Introduction:
Insolvency and Bankruptcy code (hereinafter ‘code)’ is one mature step towards settling the legal position with respect to the financial failure and insolvency. The code made significant contribution for all the stakeholders including Government and various Regulators. Taking recourse of the Code, operational Creditor, Financial creditor and Corporate debtor can file application before the Adjudicating authority. The management of Insolvency procedure is to be done by licensed insolvency professionals. These professionals shall exercise control over the assets of debtor at the time of insolvency procedure.
Formation of the Code:
The idea to legislate the code generated from the report of “Bankruptcy Law reform committee” i.e. “Mr. T.K Vishwanathan committee”. Parliament derives its power to legislate this Code form “Entry 9 of List III” of the Constitution of India.
Insolvency and Bankruptcy code was introduced in Lower House of parliament on 21st December 2015. After that it referred to Joint committee. The Joint committee presented a modified Bill based on its recommendations. In May 2016 Both Houses of Parliament passed the Insolvency and Bankruptcy Code, 2016. The Code came into force on 28th May 2016.
What was before the Insolvency and Bankruptcy Code (IBC)?
There was no uniform law for restructuring before inception of the code. There were several overlapping provisions in existing laws. Multiple agencies were dealing with the debt and insolvency. The overlapping positions of applicable laws generally led to delay. Those overlapping laws were as under:
- The Companies Act, 2013.
- The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
- The Recovery of Debt due to Banks and Financial Institutions Act, 1993.
- Sick Industrial Companies (Special Provisions) Act, 1985.
- Provincial Insolvency Act, 1920.
- Presidency Town Insolvency Act, 1909.
Application of the Code:
The provisions of this Code apply to following entities:
- Company incorporated under the Companies Act, 2013 or under any previous law.
- Any other Company governed by any special Act for the time being in force.
- Partnership Firms and individuals.
- Limited Liability Partnership under LLP Act, 2008.
- Any other body corporate incorporated under any special law as specified by Central Government.
Exception:
The provisions of the Code does not apply to-
- Banks;
- Financial Institutions;
- Insurance Companies.
Intention behind the Code:
The sole intention behind the Code is provide balance between the loss of creditor and default. And also to justify interest of all stakeholders so that they can enjoy availability of the credit.
Key objectives of the Code:
- Establishment of Insolvency and Bankruptcy Board of India as regulated body for Insolvency and Bankruptcy Law.
- Consolidation and amendment of the laws related to relating to re-organization and insolvency resolution.
- Increment in availability of credit.
- Maximization of value of the assets of interested persons.
- Provision of fixed time frame for execution of law in time-bound manner.
- Balancing the order of priority of payment.
- Establishment of high level of debt financing across a wide variety of debt instruments.
Conclusion:
It is needless to say that the Code led a path for resolution of India’s Bed Debt problem by creating a database of defaulters. If change in management provides chances of viability of business entities, it can be done under the supervision of Adjudicating Authorities. This code proved to be successful in providing painless revival mechanism for the entities.
