DR.

SHAKUNTALA MISRA NATIONAL

REHABILITATION UNIVERSITY

LUCKNOW

ACADEMIC SESSION: 2021-2022

COMPANY LAW-II

TOPIC: THE INSOLVENCY & BANKRUPTCY

LAW IN INDIA

SUBMITTED BY SUBMITTED TO

ANVESHA CHATURVEDI MR. SHAIL SHAKYA

B.COM. LL.B.(HONS.) ASSOCIATE PROFESSOR

VI SEMESTER FACULTY OF LAW

ROLL NO. 194140013 DR. SHAKUNTALA MISRA

NATIONAL REHABILITATION
 UNIVERSITY LUCKNOW

ACKNOWLEDGEMENT

Although this project has been prepared by me, but this would not have been
possible without the efforts of some people because of which I have been able
to complete this project of mine. I would like to thank the All mighty because
this fact cannot be contradicted that without his blessings and support anything
is possible under the sky…
 TABLE OF CONTENTS

 Introduction
 The Insolvency and Bankruptcy Code,2016
 Objectives of the code
 The Corporate Insolvency Resolution Process
 Key Components of IBC in resolution Process
 Why IBC?
 Insolvency and Bankruptcy Code (Amendment Bill), 2021
 Conclusion
 Bibliography
Introduction

The era before Insolvency and Bankruptcy Code ("Code") in India had various disseminated
laws relating to insolvency and bankruptcy which caused inadequate and ineffective results
with undue delays, like for example, Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002, Companies Act, 1956 for liquidation and
winding up of the company, Recovery of Debts Due to Banks and Financial Institutions Act,
1993 for debt recovery by banks and financial institutions, Corporate Debt Restructuring, etc
under RBI guidelines. However, the Sick Industrial Companies (Special Provisions) Act,
1985's Board for Industrial and Financial Reconstruction, which was established with the
express intent of addressing industrial sickness, also fell short of its goal because defaulters
were shielded from lender recovery action. The Bankruptcy Law Reform Committee created
an insolvency and bankruptcy law since the aforementioned laws were implemented
ineffectively and took too long to complete. This prompted the enactment of the Code in
2016, which was viewed as a turning point for the Indian economy because it established a
contemporary framework to address the insolvency of both people and business entities.1

In accordance with the Code, the

Parliament created a procedure that would allow financial and other creditors of a company to
seek resolution of a company (corporate debtor) by hiring an independent professional
(resolution professionals) to take control of the company from the board of directors when the
company had failed to pay its debts and was still a going concern. To improve a broken
system, the Indian Insolvency and Bankruptcy Code (IBC) was passed. Prior to the law's
implementation, it took years to wind up a company, which frequently led to protracted
litigation.

The Insolvency and Bankruptcy Code,2016:

1
Rajani Associates, ‘India: India's Insolvency And Bankruptcy Code: Journey So Far, And The Way
Forward’ accessed at <https://www.mondaq.com/india/insolvencybankruptcy/1111534/india39s-
insolvency-and-bankruptcy-code-journey-so-far-and-the-way-forward>
In order to settle lawsuits involving insolvent enterprises, the Centre introduced the IBC in
2016. The bankruptcy code offers an all-in-one solution for resolving insolvencies, which
was previously a drawn-out process without an economically sensible answer. The code
intends to simplify corporate operations and safeguard the interests of small investors. There
are 255 sections and 11 schedules in the IBC. IBC was created with the intention of
addressing the bad loan issues plaguing the banking industry.

Debtors and creditors now interact differently as a result of the IBC

procedure. Major cases have been concluded in a number of instances over the past two
years, and others are currently nearing conclusion. It enables an insolvency resolution process
with a deadline. Creditors acquire ownership of the debtor's assets after a repayment default
and must make decisions to end the debtor's insolvency. Under IBC, both the debtor and the
creditor may initiate "recovery" proceedings. Under IBC, businesses must finish the full
insolvency process in 180 days. If the creditors do not voice their opposition to the extension,
the deadline may be extended. The entire insolvency process must be completed in 90 days
for smaller businesses, including start-ups, with an annual turnover of Rs 1 crore. The period
can be extended if necessary. For smaller enterprises, including start-ups, with an annual
revenue of Rs 1 crore, the full insolvency procedure must be completed in 90 days. If
necessary, the time frame may be extended.

Objectives of the code:

The following list outlines the 2016 Insolvency and Bankruptcy Code's goals:

1. Reorganisation and insolvency resolution legislation for corporations, partnership

firms, and private people are being consolidated and amended.
2. To establish deadlines for law's execution in a time-limited bankruptcy settlement (i.e.
180 days).
3. To increase the worth of interested parties' assets.
4. To encourage entrepreneurialism
5. To make credit more widely available.
6. To balance the interests of all stakeholders (including alteration). Balance to be
completed in the sequence of paying government obligations first.
7. Create an Indian Insolvency and Bankruptcy Board to oversee insolvency and
bankruptcy law.
8. To increase debt funding levels across a number of financial instruments.
 9. To provide a painless technique for revival for

The Corporate Insolvency Resolution Process:

The corporate insolvency resolution process is the core of the Insolvency and Bankruptcy
Code, 2016. Any person who is a financial creditor, operational creditor, or even a corporate
debtor can start this process by submitting an application to the NCLT on the default2 in
payment.

The NCLT either rejects or accepts the application within 14 days of such filing.
Once accepted, a moratorium is proclaimed and an interim resolution specialist is chosen by
NCLT. This expert notifies the public of the corporate debtor's default and gathers the claims
of different creditors. A Committee of Creditors is established following the successful
collection of all claims, and it chooses a Resolution Professional to oversee the resolution
procedure.

With all the data gathered, an information memo is produced that aids in the
development of a resolution strategy. The resolution plan is then given to the NCLT, which
either accepts it or rejects it, depending on whether it achieves the requisite 66 percent
agreement from the COC. If refused, the business or other entity falls into liquidation. If the
resolution plan is agreed, it is implemented, and if restructuring is feasible, NCLT shall pass
such an order. The CIRP time limit is 180 days from the date the application is approved by
the NCLT, however this can be extended by 90 days upon application to the adjudicating
authority.

Key Components of IBC in resolution Process:

Adjudicating Authority

For the purpose of deciding cases involving insolvency and bankruptcy, the NCLT and DRT
are special courts-created bodies. National Company Law Appellate Tribunal (NCLAT),
which hears appeals from NCLT, then the parties may appeal to the Supreme Court of India.
Similar to this, DRT appeals should be made to the Debt Recovery Appellate Tribunal before
going to the Indian Supreme Court. DRT and NCLT are two distinct tribunals. Companies
2
Insolvency and Bankruptcy Code, 2016 Sec. 3
and limited liability partnerships fall under NCLT, but sole proprietorships and partnerships
with unlimited liability fall under DRT.

Committee of Creditors

Section 21 of the 2016 Insolvency and Bankruptcy Code specifies the Committee of
Creditors (COC). Only monetary creditors make up COC. The COC's function in the
corporate insolvency resolution process is to accept or reject the resolution plan put forth by
the resolution professional (CIRP). In a COC meeting, 75% of the members must vote in
favour of the resolution plan in order for it to pass. Operational creditors are permitted to
attend committee of creditors meetings, but they are not allowed to vote.

Insolvency Professionals

There are two different kinds of insolvency experts: interim insolvency professionals and
insolvency professionals. Within seven days of the day the application was accepted by the
adjudicating authority, the adjudicating authority appoints interim insolvency professionals.
Insolvency professionals are appointed by the committee of creditors (COC) by a majority
vote of seventy-five percent at the COC's initial meeting. The COC may request that the
adjudicating body appoint new interim insolvency professionals if it is dissatisfied with the
current ones. The list is subsequently given to the Insolvency and Bankruptcy Board of India
(IBBI) for approval by the adjudicating body. The adjudicating authority instructs the interim
insolvency professionals to continue with the insolvency resolution procedure until the board
confirms the list of insolvency experts if the board does not react within 10 days.

Insolvency and Bankruptcy Board of India

On October 1st, 2016, the Insolvency and Bankruptcy Board of India (IBBI) was established
to oversee and address a variety of insolvency and bankruptcy cases that had been reported
by financial and operational creditors, including Indian banks and home buyers. The 2016
Insolvency and Bankruptcy Code governs the IBBI.

IBBI serves as the regulating authority for all, including information utilities, professional
insolvency agencies, and insolvency resolution processes. IBBI is in charge of approving the
list of resolution specialists. In accordance with the 2016 Insolvency and Bankruptcy Code, it
also enacts and enforces regulations to address corporate insolvency, corporate liquidation,
individual insolvency, and individual bankruptcy. IBBI participates in updating the code as
well.

Why IBC?

Insolvency regulations in India's previous legal structure were like a mosaic of

unfitting pieces. The Insolvency and Bankruptcy Code gave the country's insolvency and
bankruptcy legislation consistency and a single authoritative voice. Credit for this success
belongs to the code's rapid and simple insolvency resolution process, quick asset
reconstruction, and asset value maximising provisions. The Code's primary goal is to
establish a "creditor in control" method. The relationships between lenders and borrowers
have changed as a result of IBC.

According to the National Company Law Tribunal's economic survey:

The environment for insolvency and bankruptcy is being systematically developed with the
recovery and resolution of a sizable amount of distressed assets as well as a palpably better
business culture.3

The study claims that 28,2019,609 cases with a total value of Rs. 2.84 lakh
crores were withdrawn before the cases were admitted under the terms of the IBC, indicating
that debtors have been paying off their obligations before the application is accepted by the
NCLT. Fast-track insolvency resolution has accelerated the pace at which ill entities are
seeking remedies, which benefits the nation's economy by saving entities that can be saved
and easing the load on creditors. Because all insolvency and bankruptcy cases are now
handled by the tribunals established by the IBC, the workload of the civil courts has also
decreased since the Code's introduction.

Insolvency and Bankruptcy Code (Amendment Bill), 2021

The Bill is set to replace the Insolvency and Bankruptcy Code Amendment Ordinance 2021
promulgated in April 2021. It introduced an alternate insolvency resolution process for
Micro, Small and Medium Enterprises (MSMEs) with defaults up to Rs 1 crore called the
Pre-packaged Insolvency Resolution Process (PIRP). In March 2021 a sub-committee of the

3
Accessed at: <https://www.indiabudget.gov.in/budget2019-20/economicsurvey/doc/vol2chapter/
echap03_vol2.pdf>
Insolvency Law Committee (ILC) recommended a pre-pack framework within the basic
structure of the Insolvency and Bankruptcy Code (IBC), 2016.

Major Provision

 Under the new procedure, distressed corporate debtors (CDs) are allowed to start a
PIRP with the consent of two-thirds of their creditors in order to settle their
outstanding debt. (A corporate person who owes money to another person is said to be
a corporate debtor.)
 In the event that operational creditors are not fully paid their outstanding debts, the
PIRP also permits a Swiss challenge to the resolution plan provided by a CD. (Swiss
Challenge is a common way of bidding for public projects, which involves an
interested party starting the proposal for a project or the offer for a contract.)

About PIRP

 A pre-pack is when investors and secured creditors come to an agreement to settle the
debt of a struggling company as opposed to holding a formal auction.
 Pre-packs are primarily designed to give MSMEs the chance to restructure their debts
and start over while yet offering sufficient protections to prevent system abuse by
businesses trying to avoid paying creditors.
 Debtors continue to be in charge of their troubled company during the PIRP, unlike
the Corporate Insolvency Resolution Process (CIRP).
 Under the pre-pack procedure, financial creditors will reach an agreement with a
possible investor and ask the National Company Law Tribunal to approve the
resolution plan (NCLT).

Need of Pre-Packs

 A CIRP resolution takes time. Over 86 percent of the 1717 active insolvency
resolution processes have reached the 270-day mark as of the end of December 2020.
 According to the IBC, parties involved must finish the CIRP within 330 days of the
start of bankruptcy proceedings.
 Protracted legal battles between former promoters and prospective buyers are one of
the main causes of CIRP delays.
Conclusion

One of the government's reforms, the Insolvency and Bankruptcy Code, was created to make
doing business in India easier. It is well recognised that a strong credit system serves as the
cornerstone of any developing nation and that alleviating financial hardship is a crucial
component of the ecology of credit extension and recovery.4 which the Code maintains pretty
effectively. The benefit of IBC is that it not only allows for simple access and efficient
operation, but also for simple exit. One of the inevitable outcomes of operating a business is a
failure; nevertheless, before the Code was implemented, there was no simple way out of
insolvency, and the creditors, primarily banks, incurred a great loss. Now, the procedure is
more simple, faster, and more financially sound. The outdated, ineffective insolvency laws
have undoubtedly made progress thanks to the IBC.

4
Megha Mittal (ed.), IBC: Ushering in a new era (Vinod Kothari & Company, Kolkata, 2019).
 BIBLIOGRAPHY
Statutes

 The Insolvency and Bankruptcy Code, 2016.

Web References

 https://www.mondaq.com/india/insolvencybankruptcy/1111534/india39s-insolvency-
and-bankruptcy-code-journey-so-far-and-the-way-forward
 https://blog.ipleaders.in/all-need-know-about-insolvency-bankruptcy-code/
 https://www.legalserviceindia.com/legal/article-8139-importance-of-insolvency-and-
bankruptcy-code-2016.html
 https://www.drishtiias.com/daily-updates/daily-news-analysis/insolvency-and-
bankruptcy-code-amendment-bill-2021
 https://cleartax.in/s/insolvency-and-bankruptcy-code-2016