Insolvency and Bankruptcy Code, 2016 ( M.com)

The Insolvency and Bankruptcy Code, 2016

This article useful for M.com and Accounting students. ( Subject - Corporate Laws and Governance)

The key objectives and main features of Insolvenc and Bankruptcy Code (IBC), 2016.

Ans. Insolvency and Bankruptcy Code, 2016 had received assent President on 28.05.2016 and the Code was also notified in the Gazatte c India on 28.05.2016. Insolvency and Bankruptcy Code, 2016 is known popular as IBC, 2016. It extends to the whole of India but Part III of thi code shall not extend to the State of Jammu and Kashmir. Insolvency ane Bankruptcy Code (Amendment) Act, 2018 was passed by parliament in January 2018.

The Insolvency and Bankruptcy Code, 2016 consolidates and amends the laws relating to reorganisation and insolvency resolution of Corporate persons (excluding financial service providers), partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit_and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto

Vision of the Code: The vision of law 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 being bogged down with decisions taken in the past.

Extent and Commencement of the IBC

As per section 1 of the Insolvency and Bankruptcy Code, it extends to the whole of India except Part III (Insolvency Resolution and Bankruptcy for Individuals and Partnership Firm) which excludes the state of Jammu and Kashmir.

This Code came into an enforcement on 28th May 2016, however, the Central Government appointed different dates 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.

Applicability of the IBC

The provisions of the Code shall apply for insolvency, liquidation, voluntary liquidation or bankruptcy of the following entities:-

(a) Any company incorporated under the Companies Act, 2013 or under any previous law.

(b) Any other company governed by any special Act for the time being in force, except in so far as the said provision is inconsistent with the provisions of such Special Act.

(d) Any other body incorporated under any law for the time being in force, as the Central Government may by notification specify in this behalf.

(e) Partnership firms and individuals.

Exceptions: There is an exception to the applicability of the Code that it shall not apply to corporate persons who are regulated financial service providers like Banks, Financial Institutions and Insurance companies.

Structure of Code: There are 255 Section and 11 schedules in IBC, 2016. Moreover, IBC, 2016 has been divided in five parts as follows:

1. Part I There are only three Section in this part. This part deals with the preliminary discussion of IBC, 2016. Section I discuss the short title, extent and commencement. Section 2 discuss the applicability of the Code and section 3 discuss the important definitions related to IBC, 2016.

2. Part II: This part consists Section 4 to Section 77 and deals with insolvency resolutions and liquidation for corporate persons.

3. Part III: Part III having Section 78 to 187 and deals with provisions relating to insolvency resolution and bankruptcy for Individuals and Partnership Firms. The provisions of this Part III shall not applicable to the State of Jammu and Kashmir.

4 Part IV: This part contains the Sections 186 to 223 and deals with regulation of insolvency professionals, agencies and information utilities.

5 Part V: This part contains the Sections 224 to 255 and deals with the miscellaneous provisions.

Features of the Insolvency and Bankruptcy Code

The Insolvency and Bankruptcy Code, 2016 has following distinguishing features:-

(i) Comprehensive Law: Insolvency Code is a comprehensive law which envisages and regulates the process of insolvency and bankruptcy of all persons including corporates, partnerships, LLP's and individuals.

(ii) No Multiplicity of Laws: The Code has withered away the multiple laws covering the recovery of debts and insolvency and liquidation process and presents singular platform for all the reliefs relating to recovery of debts and insolvency.

(iii) Low Time Resolution: The Code provides a low time resolution and defines fixed time frames for insolvency resolution of companies and individuals. The process is mandated to be completed within 180 days, extendable to maximum of 90 days. Further, for a speedier process there is provision for fast-track resolution of corporate insolvency within 90 days. If insolvency cannot be resolved, the assets of the borrowers may be sold to repay creditors.

(iv) One Window Clearance: U has been, drafted to provide one window clearance to the applicant whereby he gets the appropriate relief at the shine authority unlike the earlier position of law where in case the company is not able to revive the procedure for winding up and liquidation has to be initiated under separate laws governed by separate authorities.

(v) One Chain of Authority: There is one chain of authority under the Code. It does not even allow the civil courts to interfere with the application pending before the adjudicating authority, thereby reducing the multiplicity of litigations. The National Company Law Tribunal (NCLT) will adjudicate insolvency resolution for companies. The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for individuals.

(vi) Priority to the interests of workman and employees: The Code also protects the interests of workman and employees. It excludes dues payable to workmen under provident fund, pension fund and gratuity fund from the debtor's assets during liquidation.

(vii) New Regulatory Authority: It provides for constitution of a new regulatory authority 'Insolvency and Bankruptcy Board of India' to regulate professionals, agencies and information utilities engaged in resolution of insolvencies of companies, partnership firms and individuals. The Board has already been established and started functioning.

Key Objectives of the IBC

The Insolvency and Bankruptcy Code, 2016 is intended to strike the right balance of interests of all stakeholders of the business enterprise so that the corporates and other business entities enjoy availability of credit and at the same time the creditor do not have to bear the losses on account of default. The purpose of enactment of the Insolvency and Bankruptcy Code, 2016 is as follows:

(i)To consolidate and amend the laws relating to re-organization and insolvency resolution of corporate persons, partnership firms and individuals.

(ii)To fix time periods for execution of the law in a time bound manner.

(iii) To maximise the value of assets of interested persons.

(iv) To promote entrepreneurship.

(To increase availability of credit.

(vi) To balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues.

(vii) To establish an Insolvency and Bankruptcy Board of India as a regulatory body for insolvency and bankruptcy

law.

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