TOPIC – OVERVIEW OF OBJECT + PURPOSE

OF IBC CODE
CLASS- SYLLB SEM 4
DIVISION – A

ROLL NO- 23

SUBJECT- LAW RELATING TO INSOLVENCY

AND BANKRUPTCY
INTRODUCTION:
Insolvency and Bankruptcy Code 2016 was implemented through an act of Parliament. It got
Presidential assent in May 2016.

The Code was enacted in 2016 following a series of recommendations to revamp India’s
insolvency framework. It was hoped that it would provide a consolidated insolvency
framework that would give certainty of process, time and outcome to creditors, borrowers
and other market participants

The law was necessitated due to huge pile-up of non-performing loans of banks and delay in
debt resolution. The Insolvency and Bankruptcy Code, 2016 reconceptualised the framework
for insolvency resolution in India. Insolvency resolution in India took 4.3 years on an average
against other countries such as United Kingdom (1 year) and United States of America (1.5
years).

Until the Code came into force, lenders were exercising recovery proceedings through laws
such as the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, or
SARFESI Act 2002, SICA 1985 and also as per schemes of the RBI such as strategic debt
restructuring (SDR), corporate debt restructuring (CDR) and Scheme for Sustainable
Structuring of Stressed Assets (S4A). Earlier in the event of a default, the corporate debtor
was subject to the Board for Industrial and Financial Reconstruction (BIFR) / Appellate
Authority for Industrial and Financial Reconstruction (AAIFR) proceedings under the Sick
Industrial Companies Act (SICA) and or winding up proceeding under the Companies Act.
However, the procedure under the said laws were prolonged and seemingly never ending.

WHAT DOES THE IBC AIM TO DO?

IBC applies to companies, partnerships and individuals. It provides for a time-bound process
to resolve insolvency. When a default in repayment occurs, creditors gain control over
debtor’s assets and must take decisions to resolve insolvency. Under IBC debtor and creditor
both can start 'recovery' proceedings against each other.

It provides a mechanism for the insolvency resolution of debtors in a time bound manner to
enable maximisation of the value of their assets, with a view to promote entrepreneurship,
availability of credit and balance the interests of all the stakeholders. The Code separates
commercial aspects of insolvency and bankruptcy proceedings from judicial aspects and
empowers and facilitates the stakeholders and Adjudicating Authority to decide matters
within their respective domain expeditiously. It envisages a market mechanism to rescue
firms in financial distress and to facilitate closure of firms in economic distress, in
accordance with the processes under the Code and rules and regulations made.
OBJECTIVES OF THE CODE:
KEY OBJECTIVES OF THE CODE:
The sole intention of the Insolvency and Bankruptcy Code, 2016 is to provide a justified
balance between-

1. An interest of all the stakeholders of the company, so that they enjoy the availability
of credit.

2. The loss that a creditor might have to bear on account of default.

The objectives behind Insolvency and Bankruptcy Code, 2016 are listed
below:

1. To consolidate and amend the laws relating to re-organization and insolvency

resolution of corporate persons, partnership firms, and individuals.

2. To fix time periods for execution of the law in a time-bound settlement of insolvency
(i.e., 180 days).

3. To maximize the value of assets of interested persons.

4. To promote entrepreneurship.

5. To increase the availability of credit.

6. To balance all stakeholder’s interest (including alteration). Balance to be done in the

order of priority of payment of Government dues.

7. To establish an Insolvency and Bankruptcy Board of India as a regulatory body for

insolvency and bankruptcy law.

8. To establish higher levels of debt financing across a wide variety of debt instruments.

9. To provide painless revival mechanism for entities.

10. To deal with cross-border insolvency.

11. To resolve India’s bad debt problem by creating a database of defaulters.

FACILITATORS OF THE CODE:
Who facilitates the insolvency resolution under the Code?
The Code creates various institutions to facilitate resolution of insolvency.  These are as
follows:

 Insolvency Professionals: A specialised cadre of licensed professionals is proposed to

be created. These professionals will administer the resolution process, manage the
assets of the debtor, and provide information for creditors to assist them in decision
making.

 Insolvency Professional Agencies: The insolvency professionals will be registered

with insolvency professional agencies. The agencies conduct examinations to certify
the insolvency professionals and enforce a code of conduct for their performance.

 Information Utilities: Creditors will report financial information of the debt owed to
them by the debtor. Such information will include records of debt, liabilities and
defaults.

 Adjudicating authorities: The proceedings of the resolution process will be

adjudicated by the National Companies Law Tribunal (NCLT), for companies; and
the Debt Recovery Tribunal (DRT), for individuals. The duties of the authorities will
include approval to initiate the resolution process, appoint the insolvency
professional, and approve the final decision of creditors.

 Insolvency and Bankruptcy Board: The Board will regulate insolvency professionals,
insolvency professional agencies and information utilities set up under the Code.  The
Board will consist of representatives of Reserve Bank of India, and the Ministries of
Finance, Corporate Affairs and Law.

CASE STUDY:
In Shivam Water Treaters Pvt. Limited v. Union of India, the Supreme Court requested the
Gujarat High Court to refrain from entering the debate relating to the “validity of the
Insolvency and Bankruptcy Code, 2016 or the constitutional validity of the National
Company Law Tribunal.” However, it did not bar the petitioners from challenging the same
before the Supreme Court under Article 32.
CONCLUSION:
The Insolvency and Bankruptcy Code, 2016, in its brief history has created quite a shake-up
in the corporate sector. No doubt that the enactment of the Code has been well intentioned.
Due to the growing menace of loan defaults, it had long been felt to have some sort of
disciplined insolvency and bankruptcy legislation to address this loan default issue, the
problem which most of the banks are plagued with.

One of the primary objectives of an effective insolvency law is to provide a range of tools to
help enterprises address different stages of financial distress. In particular, an insolvency law
should aim to restructure viable businesses and facilitate the exit of non-viable businesses. It
has been an important legislative reform that has strengthened India’s insolvency regime,
helped address non-performing loans and increased overall recovery for creditors.

In a very short time, the IBC has made great strides in providing a predictable framework that
aims to provide timely, efficient and impartial resolution of viable businesses and a
transparent liquidation process, which recognizes existing creditor rights and respects the
priority of claims. It is hoped that this publication provides one additional piece of literature
in the insolvency and restructuring field that will aid stakeholders in ensuring that India’s
insolvency regime continues to achieve and surpass its objectives, assist in strengthening
India’s credit environment, and further entrepreneurship in the country

REFERENCES:
https://www.ibbi.gov.in/
https://ibclaw.in/
https://www.mondaq.com/india/insolvencybankruptcy
www.businesstoday.in
Law of Insolvency & Bankruptcy by Dr. S.R. Myneni