DR Ambedkar IAS Academy

Insolvency and Bankruptcy Code

The Union Cabinet has approved the proposal to make amendments in the Insolvency and Bankruptcy Code (IBC), 2016, through the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019. The amendments aim to remove certain difficulties being faced during insolvency resolution process to realise the objects of the code and to further ease doing of business.

Insolvency and Bankruptcy Code, 2016

Insolvency and Bankruptcy Code, 2016 provides a time-bound process for resolving insolvency in companies and among individuals.

Insolvency is a situation where individuals or companies are unable to repay their outstanding debt.

Bankruptcy, on the other hand, is a situation whereby a court of competent jurisdiction has declared a person or other entity insolvent, having passed appropriate orders to resolve it and protect the rights of the creditors. It is a legal declaration of one’s inability to pay off debts.

The Government implemented the Insolvency and Bankruptcy Code (IBC) to consolidate all laws related to insolvency and bankruptcy and to tackle Non-Performing Assets (NPA), a problem that has been pulling the Indian economy down for years.

The Code is quite different from the earlier resolution systems as it shifts the responsibility to the creditor to initiate the insolvency resolution process against the corporate debtor.

The recently proposed amendments aim to remove bottlenecks, streamline the corporate insolvency resolution process, and protect the last mile funding in order to boost investment in financially distressed sectors.

Ring-fencing the companies resolved under the IBC from regulatory actions during past management can make the IBC process attractive for investors and acquirers.

Objectives of IBC

To consolidate and amend all existing insolvency laws in India.

To simplify and expedite the Insolvency and Bankruptcy Proceedings in India.

To protect the interest of creditors including stakeholders in a company.

To revive the company in a time-bound manner.

To promote entrepreneurship.

To get the necessary relief to the creditors and consequently increase the credit supply in the economy.

To work out a new and timely recovery procedure to be adopted by the banks, financial institutions or individuals.

To set up an Insolvency and Bankruptcy Board of India.

Maximization of the value of assets of corporate persons.

Salient features of the Insolvency and Bankruptcy Code, 2016

Covers all individuals, companies, Limited Liability Partnerships (LLPs) and partnership firms.

Adjudicating authority:

National Company Law Tribunal (NCLT) for companies and LLPs

Debt Recovery Tribunal (DRT) for individuals and partnership firms