The Insolvency and Bankruptcy Code (IBC) was passed as a bankruptcy law of India in 2016 which aims at consolidating the existing framework by formulating a single law for both insolvency and bankruptcy. Previously, Bankruptcy code was the only solution for resolving insolvencies which involved long procedures and was not economically viable. This code was implemented to safeguard the interests of small investors and further supplement the ease of doing business in India. By the end of the year, the Corporate Insolvency Resolution Process (CIRP) was integrated to the code.
What is the code about?
The IBC provides for separate insolvency resolution processes for individuals, partnership firms and companies. It can be initiated by either the creditors or the debtors. A maximum duration is set for the completion of the process for different participants.
For companies, the process needs to be completed within 180 days, with a maximum extension of 90 days if the creditors give their assent. For start-ups and other small companies, the process needs to be completed within 90 days, with a maximum extension of 45 days.
The Code has established the Insolvency and Bankruptcy Board of India to regulate and oversee the insolvency proceedings in the country. The proceedings are managed by licensed professionals. The Code also provides for adjudicators for the entities to report to in order to exercise the insolvency process:
- The National Company Law Tribunal (NCLT) for Companies and LLP’s.
- The Debt Recovery Tribunal for partnerships and individuals.
The bill was primarily introduced to resolve all banking issues in the present economy. However, issues like bad loans which has led to merging of banks is not answered by the bill. Thus, it cannot solve all the hustle, but it has stabilized the economy to a great extent.
Procedure for exercising the IBC:
