Insolvency and Bankruptcy Code, 2016

Insolvency and Bankruptcy Code
Spread the love for law

About the Author:

Parul Manral is a law student in Gautam Buddha University.

Introduction:

The Insolvency or Bankruptcy of the Company has been simplified with the introduction of the Insolvency and Bankruptcy Code, 2016 (hereinafter called as ‘Code’). Before this Code was passed the procedure for insolvency or Bankruptcy were intricate as it was regulated through various Acts, such as The Companies’ Act, 2013, the Securitisation and Reconstruction of Financial Assets, the Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI Act), 1993, etc.

The regulation through various laws created such distress among the company members or partnerships or firms as it could not generate timely resolution. But these scarcities lead to the creation of a collective mechanism for resolving the insolvency and bankruptcy of a Company, firm, partnerships, Limited Liability partnership, etc. The provisions of the code apply to all the situations relating to insolvency, liquidation, voluntary liquidation and bankruptcy.

Winding Up, Insolvency and Bankruptcy:

Winding up is the procedure before the dissolution of the company through which assets of the company are settled, liabilities are paid off and if the surplus is there, it is shared between the shareholders.

Insolvency, though is not defined anywhere in the Code, is when a company’s asset value becomes less than that of its liabilities to be paid. It means the company is in the phase of financial difficulties which might be curbed through solutions and doesn’t lead to bankruptcy.

Bankruptcy though is a different aspect, in which a legal declaration is made to the court when the company is no more capable to pay off its debts to the shareholders.

Objectives of the Code:

  • Unification of the laws relating to insolvency and bankruptcy;
  • To restrict the over-lapping of different laws;
  • Speedy disposal of cases as it makes the cases’ time-bound;
  • To establish an insolvency and bankruptcy board in India;
  • To deal with foreign insolvency problems;
  • To safeguard the interest of the stakeholders;

Key Features of the Code:

  1. Unified Code:

This Code has repealed all the previous laws relating to insolvency, bankruptcy or liquidation to provide for one single law regarding the same. It has helped in diminishing the overlapping of different laws regarding insolvency, bankruptcy or liquidation through such amendment and consolidation.

  • Limitation Mechanism:

This Code introduces the time limitation mechanism in matters relating to Insolvency resolution so that such matters can be disposed of speedily. The Code limits the insolvency resolution to be done within 180 days since the acceptance of the application for resolution.

  • Moratorium:

Moratorium means prohibition of any activity. In this case, under the Code no action can be taken against the company or assets of the company, i.e. it provides some protection during the Insolvency resolution period.

  • Adjudicating Authority:

The Code has created 2 authorities for any redressal of claims of Creditors or stakeholders, which are:

  • National Company Law Tribunal for the Companies or Limited liability Partnerships
  • Debt Recovery Tribunal for individuals and partnership firms.
  • Insolvency Regulatory Board:

The Code establishes the Insolvency and Bankruptcy Board of India (hereinafter referred to as ‘IBBI’) for the regulation of Insolvency and bankruptcy law.

  • Information Utilities:

This is the important, unique and new feature of this Code. Through this feature, information utilities are established as databanks to collect, collate and disseminate financial information. It helps in locating the defaulters and pointing the need for Insolvency Resolution Process at the earliest.

Pillars of the Code:

The Code in itself has five pillars or institutions for Insolvency and Bankruptcy:

  1. Insolvency Professionals:

The members, who are enrolled with Insolvency Professional Agencies and are further registered with the IBBI, act as the Insolvency Professionals. The professionals may act as liquidators in the liquidation process and also manage the insolvency resolution process (IRP). Moreover, during such liquidation and IRP, all the management of the company is vested with Insolvency Professional.

  • Insolvency Professional Agencies:

These agencies are registered with the IBBI and further enrol and regulate the Insolvency Professionals.

  • Information Utilities:

This is the unique and new feature of this Code. Through this feature, information utilities are established as databanks to collect, collate and disseminate financial information. It helps in locating the defaulters and pointing the need for Insolvency Resolution Process at the earliest.

  • Insolvency and Bankruptcy Board of India(IBBI):

The Board registers and regulates Insolvency Professionals, Insolvency Professional Agencies and Information Utilities while possessing the powers of their renewal, withdrawal and cancellation of such registrations.

  • Adjudicating Authorities:

The Code has created 2 authorities for any redressal of claims of Creditors or stakeholders, which are:

  1. National Company Law Tribunal:
  2. The Tribunal is the adjudicating authority in matters relating to companies or limited liability partnerships and enforcement of personal guarantees related to corporate debtors.
  3. The appeal against the decision of the Tribunal is filed in National Company Law Appellate Tribunal.
  4. Further, an appeal against the appellate tribunal’s decision will lie in Supreme Court.
  5. Debt Recovery Tribunal(DRT):
  6. DRT is the adjudicating authority in matters of Individuals and partnership firms.
  7. Any appeal against the decision of DRT will be filed with the Debt Recovery Appellate Tribunal.
  8. Any appeal against the decision of the Debt Recovery Appellate Tribunal will be filed with the Supreme Court.

Penal Provisions under the Code

There are many penal provisions provided under the Code in respect of the offences committed by the Insolvency Professionals or agencies, Bankrupt person or Company, Person on who resolution Process is binding, Creditors or Corporate Debtor or his officer.

Section 68, states the penalty over Corporate Debtor if he conceals any property, debt or any data entry related to any property at the time of commencement of insolvency proceedings, with an imprisonment of 3-5 years or fine 1 lac to 1 crore or both.

Section 69, states a penalty over the Corporate Debtor if during or after the commencement of insolvency, he enters into transactions defrauding the creditors or removing any part of the property with an imprisonment of 3-5 years or fine 1 lac to 1 crore or both.

Section 70(1), if the debtor, during or after the commencement of insolvency, doesn’t deliver or disclose any property or its part thereof, or any books or data to the resolution professional, shall be punished with imprisonment of 3-5 years or fine 1 lac to 1 crore or both.

Section 71, if during or after commencement of insolvency, the debtor mutilates, falsifies or destroys any accounts, books, papers or securities or makes or have knowledge of any fraudulent entry in the accounts to defraud anyone, shall be punished with an imprisonment of 3-5 years or fine 1 lac to 1 crore or both.

Section 72, if anyone makes any material or willful omission in any statement regarding any affairs of the corporate debtor shall be punished with an imprisonment of 3-5 years or fine 1 lac to 1 crore or both.

According to Section 70(2), if any insolvency professional intentionally contravenes the provisions of the Code, he shall be punished with an imprisonment of 6 months or a fine up to 5 lacs or both.

Section 74(2), when a creditor intentionally violates the moratorium or someone knowingly authorizes such act, shall be punished with an imprisonment of 1-5 years or fine of 1 lac-1 crore or both.

Section 186 deals with all the offences committed by any bankrupt and the penalties, therefore, differ with every sub-section.

Leave a Comment

Your email address will not be published. Required fields are marked *