Insolvency and Bankruptcy Code, 2016

The Insolvency and Bankruptcy Code, 2016
Parliament of India
An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, 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.
Citation Act No. 31 of 2016
Territorial extent India
Enacted by Lok Sabha
Date passed 5 May 2016
Enacted by Rajya Sabha
Date passed 11 May 2016
Date assented to 28 May 2016
Date commenced 28 May 2016
Legislative history
Bill introduced in the Lok Sabha The Insolvency and Bankruptcy Code, 2016
Bill citation Bill No. 349 of 2015
Bill published on 21 December 2015
Introduced by Arun Jaitley
Committee report Report of the Joint Committee
Date passed by conference committee 28 April 2016
Status: In force

The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha in December 2015. It was passed by Lok Sabha on 5 May 2016.[1] The Code received the assent of the President of India on 28 May 2016.[2] Certain provisions of the Act have come into force from 5 August and 19 August 2016.[3] The bankruptcy code is a one stop solution for resolving insolvencies which at present is a long process and does not offer an economically viable arrangement. A strong insolvency framework where the cost and the time incurred is minimised in attaining liquidation has been long overdue in India. The code will be able to protect the interests of small investors and make the process of doing business a less cumbersome process.[4]

History

The Insolvency and Bankruptcy Code, 2015 was introduced in the Lok Sabha on 21 December 2015 by Finance Minister, Arun Jaitley.[5] The Code was referred to a Joint Committee of Parliament on 23 December 2015, and recommended by the Committee on 28 April 2016.[6] The Code was passed by the Lok Sabha on 5 May 2016 and by the Rajya Sabha on 11 May 2016. The Code received assent from President Pranab Mukherjee on 28 May, and was notified in The Gazette of India on 28 May 2016.[7]

The Code was passed by parliament in May 2016 and became effective in December 2016.[8] It aimed to repeal the Presidency Towns Insolvency Act, 1909 and Sick Industrial Companies (Special Provisions) Repeal Act, 2003, among others.[9]

The first insolvency resolution order under this code was passed by National Company Law Tribunal (NCLT) in the case of Synergies-Dooray Automotive Ltd on 14 August 2017 and the second resolution plan was submitted in the case of Prowess International Private Limited represented by Advocate Akhilesh Kumar Shrivastava and Akash Sharma. The plea for insolvency was submitted by company on 23 January 2017. The resolution plan was submitted to NCLT within a period of 180 days as required by the code, and the approval for the same was received on 2 August 2017 from the tribunal. The final order was uploaded on 14 August 2017 on the NCLT website.[8]

Key Features

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 corporates and individuals. For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority 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.[10]

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 Reserve Bank of India.[9]

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.[9]

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 firms; 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 Insolvency 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 the liquidation process is initiated.[8][11]

Amendments

The Bill prohibits certain persons from submitting a resolution plan in case of defaults. These include: (i) wilful defaulters, (ii) promoters or management of the company if it has an outstanding non-performing debt for over a year, and (iii) disqualified directors, among others. Further, it bars the sale of property of a defaulter to such persons during liquidation.[12]

High-value cases

The Reserve Bank of India (RBI) referred following large Non-performing asset (NPA) accounts for resolution to NCLT:[13]

CompanyDebtDate of referral to NCLTReference
Essar Steel₹490 billion (US$6.8 billion)June 2017[13]
Bhushan Steel₹440 billion (US$6.1 billion)26 July 2017[14][13]
Electrosteel Steels₹130 billion (US$1.8 billion)July 2017[13]
Amtek Auto₹127.22 billion (US$1.8 billion)July 2017[13]
Bhushan Power & Steel₹492 billion (US$6.9 billion)June 2017[13]
Alok Industries₹290 billion (US$4.0 billion)June 2017[13]
Monnet Ispat₹102.37 billion (US$1.4 billion)June 2017[13]
Lanco Infra₹450 billion (US$6.3 billion)August 2017[13]

References

  1. ↑ "Lok Sabha passes bill to fast track debt recovery", The Economic Times, 2 August 2016
  2. ↑ "Insolvency and Bankruptcy Code" (PDF). Gazette of India. Retrieved 31 May 2016.
  3. ↑ "Notification" (PDF). E-Gazette. Gazette of India. Retrieved 22 August 2016.
  4. ↑ "The Bankruptcy Code for India – A step to ease 'Doing Business'?". Centre for Public Policy Research (CPPR). 2015-12-16. Retrieved 2017-12-07.
  5. ↑ "PRS | Bill Track | The Insolvency and Bankruptcy Code, 2015". www.prsindia.org. Retrieved 20 February 2018.
  6. ↑ "Joint Committee Report Summary" (PDF). PRS Legislative Research. Retrieved 20 February 2018.
  7. ↑ http://www.indiacode.nic.in/acts-in-pdf/2016/201631.pdf
  8. 1 2 3 "NCLT okays first insolvency resolution scheme under IBC", Live Mint, 16 August 2017
  9. 1 2 3 "Legislative Brief of the Code" (PDF). PRS India. Retrieved 18 August 2016.
  10. ↑ "India Overhauls Century-Old Bankruptcy Laws in Win for Modi", Bloomberg, 11 May 2016
  11. ↑ https://www.businesstoday.in/latest/trends/breaking-down-bankruptcy-what-are-the-steps-involved/story/271770.html
  12. ↑ "PRS | Bill Track | The Insolvency and Bankruptcy Code (Amendment) Bill, 2017". www.prsindia.org. Retrieved 20 February 2018.
  13. 1 2 3 4 5 6 7 8 9 "Why resolution of these 10 NPA accounts will be a crucial test for IBC", The Economic Times, 14 March 2018
  14. ↑ "L&T moves NCLT to be declared as secured creditor in Bhushan Steel insolvency", Live Mint, 8 March 2018
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