Cameron Miranda
India's Insolvency and Bankruptcy Code (IBC) was established in 2016 to address the country's fragmented and contradictory corporate insolvency laws. The IBC provides a consolidated framework for insolvency and bankruptcy proceedings, aiming to streamline the process and reduce delays. It establishes separate tribunals for individuals and companies, with specific time limits for completion. The IBC has been well-received by banks and creditors, and the Indian government has been proactive in implementing amendments to address emerging issues. The Insolvency and Bankruptcy Board of India (IBBI) was also established as the regulator to proactively respond to changes. This legislation seeks to transform the insolvency and bankruptcy landscape in India, and its impact on the trajectory of insolvency cases in the country is being closely monitored.
| Characteristics | Values |
|---|---|
| Name of the law | Insolvency and Bankruptcy Code (IBC) |
| Year | 2016 |
| Purpose | To create a consolidated framework for insolvency and bankruptcy proceedings for companies, partnership firms, and individuals |
| Previous legislative framework | Fragmented across multiple legislations, including the Companies Act 2013, the Sick Industrial Companies (Special Provisions) Act, 1985, and others |
| Tribunals | Two separate tribunals to oversee the process of insolvency resolution: the National Company Law Tribunal for Companies and Limited Liability Partnership firms, and the Debt Recovery Tribunal for individuals and partnerships |
| Time limit for Corporate Insolvency Resolution Process (CIRP) | 180 days, which can be extended by 90 days if the majority of creditors agree |
| Maximum time limit for completion of insolvency resolution process | 330 days, including any extension or litigation period |
| Regulator | Insolvency and Bankruptcy Board of India (IBBI) |
| Recent developments | Introduction of the pre-packaged insolvency resolution process (PPIRP) in 2021, which has a maximum duration of 120 days |
| Impact | Prompted the repayment of USD 14.2 billion in outstanding loans in the two years after its introduction; surge in the approval of resolution plans under the IBC in FY23-24, with 269 plans approved compared to 189 in 2023 |
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What You'll Learn
Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016 (IBC) is an Indian law that consolidates the framework governing insolvency and bankruptcy proceedings for companies, partnership firms, and individuals. The IBC was established to bring about a cultural transformation in the insolvency and bankruptcy landscape by creating a comprehensive code.
Prior to the IBC, the legislative framework for insolvency and restructuring in India was fragmented across multiple legislations, such as the Companies Act 2013, the Sick Industrial Companies (Special Provisions) Act, 1985, and the Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI Act) of 1993. To address this issue, the Ministry of Finance created the Bankruptcy Legislative Reforms Committee (BLRC) on 22 August 2014. Headed by T. K. Viswanathan, the committee was tasked with drafting a new bankruptcy law. The committee submitted its report, along with a draft bill, on 4 November 2015.
A modified version of the draft bill, incorporating public comments, was introduced in the Sixteenth Lok Sabha by Finance Minister Arun Jaitley as the Insolvency and Bankruptcy Code, 2015. The bill was tabled on 23 December 2015 and referred to a Joint Parliamentary Committee (JPC) for detailed analysis. The JPC submitted a new draft of the bill on 28 April 2016. The bill was passed by the Lok Sabha on 5 May 2016 and by the Rajya Sabha on 11 May 2016. It subsequently received assent from President Pranab Mukherjee and was notified in The Gazette of India on 28 May 2016.
The IBC establishes two separate tribunals to oversee the insolvency resolution process for individuals and companies: the National Company Law Tribunal for Companies and Limited Liability Partnership firms, and the Debt Recovery Tribunal for individuals and partnerships. The Code also outlines separate insolvency resolution processes for individuals, companies, and partnership firms, with a maximum time limit for completion. For companies, the process must be completed within 180 days, extendable to 270 days with creditor agreement. For startups and small companies, the resolution process is completed within 90 days, extendable to 135 days. The Insolvency and Bankruptcy Board of India (IBBI) is established as the regulator, overseeing insolvency proceedings and regulating registered entities.
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Insolvency resolution processes
The Insolvency and Bankruptcy Code, 2016 (IBC) is an Indian law that consolidates the legislative framework for insolvency and bankruptcy proceedings for companies, partnership firms, and individuals. The IBC establishes two separate tribunals for overseeing the insolvency resolution process for these entities: the National Company Law Tribunal (NCLT) for companies and limited liability partnerships, and the Debt Recovery Tribunal for individuals and partnerships.
The Corporate Insolvency Resolution Process (CIRP) is a key component of the IBC, with a mandated time frame of 180 days for completion, extendable by 90 days with creditor agreement. The CIRP process begins with the admission of an application for insolvency proceedings, followed by a public announcement and a call for claims submission. An Interim Resolution Professional (IRP) is appointed to manage the process, and a moratorium is declared to bar litigation and restrict the debtor's ability to dispose of assets. The CIRP concludes with either a resolution plan approved by the Adjudicating Authority (AA) or a liquidation order.
The IBC has introduced significant changes to India's insolvency landscape, aiming for efficiency and the preservation of businesses. It has established the Insolvency and Bankruptcy Board of India (IBBI) as the regulator, enabling proactive responses to changing realities. The IBBI's implementation has prompted swift debt repayments and an increase in approved resolution plans. However, the IBC has also undergone frequent amendments to address emerging issues, and its full operationalisation remains pending.
In 2021, the Indian government introduced the pre-packaged insolvency resolution process (PPIRP), modelled after the UK's pre-packaged administrations. The PPIRP is available for specific debtor types and has a maximum duration of 120 days, with creditor control and oversight by a resolution professional. This addition further enhances the efficiency of India's insolvency resolution framework.
The IBC's impact is evident in the surge of approved resolution plans, with 269 plans approved in 2024 compared to 189 in 2023. The average realisation in CIRP cases has been 41%, while PPIRP cases have yielded an average of 25%. These developments indicate that India's insolvency cases are progressing towards the intended goals of efficiency, business preservation, and higher creditor recovery.
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Bankruptcy and Insolvency Adjudicator
The Insolvency and Bankruptcy Code, 2016 (IBC) is an Indian law that establishes a unified framework for insolvency and bankruptcy proceedings involving companies, partnerships, and individuals. The IBC has introduced significant changes to the previously fragmented legislative landscape of insolvency and restructuring in India.
The IBC proposes two distinct tribunals to oversee the insolvency resolution process for individuals and companies:
- National Company Law Tribunal (NCLT): This tribunal is responsible for overseeing insolvency resolution for companies and limited liability partnership firms.
- Debt Recovery Tribunal: This tribunal handles insolvency cases involving individuals and partnerships.
The IBC sets specific time limits for the Corporate Insolvency Resolution Process (CIRP). The entire CIRP must be completed within 180 days from the acceptance of the application. If a majority of creditors agree, this deadline can be extended by 90 days for companies and 45 days for startups, small companies, and other companies with assets worth less than Rs. 1 crore. The IBC also mandates that the CIRP, including any extensions or litigation, must conclude within 330 days. However, the Supreme Court has ruled that this upper limit is not absolute and can be extended by the Adjudicating Authority or Appellate Tribunal in certain cases.
The Adjudicating Authority plays a crucial role in the insolvency process. Once an application for insolvency proceedings is submitted, the Adjudicating Authority has 14 days to decide on its acceptance. If the application is approved, the following steps are taken:
- A moratorium is declared, preventing any legal action against the corporate debtor and prohibiting the debtor from transferring or selling their assets.
- A public announcement of the CIRP process is made, calling for the submission of claims from creditors.
- An Interim Resolution Professional (IRP) is appointed to manage the insolvency process and control the debtor's assets.
The Insolvency and Bankruptcy Board of India (IBBI) is the regulator established by the IBC to oversee insolvency proceedings and regulate registered entities. The IBBI comprises 10 members, including representatives from the Ministries of Finance and Law and the Reserve Bank of India. The IBBI proactively responds to evolving insolvency issues and works closely with the government to implement legislative changes and address concerns.
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Insolvency cases and liquidation
The Insolvency and Bankruptcy Code, 2016 (IBC) is an Indian law that establishes a unified framework for insolvency and bankruptcy proceedings involving companies, partnerships, and individuals. The IBC has introduced significant changes to the insolvency and bankruptcy landscape in India, aiming to streamline and modernise the process.
The IBC outlines distinct insolvency resolution processes for individuals, companies, and partnership firms, with the National Company Law Tribunal (NCLT) serving as the Adjudicating Authority (AA) for corporate insolvency resolution and liquidation. The Code stipulates that the Corporate Insolvency Resolution Process (CIRP) should be completed within 180 days, with a possible extension of 90 days if creditors agree. The entire process, including any litigation, must conclude within 330 days, although the Supreme Court has ruled that this upper limit may be exceeded in certain cases.
The insolvency process can be initiated by either the debtor or the creditors. Once an application is accepted, the AA declares a moratorium, makes a public announcement, and appoints an Interim Resolution Professional (IRP). The moratorium ensures that the CIRP is the sole mechanism for settling claims and prevents any litigation against the corporate debtor during the process. It also restricts the debtor's ability to dispose of their assets.
If a resolution plan is not approved under Section 31(1), the AA will pass a liquidation order under Section 33, marking the end of the CIRP. The Insolvency and Bankruptcy Board of India (IBBI), established under the IBC, acts as the regulator and proactively addresses issues that arise during the implementation of the legislation.
The IBC has been subject to frequent amendments to clarify and enhance its effectiveness. Notable cases under Indian insolvency law include Innoventive Industries Ltd. v. ICICI Bank and Anr., Consolidated Construction Consortium v. Hitro Energy Solutions Pvt Ltd., and Gurmeet Sodhi v. Union of India, which challenged the constitutional validity of provisions related to individual insolvency. The IBC also addresses cross-border insolvency matters, with ongoing efforts to provide a comprehensive framework based on the UNCITRAL Model Law on Cross-Border Insolvency 1997.
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Insolvency and Bankruptcy Board of India
The Insolvency and Bankruptcy Board of India (IBBI) was established under the Insolvency and Bankruptcy Code, 2016 (IBC) on 1 October 2016. The IBBI is the regulator for overseeing insolvency proceedings and entities like Insolvency Professional Agencies (IPA), Insolvency Professionals (IP), and Information Utilities (IU) in India. It is responsible for the implementation of the IBC, which amends and consolidates the laws relating to insolvency resolution for individuals, partnership firms, and corporate entities in a time-bound manner.
The IBBI Governing Board consists of a Chairperson and other members nominated by the Central Government. The Chairperson and members should be persons of integrity, ability, and standing, with expertise in relevant fields such as finance, law, accountancy, economics, or administration. The term of office for the Chairperson and members is five years or until they reach sixty-five years of age, whichever is earlier, and they are eligible for reappointment.
The IBBI's key functions include regulating professionals and processes in insolvency and bankruptcy proceedings. It enforces rules for corporate insolvency resolution, individual insolvency resolution, corporate liquidation, and individual bankruptcy under the IBC. The Board can exercise the powers vested in a civil court under the Civil Procedure Code, 1908, while trying suits and conducting disciplinary proceedings.
Additionally, the IBBI is responsible for carrying out inspections, investigations, performance monitoring, and auditing the functioning of IPAs, IPs, and IUs. It can call for records and information from these entities and publish research, data, and other specified information. The Board also specifies regulations for storing and collecting data by IUs and provides access to such data. It maintains and collects records and disseminates information related to bankruptcy and insolvency cases.
The IBBI also promotes best practices and transparency in Board governance and constitutes committees as required, including those mandated under Section 197 of the IBC. Overall, the IBBI plays a crucial role in streamlining and regulating insolvency and bankruptcy proceedings in India, ensuring timely resolution and providing a comprehensive framework for all stakeholders involved.
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Frequently asked questions
Insolvency law in India is governed by the Insolvency and Bankruptcy Code, 2016 (IBC). It creates a consolidated framework for insolvency and bankruptcy proceedings for companies, partnership firms, and individuals.
The IBC proposes two separate tribunals to oversee the insolvency resolution process: the National Company Law Tribunal for companies and limited liability partnerships, and the Debt Recovery Tribunal for individuals and partnerships. The IBC also sets out time limits for the completion of the insolvency resolution process, with a maximum of 180 days for companies (extendable to 330 days) and 90 days for startups and small companies (extendable to 135 days).
The IBC was enacted to address issues with India's previous corporate insolvency laws, which were fragmented and contradictory, leading to delays in insolvency cases and frequent liquidations. The IBC aims to improve the efficiency of the insolvency process and facilitate the preservation of businesses and higher recovery rates for creditors.
