The Insolvency and Bankruptcy Code, 2016 (Code) aims to consolidate laws relating to liquidation and insolvency of corporate persons, partnership firms and individuals in India. The provisions of the Code aim to maximize the value of assets of such persons in order to promote entrepreneurship in the country and also increase the availability of capital and credit in the economy.
The Code has been passed by both the houses of
Parliament and received the President's assent on 28 May 2016. The
Code comes into force once a specific notification to that effect
is made in the official gazette. On 5 August 2016 and 19 August
2016, the Ministry of Corporate Affairs notified certain sections
of the Code
Scheme of the Code
The Code creates separate provisions for dealing with insolvency resolution in relation to: (a) corporate persons; and (b) individuals and partnership firms.
Insolvency resolution for corporate persons
The insolvency resolution process (IRP) includes steps,
which have to be followed once a creditor or a corporate debtor
(CD) initiates a resolution process in order to deal with the CD's
financial crisis. The Code provides a two-step process for a CD,
which are (i) corporate IRP and; (ii) liquidation
the NCLT, provided a resolution has been passed by at
least 75% of the members of the committee of the creditors. The
Code provides for the appointment of a resolution professional who
is responsible for not just preserving and protecting the assets
of the CD but also for formulating a resolution plan. Furthermore,
this resolution plan has to be approved by at least 75% of the
members of the creditor's committee. Thereafter, the resolution
plan needs to be approved by the NCLT.
Insolvency Resolution for individuals and partnership firms
In relation to individuals and partnership firms, the
Code is applicable where the minimum amount of default is
INR1,000. The Code offers individuals and partnership firms two
different mechanisms, which can be undertaken (i) fresh start
process; and (ii) IRP.
process by making an application to the Debt Recovery
Tribunal (DRT). The debtor is then required to formulate a
repayment plan subject to approval of the creditors. The repayment
plan is then submitted to the DRT for its approval. If the DRT
approves the repayment plan, it becomes binding on the debtors and
In addition to the DRT and the NCLT, the Code envisages
the constitution of the Insolvency and Bankruptcy Board of India
for the purpose of regulating the functioning of insolvency
professionals, insolvency professional agencies and information
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