India: Note on the Insolvency and Bankruptcy Code, 2016

Last Updated: 29 March 2017
Practice Guide by Dhir & Dhir Associates

The Central Government has, vide notification dated 28.11.2016, notified “The Sick Industrial Companies (Special Provisions) Repeal Act, 2003” w.e.f. 01.12.2016.  As a result, BIFR and AAIFR have been abolished and the Sick Industrial Companies (Special Provisions) Act 1985 (SICA) is repealed. Pursuant to the same, all proceedings or appeals of whatever nature pending before BIFR/ AAIFR have abated.

Consequent to the above, the application of Sec. 22(1) of SICA, which granted protection to the Sick Industrial Companies against initiation of any coercive recovery measures or winding-up, etc. has ceased to be in force.  However, any scheme of revival, which has already been sanctioned by the BIFR in the past and is under implementation, shall continue to be in force.

Further, the Central Govt. has, vide notification dated 30.11.2016, also notified the relevant Sections of the Insolvency and Bankruptcy Code, 2016 (IBC) relating to Insolvency Resolution for Corporate Persons w.e.f. 01.12.2016.   

Under IBC, any company which has committed any default for an amount of Rs. One Lakh or more to its financial or operational creditors, may prefer an application for initiation of Corporate Insolvency Resolution Process.  Even one or more financial or operational creditors of a company are also entitled to file an application before the NCLT for initiation of Corporate Insolvency Resolution Process in respect of their Corporate Debtor in case the default made by the Corporate Debtor is for an amount of Rs. One Lakh or more.  The companies, whose references are abated under SICA, may also file an application under the provisions of IBC before the NCLT within 180 days from 01.12.2016 for initiation of Corporate Insolvency Resolution Process.

This enactment (IBC) paves the way for the complete overhaul of the Insolvency and Bankruptcy mechanism in India, which hitherto was governed primarily through the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 and the Companies Act (for Corporate entities) and other enactments like Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI).

Although the code is applicable to Companies, Limited Liability Partnerships (jointly defined as Corporate Persons (CP) under the Code) and to other Partnership Firms and Individuals, but presently we have restricted ourselves in dealing with some of the salient features of the Code and the procedures involved for Insolvency Resolution/ Liquidation of Corporate Persons and the same are set out below:

Adjudicating Authority (AA): NCLT/NCLAT for Companies and LLPs & DRTs/DRATs for Individuals and Partnership Firms.

Insolvency Regulator: The Code established an Insolvency Regulator called as The Insolvency and Bankruptcy Board of India (the Board) to regulate the Insolvency Professionals (IPs), Insolvency Professional Agencies (IPAs) and Information Utilities (IUs) and powers to recommend the name of IRPs/ RPs for appointment in case the Adjudicating Authority makes a reference to the Board.

Insolvency Professionals (IP): A new class of professionals has been created under the Code, called as Insolvency Professionals to conduct the insolvency process and to manage the affairs of Corporate Debtor (CD) (the Corporate Peron i.e. the Distressed Borrower Company/LLP) during the Corporate Insolvency Resolution Process (CIRP).

Insolvency Professional Agencies (IPA): Insolvency professional agencies under the Code will develop professional standards, code of ethics and be first level regulator for IPs leading to development of a competitive industry for such professionals.

Information Utilities: (IUs):  The code proposes to set up information utilities which would collect, collate, authenticate and disseminate financial information from companies/LLPs/Partnership Firms/individuals and financial and operational creditors of such entities.

Initiation of Corporate Insolvency Resolution Process (CIRP): Any creditor (whether financial or operational) of the Corporate Debtor (CD) may initiate CIRP by filing an application to Adjudicating Authority (NCLT) for commencing the process of resolution (restructuring/revival) of the Corporate Debtor. The application for CIRP shall be filed by the Financial Creditors (FC) u/s 7; by the Operational Creditor (OC) u/s 9 and/or by the CD u/s 10.

Process for Insolvency Resolution:

  1. Post the fling of application for initiation of CIRP the AA (NCLT) shall, within a period of 14 days, take a decision on the admission of the same or reject the said application. The CIRP shall be deemed to have commenced from date of admission of the said application and the entire process has to be completed with 180 days (extendable by 90 days) from the date of admission of CIRP application.
  2. Upon commencement of the CIRP the AA (NCLT) shall, by an order, declare a moratorium till the completion of CIRP (maximum 180-270 days) prohibiting initiation of any suit or continuation of any suit or proceeding or execution of any judgment or decree against the CD (section 14(1)(a)), disposal or alienation, in any manner by the CD of its assets or legal rights or beneficial interest in them (section 14(1)(b)), any action u/s 13(4) of SARFAESI by the secured lenders (section 14(1)(c)), recovery of any property which is in possession of the CD, whether or not owned by CD (section 14(1)(d). However the declaration of moratorium shall not result in suspension or termination of essential goods or services to the CD (Section 14(2)).
  3. Within 14 days of commencement of CIRP, the AA (NCLT) shall appoint an Interim resolution professional (IRP), as proposed in the application for initiation of CIRP and also cause a public announcement of the initiation of CIRP and call for submission of claims by the creditors of CD (section 13). From the date of appointment of IRP, the management of affairs of CD shall vest in the IRP and the powers of Board of Directors / partners of the CP shall stand suspended.
  4. The IRP shall collate all the claims received against CD and constitute a Committee of Creditors (CC) comprising all the Financial Creditors of the CD (irrespective of them being differently secured).  As such, there is no concept of class of Creditors (1st Charge / 2nd Charge / unsecured) amongst the FCs. The CC shall within seven days of its constitution, with a super majority vote, resolve to appoint the Interim RP as the Resolution Professional (RP) or replace him with another RP to run the CIRP.
  5. The RP shall manage the affairs of the CD and also prepare an Information Memorandum (IM) about the CD in the prescribed manner for the formulation of resolution plans. Any person (called a Resolution Applicant) can file a Resolution Plan in response to the IM prepared and circulated by the RP. The Resolution Plans for the Corporate Debtor filed by various Resolution Applicants shall be examined by the RP and placed before the CC.
  6. A resolution plan, if approved by the CC (by 75% or more voting share of FC), shall be submitted by the RP to the AA (NCLT) for its approval. The AA (NCLT), after satisfying itself that the resolution plan as approved by CC is compliant with the requisites of section 30(4) of the Act (i.e. approved by 75% or more of the voting share of FC, provision for payment of dues to OC which is not lower than the amount which the OC would be eligible to get in the event of liquidation etc.) shall approve the plan (section 31(1)) or in case it does not satisfy the criteria then it may reject the said plan (section 31(2)). 

The Liquidation Process

  1. In case the resolution plan is rejected by the AA (NCLT) for non compliance with the requisites of section 30(4) or no plan is received within the stipulated time frame of 180 days or 270 days, the AA (NCLT) may pass orders for liquidation of the CD and issue a public announcement to that effect. (Section 33)
  2. The AA may also direct liquidation of CD in the event the RP communicates to the AA that even during the pendency of the CIRP, the CC has decided to liquidate the company, or on determination by the AA (on an application filed by any person) that the provisions of resolution plan have been contravened by the CD.
  3. Upon passing of order of liquidation of CD by the AA the RP shall act as Liquidator and shall receive and collect claims of creditors, verify them and accordingly accept or reject the same and run the liquidation process in accordance with the provisions of the IBC.

Distribution of assets in case of liquidation The Code also provides for priorities [waterfall] wherein the proceeds from the realization of assets of the CD are to be distributed to its creditors in case of liquidation. The priority as envisaged in the code is as follows:

  1. Insolvency Resolution Process costs and liquidation costs paid in full;
  2. the following debts which shall rank equally between and among the following:

    1. Workmen dues for the period of twenty-four months preceding the liquidation commencement date; and
    2. Debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52;
  3. wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date;
  4. financial debts owed to unsecured creditors;
  5. the following dues shall rank equally between and among the following:

    1. any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date;
    2. Debts owed to a secured creditor for any amount unpaid following the enforcement of security interest;
  6. any remaining debts and dues;
  7. preference shareholders, if any; and
  8. equity shareholders or partners, as the case may be.

Cross – Border Insolvency: The code also covers certain provisions related to cases of Cross-Border Insolvency which envisage that:

  1. The Central Govt. may enter into an agreement with the government of any country outside India for enforcing the provisions of insolvency code
  2. Application of provision of insolvency code in relation to assets or property of corporate debtor or debtor, including personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified.

As such, it may be noticed that the code is a comprehensive attempt to try to restructure/ revive a Company in a time bound manner of 180-270 days and if no such Corporate Restructuring Plan is approved or implemented within the stipulated time, then the Company would go into liquidation.  In case of liquidation of a Corporate Debtor, the Personal Guarantor can file for and be declared as Bankrupt before the NCLT itself [Section 60(2)].  He will, however, remain disqualified from being appointed / elected to certain offices (as per Section 140 of IBC) and will have certain restrictions (as per Section 141 of IBC), unless and until the bankruptcy order against him is modified or recalled or he is discharged. 

This article is for information purpose only. It is not intended to constitute, and should not be taken as legal advice, or a communication intended to solicit or establish commercial motives with any. The firm shall not have any obligations or liabilities towards any acts or omission of any reader(s) consequent to any information contained herein. The readers are advised to consult competent professionals in their own judgment before acting on the basis of any information provided hereby.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Contact the Author?
Click here to email the Author
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Other India Advice Centers
Arbitration, Litigation and Conciliation
More Advice Centers
Significant Recent Cases
Highlights of commercially relevant recent news and events.
Recent judgments and court decisions of interest.
Upcoming Events
Media from our most recent events and conferences.
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions