Insolvency and Bankruptcy Law: Expectations and Reality

Companies had started facing issues in India since there was no law on Insolvency and Bankruptcy in India. That is why 2 years ago a comprehensive law was introduced. The author talks about how this has not just met but has fulfilled the expectations and done well.

Two-three years ago, the Indian economy was suffering from bad debtors-creditors relations, continuous increased no. of stressed assets, higher no. of NAP’s due to which Banks were not able to give credit, insolvency process was blocked and no progress had to be seen in Country’s businesses. It was a terrible phase for the Indian economy and there were no effective laws to stop all this. To answer all these questions, the Central government of India came up with a uniform solution named Insolvency and Bankruptcy Code, 2016 and it started its operation effectively in December 2016.  Two years of Insolvency and Bankruptcy law has marked tremendous success and has been performed more than satisfactory. The proceedings started under this Code must be completed in 180 days from its commencement, speedy proceedings is what required by this law. Financial creditors like banks and Operation Creditors like goods suppliers can file an application to start Insolvency proceedings against Corporate Debtor after non-payment of debt amount on the issued demand notice by them. Corporate debtor can also file an application for voluntarily insolvency resolution. Default must be of 1,00,000 INR or more, due or payable. Committees of creditors have constituted in every resolution proceedings for decision making. After two years of success, this legislation had been amended for twice according to Indian market requirements and changing conditions of the Country’s economy.

Major amendments up to 2018

  1. According to Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, home buyers would be recognized by their status as financial creditors and could invoke Section 7 of the code (Insolvency and Bankruptcy Code, 2016). This would give their due representation in constituted committees of creditors and can participate in integral decision making process.
  •  Recognizing the importance of MSME Sector in terms of employment generation and economic growth, the Ordinance empowers the Government to provide them with a special dispensation under the Code.  The immediate benefit it provides is that, it does not disqualify the promoter to bid for his enterprise undergoing Corporate Insolvency Resolution Process (CIRP) provided he is not a willful defaulter and does not attract other disqualifications not related to default.  It also empowers the Central Government to allow further exemptions or modifications with respect to the MSME Sector, if required, in public interest.[1]
  • Ordinance of 2018 is strict for the withdrawn procedure of application once admitted in the Insolvency and Bankruptcy Code 2016. Withdrawal of application would be permissible only before publication of notice inviting Expression of Interest (EOI) and with the approval of Committees of Creditors with 90% of voting shares.
  • To encourage a speedy resolution, the Ordinance has relaxed voting threshold for certain decisions taken by the Committees of Creditors:
  1. Threshold for approval of a resolution plan, extension of CIRP beyond 180 days, appointment of the resolution professional, and certain other critical decisions has been reduced from 75% to 66% of the financial creditors by value.
  2. Threshold for approval of other routine decisions has been reduced from 75% to 51% of the financial creditors by value.[2]
  3. With the changing scenario and demands of Indian economy, Section 29A had been inserted in the Principle Act in Jan, 2018 in which disqualifications for Resolution Applicant has been given. The Ordinance of 2018 give relaxation to the eligibility criteria of Resolution Applicants in respect of Related Party Transaction shall not include a financial entity, minimum one year period given to the Resolution Applicant for settle their other statutory obligations imposed under other legislations and other. 

These amendments are much needed for the growth of Insolvency and bankruptcy law and all this would definitely help the legislation to achieve its goals and fulfill the purpose behind this enactment. These changes made the Code more clear and efficient.

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Impact of IBC on Indian Corporate Sector

Insolvency and Bankruptcy Code, 2016 has been done really well for the Indian Corporate Sector in these back 2 years and shall keep serving for all years ahead. The Code has great impact on the Indian Corporate Sector as especially on the mentality of the Cooperate debtors who were ready to pay their dues after just receive notice of demand by the Creditors because they know exactly that if they the proceedings have been initiated in IBC, they got stuck and lose control over their Company. After the enactment of this code, they cannot fool and misguide the creditors for long time otherwise they would lost their Company’ management at full. The efficient working of NCLT strengthens the importance of Code and their strict adherence of legislation could see in Orders and decisions taken by them. After RBI issue direction to the Banks to initiate the proceedings in IBC for stressed assets, Banks had start proceedings against big defaulters in respect of this banks recovered Approximately Rs 40,400 crores[3] against bad loans till the March 2018(Figure could be checked).

This has been a great step of the Central Government to resolve insolvency issues and the best way to protect businesses of the Country. In the last 2 years, NCLT disposed no. of proceedings started under Insolvency and Bankruptcy Law, and takeover of the management of companies and the Liquidation process in every insolvency proceedings has been done fair and impartial. There would be no interference of Government and politics in the proceedings have been started in front of NCLT. All the authorities work under Insolvency and Bankruptcy law is working efficiently and prudently for the success of this Code. They are not having the motive of debt recovery only but simultaneously work on the revival of businesses of the Country and they are doing this job quite well. The principle Code, as well as all the amendments and Ordinance, has been passed under this code till 2018 is a much-needed step for the revival of the Indian economy and surely will do good in the future.

Also read Incongruity between Creditors and Homebuyers under the Insolvency and Bankruptcy Code, 2016

[1][1]Press Information Bureau, President Approves Promulgation of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, Available at  Last visited on 13-01-2019 at 3:59 PM

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[3]Banks recover RS 40.,400 C from defaulters: RBI reports, available at Last visited on 14-01-2019 at 12:26 PM