for initiating
such proceedings.
- Section 6 provides that a Financial Creditor, Operational Creditor, and a Corporate
Debtor itself can file an application for initiating insolvency proceedings against a
corporate debtor when such a corporate debtor fails to pay a debt that has become due
and payable. This non-payment of debt can be in part or in whole or in the form of an
instalment of such a debt.
- A financial Creditor can file insolvency proceedings under Section 7, Operational
Creditor can file the application under Section 9 and corporate applicant can file an
application under Section 10 of the Code.
- The minimum amount of default for initiating such proceedings according to Section 4
is Rs.100000. However, the government vide notification dated 24th March, 2020 has
increased the amount to 1 crore rupees.

3. What is the time limit for completion of the entire process of insolvency resolution
of the corporate debtor under IBC?

- According to Section 12 the time limit for completion of the entire process of
insolvency resolution of the corporate debtor would be 180 days from the date of
admission of application of insolvency. A further one-time extension of 90 days can be
given if the proceedings do not complete within this time frame.
- However, the Amendment Act of 2019 added 2 proviso to Section 12(3) provides that
Corporate Insolvency Resolution Process (CIRP) of a Corporate Debtor (CD) must
conclude within 330 days from the insolvency commencement date. This period of 330
days includes (a) normal CIRP period of 180 days, (b) one-time extension, if any, up to
90 days of such CIRP period granted by the Adjudicating Authority, and (c) the time
taken in legal proceedings in relation to the CIRP of the Corporate Debtor. To simply
put, as per section 12(1) of the Code, the CIRP shall be completed within a period of
180 days from the date of admission of the application to initiate such process. The
Adjudicating Authority may grant a one-time extension of 90 days. Hence, presently
the maximum time within which CIRP has to be mandatorily completed, including
any extension or litigation period, is 330 days.
4. What are the adjudicating authority(s) under IBC and the appellate authorities?

- The adjudicating authority for matters pertaining to insolvency of individuals and

partnership firms shall be the Debt Recovery Tribunal according to Section 179 of
the Code. All appeals from the Debt Recovery Tribunal shall lie to the Debt Recovery
Appellate Tribunal within a period of thirty days under Section 181 of the Code.
Appeals from orders of a Debt Recovery Appellate Tribunal involving question of law
would lie to the Supreme Court within forty-five days from such an order under Section
182 of the code.
- The adjudicating authority for matters pertaining to insolvency and liquidation of
corporate persons shall be the National Company Law Tribunal (NCLT) under Section
60 of the code. According to Section 61, any person aggrieved by the order of the NCLT
can file an appeal within 30 days to National Company Law Appellate Tribunal.
Further, if the litigant is aggrieved by the order of NCLAT that pertains to a question
of law then he may file an appeal to the Supreme Court within forty-five days from
such order under Section 62 of the Code.

5. What is the general flow of corporate insolvency resolution process under Part II
of IBC?

- First of all an application is to be filed upon the non-payment of debt to the Adjudicating
Authority (NCLT) by a financial creditor under Section 7, Operational Creditor under
Section 9 and a corporate applicant under Section 10 of the code for initiation of
Corporate Insolvency Resolution Process (CIRP).
- The Financial creditor will file this application with evidence or record of default by
the corporate debtor under Section 7 of the code. The operational creditor will send a
notice of demand for the unpaid amount if default occurs on the part of the corporate
debtor. If the creditor does not receive the amount or notice of dispute within 10 days
of this notice, then he can file an application for initiation of the proceedings under
Section 8.
- The Adjudicating Authority within a period of 14 days from the receipt of such an
application will ascertain the existence of debt/default and admit or reject the
application.
- If admitted, a moratorium is declared prohibiting various acts by or against the debtor
(Sections 13-14 of the Code). It shall also appoint an interim resolution professional
(IRP) [Section 16 R/w Section 16(3)of the Code - in office till the Committee of
Creditors appoint a resolution professional under Section 22(2) of the Code], who
replaces the Board of Directors and takes over the administrative reins of the corporate
debtor (Section 17 of the Code).
- Interim Resolution Professional (IRP) will make a public announcement about the
CIRP in respect of the debtor concerned along with inviting submission of claims
against the said Corporate Debtor, and thereafter collect all claims submitted by various
creditors (under Section 15 of the Code);
- IRP will constitute a Committee of Creditors (Section 18(1)(c) and 21 of the Code)
consisting of all the financial creditors of the Corporate Debtor. IRP will monitor,
manage, take control and custody of the assets of the Corporate Debtor and manage its
operations as a going concern till the Committee of Creditors appoints a Resolution
Professional.
- Within 7 days of constitution, the Committee of Creditors by majority vote (not less
than 66% of voting share) are required to either confirm the interim resolution
professional as a "Resolution Professional" or appoint a fresh "Resolution Professional"
who then takes over the reins of the Corporate debtor from the interim resolution
professional and conduct the entire CIRP as well as manage the operations of the debtor
during such period;
- The resolution applicant, appointed by the Resolution Professional, prepares a
resolution plan (Section 25(2)(h) of the Code) - which covers the management of affairs
of the Corporate Debtor post approval of the resolution plan along with provision for
payment of insolvency resolution process costs in priority to other debts of the corporate
debtor as well as payment of debts of operational debtors (Section 30(2)(b) of the
Code);
- After approval by the Committee of Creditors, NCLT may either approve or reject the
Resolution plan, which shall be binding on the corporate debtor and its employees,
members, creditors, as well.

6. Difference in the distribution of proceeds when the company is wound up under

IBC vs under Companies Act.

In the event of liquidation, section 53 of IBC deals with waterfall mechanism, which
deviates from the Act in the priority order for distribution of assets. Firstly, the cost of
CIRP and liquidation gets the top position in the waterfall mechanism under the IBC,
while the Act places them at the bottom. Secondly, revenues and taxes payable to the
Government get the priority after payment of financial debts owed to unsecured
creditors. The Act gives them top position in the priority order. Thirdly, workmen’s
dues for 24 months are considered from the date of commencement of liquidation under
IBC, while the Act considers the date of winding-up order for computation of 2 years.
Thus, in the event of winding-up of a company for reasons other than voluntary
winding-up or by a creditor, waterfall mechanism specified in the Act would apply and
the mode shall determine the order of preference of claims of creditors, workmen,
government and shareholders.

7. What are the bankruptcy laws governing individuals presently?

Part III of the Act deals with the bankruptcy laws governing individuals presently.
Despite having robust provisions for resolution of personal insolvency, the IBC has only
been notified so far for corporate insolvency. In relation to personal insolvency, the IBC
provisions have only been operationalised for individuals who have given guarantees for
loans taken by corporations, and not for other individuals and business (operating as sole
proprietorships or partnership firms).