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The Insolvency and Bankruptcy Code, 2016: Problems & Challenges

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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-5, 2017
ISSN: 2454-1362, http://www.onlinejournal.in
The Insolvency and Bankruptcy Code,
2016: Problems & Challenges
Shivam Goel
Introduction:
A person is said to have become “insolvent” when
he becomes incapable of recompensing his debts in
the ordinary course of business, or he becomes
incapable of disbursing his debts as they become
due, whether or not, he has committed an act of
insolvency.i However, a debtor who does certain
acts, tending to defeat or delay his creditors, may
be adjudged bankrupt, and so be made liable to the
bankruptcy laws.ii
There is no single umbrella legislation in India that
governs the insolvency and bankruptcy
proceedings. There is a slew of legislation
governing the legal framework albeit insolvency
and bankruptcy in India, namely: The Companies
Act, 2013; The Sick Industrial Companies (Special
Provisions) Act, 1985; The Recovery of Debts Due
to Banks and Financial Institutions Act, 1993; The
Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act,
2002 (Amendment Bill of 2016 has already been
passed by the Lok Sabha on 01.08.2016 and by the
Rajya Sabha on 09.08.2016); The Presidency
Towns Insolvency Act, 1909; and The Provincial
Insolvency Act, 1920.
For individual insolvency and bankruptcy, the law
had been legislated under the Presidency Towns
Insolvency Act, 1909 and the Provincial Insolvency
Act, 1920. The High Courts had the jurisdiction
over insolvency related matters in the former
presidency towns of: Bombay, Madras &
Calcutta.iii Subordinate courts were to hear cases
related to individual bankruptcy in all other areas
except for the presidency towns, with the District
Court being the court of appeal.iv
So far as corporate insolvency and bankruptcy is
concerned, the Companies Act, 1956 & the
Companies Act, 2013 along with the Sick Industrial
Companies (Special Provisions) Act, 1985 dealt
with the restructuring of distressed “industrial
firms”. Under the provisions of the Sick Industrial
Companies (Special Provisions) Act, 1985, the
Board of Industrial and Financial Reconstruction
(BIFR) assessed the viability of the industrial
company, and referred to the High Court unviable
companies for liquidation. Although the Sick
Imperial Journal of Interdisciplinary Research (IJIR)
Industrial Companies (Special Provisions) Act,
1985 stands repealed, and, the repealing enactment
was notified by the Central Government on
25.11.2016. The provisions of the Sick Industrial
Companies (Special Provisions) Repeal Act, 2003
came into force on 01.12.2016.
If the loan which is granted by a bank to a debtor is
backed by security, then, the Recovery of Debts
due to Banks and Financial Institutions Act, 1993
bestows the banks and the financial institutions
with greater power to recover the same by
disposing of the collaterals when default in
repayment of the loan is committed by the debtor.
The 1993 Act provides for the establishment of the
Debt Recovery Tribunals (DRTs) to enforce
recovery of debts by these institutions. The Debt
Recovery Appellate Tribunal (DRAT) is the
appellate forum which entertains appeals from the
Debt Recovery Tribunal (DRT). Moreover, the
Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act,
2002 (SARFAESI) enables the secured creditors
(usually, the Banks) to take possession of the
collaterals without requiring involvement of a court
or tribunal.
Broadly, the bankruptcy reforms in India from
1981 to 2013 can be encapsulated as under:
In the year 1981, regards being had to the Tiwari
Committee (Department of Company Affairs), the
Sick Industrial Companies Act, 1985 came to fore.
Thereafter, in the year 1991, regards being had to
the Narasimham Committee I (Reserve Bank of
India), the Recovery of Debts due to Banks and
Financial Institutions Act, 1993 came to fore.
Similarly, in the year 1998, regards being had to
the Narasimham Committee II (Reserve Bank of
India), the advent of the Securitization and
Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 was
witnessed. In the year 1999, Justice Eradi
Committee (Government of India) proposed the
repealment of the Sick Industrial Companies Act,
1985 and this led to the enactment of the
Companies (Amendment) Act, 2002. Later, in the
year 2001, L.N. Mitra Committee (RBI) proposed a
comprehensive bankruptcy code. In the year 2005,
Irani Committee (RBI) came up with the
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Vol-3, Issue-5, 2017
ISSN: 2454-1362, http://www.onlinejournal.in
Enforcement of Securities Interest and Recovery of
Debts Bill, 2011 and proposed amendments to the
Recovery of Debts due to Banks and Financial
Institutions Act, 1993 and the Securitization and
Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002. In the
year 2008, Raghuram Ranjan Committee
(Planning Commission) proposed certain steps
which could result in improvement of the credit
infrastructure of the country. Lastly, in the year
2013, the Financial Sector Reforms Commission
(Ministry of Finance) came up with the draft of the
Indian Financial Code which in fact provided for a
corporate-resolution-mechanism for resolving
financial problems of the distressed firms.
Wind of Change:
In the wake of the following ground realities,
namely: (a) India being ranked 130 out of 189
countries so far as Ease of Doing Business (2015)
is concerned; (b) India being ranked 136 out of 189
countries so far as Resolving Insolvency (2015) is
concerned; (c) The Presidency Towns Insolvency
Act, 1909 and the Provincial Insolvency Act, 1920
being archaic, with the former (the 1909 Act) being
about a century old legislation; and (d) Corporate
bad-debts constituting about 56% of the total bad-
debts of the Nationalized Banks; it was as late as
in November, 2015 (precisely, 04.11.2015) that the
BLRC (Bankruptcy Law Reforms Committee),
Chaired by the Former Secretary General, Lok
Sabha and Former Union Law Secretary, Mr. T.K.
Viswanathan submitted the final report prepared by
the BLRC, which recommended the passage of the
Insolvency and Bankruptcy Code, 2015.
The Insolvency and Bankruptcy Code was
introduced in the Lok Sabha on December 21,
2015.v A reference was made to the Standing
Committee, which gave its report on April 28,
2016. The Insolvency and Bankruptcy Code was
passed by the Lok Sabha on May 05, 2016, and by
the Rajya Sabha on May 11, 2016. The Insolvency
and Bankruptcy Code received the assent of the
President of India on May 28, 2016.
The Long Title of the 2016 Code states as under:
“A Code to consolidate and amend the laws
relating to reorganisation and insolvency
resolution of corporate persons, partnership firms
and individuals in a time bound manner, for
maximization of the value of assets of such
persons, to promote entrepreneurship, availability
of credit and balancing the interest of stakeholders
including alteration in the order of priority of
payment of Government dues and to establish an
Insolvency and Bankruptcy Board of India, and
Imperial Journal of Interdisciplinary Research (IJIR)
for matters connected therewith or incidental
thereto.”
The 2016 Code focuses on the following two main
objectives, namely, first- equal, expeditious and
economic distribution of assets of the debtor, and
second- liberation of the person from the demands
of the creditor.
Structure of the 2016 Code:
The 2016 Code comprises of 255 Sections, divided
into Five (5) Parts- Part I deals with the
preliminary aspects of the Code, comprising of one
chapter and Sections 1 to 3; Part II deals with the
corporate insolvency resolution process,
comprising of seven chapters and Sections 4 to 77;
Part III deals with the insolvency resolution and
bankruptcy for individuals and partnership firms,
comprising of seven chapters and Sections 78 to
187; Part IV deals with the regulation of
insolvency professionals, insolvency resolution
professional agencies and information utilities,
comprising of seven chapters and Sections 188 to
223; and Part V deals with miscellaneous
provisions, running from Sections 224 to 255
(Sections 245 to 255 enable amendments in other
statutes such as the Companies Act, 2013).
The Insolvency and Bankruptcy Code, 2016
comprises of 11 Schedules, which provide for
amendments to be carried out in following statutes:
the Indian Partnership Act, 1932 (First Schedule
annexed to the 2016 Code); the Central Excise Act,
1944 (Second Schedule annexed to the 2016
Code); the Income Tax Act, 1961 (Third Schedule
annexed to the 2016 Code); the Customs Act, 1962
(Fourth Schedule annexed to the 2016 Code); the
Recovery of Debts due to Banks and Financial
Institutions Act, 1993 (Fifth Schedule annexed to
the 2016 Code); the Finance Act, 1994 (Sixth
Schedule annexed to the 2016 Code); the
Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act,
2002 (Seventh Schedule annexed to the 2016
Code); the Sick Industrial Companies (Special
Provisions) Repeal Act, 2003 (Eighth Schedule
annexed to the 2016 Code); the Payment and
Settlement Systems Act, 2007 (Ninth Schedule
annexed to the 2016 Code); the Limited Liability
Partnership Act, 2008 (Tenth Schedule annexed to
the 2016 Code); and the Companies Act, 2013
(Eleventh Schedule annexed to the 2016 Code); so
that all provisions as contained in the Insolvency
and Bankruptcy Code, 2016 can be brought to
effect in a comprehensively manner.
It is pertinent to note that vide notification dated
05.08.2016 (S.O. 2618 [E]) Sections 188 to 194
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Vol-3, Issue-5, 2017
ISSN: 2454-1362, http://www.onlinejournal.in
under Chapter I of Part IV of the 2016 Code have
been brought into effect, similarly, vide notification
dated 19.08.2016 (S.O. 2746 [E]) Sections under
Chapter VII of Part IV and Sections under Part V
of the 2016 Code have been brought into effect.
Insolvency and Bankruptcy Board of India has
been constituted and Sh. M.S. Sahoo has been
appointed as the Chairperson of the Insolvency and
Bankruptcy Board of India vide notification dated
01.10.2016 (S.O. 3110 [E] & S.O. 3111 [E]).
Moreover, vide notification dated 01.11.2016
Sections under Chapter II, Chapter VII of Part IV
and Sections under Part V have been brought into
effect. Also, vide notification dated 15.11.2016
(S.O. 3453 [E]) Sections under Chapter III,
Chapter IV, Chapter VI of Part IV and Sections
under Part V have been brought into effect.
Notification dated 30.11.2016 (S.O. 3594 [E])
marked the commencement of Sections related to
corporate insolvency, further, notification dated
09.12.2016 (S.O. 3687 [E]) marked the
commencement of Sections 33 to 54 (both
inclusive) under the 2016 Code, and, notification
dated 30.03.2017 (S.O. 1005 [E]) marked the
commencement of Sections dealing voluntary
liquidation and information utilities under the 2016
Code.
There are four prime pillars upon which the 2016
Code rests itself; these are: Insolvency
Professionalsvi; Information Utilities vii;
viii
Adjudicating Authorities ; and Insolvency and
Bankruptcy Board of Indiaix.
The Insolvency and Bankruptcy Code, 2016-
Key Aspects:
(a) The 2016 Code proposes a paradigm shift from
the existing regime of ‘Debtor-in-Possession’ to
‘Creditor-in-Control’; (b) The 2016 Code aims at
consolidating all the existing insolvency related
laws as well as amending multiple legislation
including the Companies Act, 2013 (See: The 11
Schedules annexed with the 2016 Code); moreover,
the 2016 Code by virtue of Section 238 of the Code
has an overriding effect on all other laws relating to
insolvency and bankruptcy; (c). Part II of the 2016
Code deals with insolvency resolution and
liquidation of corporate entities, with most of the
work concerning the insolvency
resolution/liquidation been dealt with by the
registered insolvency professionals under the
supervision of the NCLT. Once the corporate
insolvency process is initiated, the insolvency
professional will be required to form a Committee
of Creditors, and with their consensus efforts will
be made to bring forth a plan to revive the
corporate entity; (d) The corporate insolvency
resolution process is to last for 180 days with
Imperial Journal of Interdisciplinary Research (IJIR)
further maximum period of extendable time of 90
days more, whereby efforts will be made to evolve
a resolution plan to revive the ailing entity,
however, if the efforts fail, the corporate person
will be liquidated in time-bound manner. A ‘Fast
Track Corporate Insolvency Resolution’ will be
available to small corporate entities; (e) As far as
the corporate insolvency resolution process is
concerned the NCLT is the adjudicating authority
and NCLAT is the appellate authority; (f) Part III
of the 2016 Code deals with insolvency resolution
process and liquidation proceedings qua the
individuals and the firms. There are two distinct
processes, namely, fresh start and insolvency
resolution, for the individuals and the firms; these
processes are followed by the ‘bankruptcy order’. It
is the DRT which will be the adjudicating authority
and DRAT which will be the appellate authority for
the individuals and the firms so far as insolvency
resolution and liquidation proceedings are
concerned; (g) The mechanism of ‘fresh start’ is
applicable only to those individuals whose income
is below Rs. 60,000/- per annum and the debt
amount does not exceed Rs. 35,000/-. Here the
insolvency resolution will be handled by
insolvency professional with the DRT having a
supervisory role; (h) The 2016 Code is not
applicable to the corporate entities in the financial
sector such as the Asset Reconstruction
Companies; (i) Section 196(1) (f) of the 2016 Code
empowers the Insolvency & Bankruptcy Board of
India to carry out inspections and investigations on
insolvency professional agencies, insolvency
professionals and information utilities and
thereafter pass such orders as may be required for
compliance of the provisions of the 2016 Code and
regulations issued there under. Further, Section
196(3) of the 2016 Code states that the Insolvency
& Bankruptcy Board of India shall have the same
powers as are vested in a civil court under the Code
of Civil Procedure, 1908 while trying a suit in
respect of: discovery and production of books of
accounts at such place and such time as may be
specified by the Board; summoning and enforcing
the attendance of persons and examining them on
oath; inspection of books, registers and other
documents of any person at any place; and lastly,
issuing commissions for the examination of
witnesses or documents; (j) Adjudicating authority
for corporate persons so far as insolvency
resolution is concerned is NCLT, while the
appellate authority is NCLAT. Against the orders
of NCLAT an appeal can be preferred to the
Supreme Court of India within 45 days of the
receipt of the impugned order, Section 62 of the
2016 Code is very clear on this aspect. By virtue of
Section 63 of the 2016 Code, the jurisdiction of the
civil court is expressly barred; (k) Adjudicating
authority for individuals and firms so far as
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insolvency resolution is concerned is DRT, while USD; Brazil- 20 Cents per USD; and China- 35
the appellate authority is DRAT. Against the orders Cents per USD.
of DRAT an appeal can be preferred to the
Supreme Court of India within 45 days of the As of April, 2016, approximately 72,841 cases
receipt of the impugned order, Section 182 of the were pending in the country’s 33 Debt Recovery
2016 Code is very clear on this aspect. By virtue of Tribunals. In 2014-15, the 33 DRTs in the country
Section 180 of the 2016 Code, the jurisdiction of disposed of cumulatively 14,033 cases involving
the civil court is expressly barred. Rs. 5,826.47 crore.xi In 2014-15, the Company Law
Board (CLB) had 13,090 cases for adjudication
Ground Reality- India & the World: Insolvency (inclusive of 7,269 fresh cases); CLB disposed of
& Bankruptcy: 8,925 cases, with 4,165 cases still pending as on
March, 2015.xii At the end of June, 2015, the gross
The average time taken in the U.S. to complete the non-performing assets of Indian banks were Rs. 3.3
insolvency proceedings is 1.5 years; in India it is lakh crore (or 4.49% of total advances).
4.3 years.x A summation of four indices i.e.
Commencement of Proceedings Index; Predicaments as regards the 2016 Code:
Management of Debtor’s Assets Index;
Reorganisation Proceedings Index; and Creditor 1. The SARFAESI Act, under Section 17,
Participation Index, is testimony to the fact that, empowers debtors to file an appeal against
India lags behind most of the nations so far as time any action taken by creditors with the
and effort to carry out insolvency proceedings are Debt Recovery Tribunal; and the Debt
concerned. Following is a comparative analysis, Recovery Tribunal is required to decide
based on the information provided by the World such applications within 4 months. There
Bank: is not a single case till date, according to
Mr. Vivek Kumar Singh- President of
Indicat Recov Average Average *Streng DRT Bar Association (Delhi) that has
ors ery duration cost (% th of been decided within a span of 4 months by
Rate of of insolve the DRT.xiii To expect that the 2016 Code
(Cents insolven estate) ncy will turn around things in a way that will
per cy of framew make insolvency resolution a smooth and
USD) proceedi insolven ork time-effective stroll to recovery or
ngs cy index liquidation is too much to expect.
(years) proceedi 2. The minimum single default for triggering
ngs the insolvency proceedings is merely a
India 25.7 4.3 9 6 sum of Rs. 100,000/-. This can be a
(Mum menace, especially under a corporate
bai) regime, as any employee for non-payment
South 31.8 2.6 10.1 4.5 or late payment of salary (temporary
Asia turbulence in company’s cash-flows) or
OECD 72.3 1.7 9 12.1 any small vendor for unexpected non-
Countr payment of dues, will be in a position to
ies trigger insolvency proceedings although
*Sum of four indices- Commencement of the default is miniscule due to temporary
Proceedings Index; Management of Debtor’s disturbance in cash-flows. In the U.S.,
Assets Index; Reorganisation Proceedings Index; three or more creditors can start
and Creditor Participation Index. Source: World insolvency proceedings against a company
Bank if the company owes them more than USD
12,300 (approximately Rs. 800,000/- as
According to World Bank (2015), average time per the current exchange rate). However,
taken to complete insolvency related proceedings in in India the 2016 Code sets the minimum
some of the other countries around the world is as threshold as low as of Rs. 100,000/-.
follows: Japan- 6 months (approximately); United 3. According to some experts, there isn’t any
Kingdom- 1 year; Russia- 2 years; Brazil- 4 years; significant evidence that confirms that,
and China- 1.5 years (approximately). Also, as stowing entire faith in creditors will
against India’s recovery rate of 25.7 Cents per accelerate the recovery process or will
Dollar (that is, approximately 26% of debt value), improve the chances of efficient
recovery rate in some other economies of the world restructuring; that is, by axing the equity-
is as follows: Japan- 90 Cents per USD; United holders from the entire decision making
Kingdom- 85 Cents per USD; Russia- 40 Cents per process will eventually result them to be

Imperial Journal of Interdisciplinary Research (IJIR) Page 1727

Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-5, 2017
ISSN: 2454-1362, http://www.onlinejournal.in
more apprehensive and less supportive of
viable insolvency resolution mechanism.
4. The Insolvency and Bankruptcy Code,
2016 is applicable to both corporate and
non-corporate persons. According to
Section 6 of the Code, where any
corporate debtor commits a default, then-
financial creditor, operational creditor or
the corporate debtor by itself, can initiate
the “corporate insolvency resolution
process” in respect of such corporate
debtor. According to the 2016 Code, any
creditor: financialxiv or operationalxv, will
be able to start the insolvency resolution
process by giving the proof of default. If
the adjudicating-agency, that is, the
National Company Law Tribunal or the
Debt Recovery Tribunal, gives a clean-go-
signal, then, the entity will be taken over
by the ‘Committee of Creditors’ and
‘Insolvency Professionals’. The applicant
creditor will prepare a resolution plan and
will submit it to the Insolvency Resolution
Professional. The plan will then have to be
approved by 75% of the creditors (by
value) in the Committee of Creditors
(operational creditors will not be the part
of the committee). There is no certainty
that 75% of the creditors will agree to the
resolution plan. Thus, as it will not be easy
to get 75% creditors on board, much
likely, the resolution/revival plan will be
in doldrums and there will be eventual rise
of litigation. Necessarily, as the
operational creditors are denied seat in the
Committee of Creditors as per the 2016
Code, thus, the NCLT while reviewing the
resolution plan will have to ensure that the
operational creditors are treated fairly.
5. The insolvency resolution mechanism has
to be completed within 180 days of the
takeover by the insolvency professionals;
though in some cases 90 additional days
can be provided. If the plan provides for
action to ensure the “continuation of
corporate debtors as a going concern”, and
the same is accepted by the adjudicating
agency, the debtor shall survive, provided
it complies with its provisions. If the
revival plan is rejected, then the entity will
go into liquidation. There is no time limit
specified for the liquidation process.
6. Under the U.S. Chapter 11 insolvency
resolution process, the resolution plan is
initially proposed by the ailing company
itself; in the U.S., the law gives the debtor
120 days to file a revival plan. This period
of 120 days can be increased or reduced
by the court, but in no case can this period
Imperial Journal of Interdisciplinary Research (IJIR)
exceed 18 months (that is, 1.5 years). If
the debtor fails to file a revival plan,
within this stipulated period, the task is
undertaken by the Committee of Creditors.
Taking this into account, with much
deliberation it can be said that the period
of 180 days/ 270 days provided for by the
2016 Code is highly inadequate.
Insolvency Resolution Professional would
need considerable time to understand the
dynamics of the ailing/defaulting
company, its cash-flows, essential
financial and operational creditors, before
it can chart out an Information
Memorandum/Resolution Plan.
7. So far as the mechanism of ‘fresh start’ is
concerned, the same is applicable to those
individuals whose monthly income is
below Rs. 5000/- and the debt amount is
not more than Rs.35, 000/-. This amount is
so meagre that very few individuals will
be able to take benefit of this mechanism.
8. If the value of the loan taken over by the
Asset Reconstruction Company albeit the
defaulting company, is more than 75%,
then it will be able to run the company
along with the Insolvency Resolution
Professional. This area of the mattress is
most concerning and is least talked about.
There has to be an adequate system in
place to keep a check over the functions
and modalities of ARCs, given the fact
that, as per Section 3(7) of the 2016 Code,
the term ‘corporate person’ shall not
include any ‘financial service provider’
such as banks, insurance companies,
mutual funds and ARCs.
9. The real challenge lies in ensuring that,
the new system is run by judicial experts
who see bankruptcy as a commercial
problem and not as a legal problem. It will
be important to sternly train the judges for
the new system, as the 2016 Code has a
certain philosophy behind it, that is, a
judge or a lawyer, no matter how well-
versed he/she is in legal matters, should
not decide, whether a business enterprise
should survive or evaporate; it is for the
creditors to take the call.
10. There are no special provisions or
exemptions provided for the companies in
the “stressed sectors”. A sector in stress
might see multiple insolvency cases; there
are no special provisions for these sectors
in stress in the 2016 Code.
11. No qualification per se has been specified
for the Insolvency Resolution
Professionals in the 2016 Code. Looking
into their scope of work and the
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responsibilities they shall be shouldering,
an Insolvency Resolution Professional is
to require skills of a lawyer, a chartered
accountant, a management professional, a
company secretary and a cost accountant,
which by itself not an easy standard to
meet.
12. The Insolvency Resolution Professionals
will carry out the following functions:
collection of financial information about
the debtor; verification of claims of
creditors; formation of committee of
creditors; running the business of the
debtor; and working out a rescue plan
agreeable to both, the creditors and
debtors. Given the fact that there function
shall be central to the rescue/revival of the
business of the drowning enterprise, it is
discomfit to see the lack of clarity on who
these professionals would be in terms of
their qualifications and necessary
experience; and whether they would be
empowered enough to accomplish the task
given to them.
13. Lack of necessary infrastructural facilities:
Adjudicating authorities under the
Insolvency and Bankruptcy Code, 2016
are the DRTs (Debt Recovery Tribunals)
for individuals and partnership firms; and
the NCLT (National Company Law
Tribunal) for the companies. The
Government has, however, already
notified the formation of NCLT and
NCLAT (National Company Law
Appellate Tribunal), which have now
become functional with the retired
Supreme Court Judge, Justice S.J.
Mukhopadhaya appointed as the
Chairperson of NCLAT, and, Justice
M.M. Kumar appointed as the President of
NCLT.
14. Number of cases pending in the DRTs in
India as on March, 2013 were 42,819, and
as on December, 2015, this figure went up
to 69,658. Similarly, number of cases
pending with the DRATs (Debt Recovery
Appellate Tribunals) as on March, 2013
were 3,405 cases. In Delhi, approximately,
each presiding officer of the DRT handles
70-80 cases per day. Given the stretched
infrastructure and number of pending
cases, DRTs will not be very effective.xvi
This in turn will have a direct bearing on
the question, how far is the 2016 Code
effective? Is it too ambitious a legislation
which has been floated at a wrong time
when already India is facing ‘adjudication
infrastructure’ crises, or, will it be correct
to say that there is no right time to do the
Imperial Journal of Interdisciplinary Research (IJIR)
right thing taking into consideration the
low ranking that India suffers from in the
Global Ease of Doing Business? Answers
to these questions will be revealed over a
period of time, once all provisions and
rules of the 2016 Code get notified and
receive judicial interpretation and
withstand the constitutional scrutiny.
15. Section 224 of the 2016 Code states that a
fund, namely, the Insolvency and
Bankruptcy Fund is to be created for the
purposes of insolvency resolution,
liquidation and bankruptcy of persons
under the 2016 Code, and any person can
voluntarily make contributions to the fund
and in any event of insolvency
proceedings been initiated against such
person, such person can withdraw funds
not exceeding the amount contributed by
him to the fund to make payments to the
workmen or for protecting his assets or to
meet the incidental costs incurred during
the insolvency proceedings and for any
other or such other like purpose. However,
the moot question is this, that, if a person
will get only that which he has contributed
to the fund, then why at all a person will
make contributions of the fund and not
deposit the amount he has in a bank-
account over which he will earn interest as
per the specified rates.
Concluding Remarks:
The 2016 Code is a major step taken in the right
direction to provide umbrella legislation for the
laws relating to bankruptcy, liquidation and
insolvency resolution, concerning both
individuals/firms and corporate entities. The idea
behind the 2016 Code is to boost foreign direct
investment in India by improving India’s score and
ranking in the Ease of Doing Business Index. The
difficulty with the Code however is this that it
seems to be over ambitious for on one hand this
Code is aiming to cause major amendments in over
11 statutes and on the other hand it aims to
establish institutions in the likes of the NCLT,
NCLAT and the Insolvency and Bankruptcy Board
of India despite the fact that India is facing a
massive infrastructure crises. The Code cannot and
in fact does not disturbs the constitutional powers
vested in the High Courts and the power of the
Supreme Court to allow a special leave petition,
thus, there is a likelihood that, orders of DRT and
NCLT can be challenged in the High Courts and
the Supreme Court is some cases of peculiar
urgency despite the availability of alternative
remedy of appeal to DRAT and NCLAT
respectively. Further, Supreme Court will witness
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Vol-3, Issue-5, 2017
ISSN: 2454-1362, http://www.onlinejournal.in

appeals coming to it from both ends, that is, from

DRAT and NCLAT. Thus, in sum and substance proceedings pertaining to partnership firms will be
the docket explosion is here to stay with added heard.
burden on the legislative wing of the State to cause ix
This body will have regulatory over-sight over
amendments to all the enactments which the 2016 the Insolvency Professionals; Insolvency
Code touches upon by virtue of the 11 schedules Professional Agencies; and Information Utilities.
annexed to it. x
Time to resolve insolvency in terms of years for
United Kingdom is 1 year; for South Africa it is 2
years; for Pakistan it is 2.7 years; and for Brazil it
i
See: Section 2(8) of the Sale of Goods Act, 1930 is 4 years. See: Time to Resolve Insolvency, World
(30 of 1930) Bank, 2015
ii
See: Wharton’s Concise Law Dictionary, xi
See: Insolvency Code to fast-track 75,000 cases
Universal Law Publishing Co., Sixteenth Edition, pending before debt tribunals, Business Line (The
p.109 Hindu), May 06, 2016
iii xii
See: Section 3 of the Presidency Towns Ibid
Insolvency Act, 1909 xiii
See: Dipak Mondal, Going For Broke, Business
iv
See: Section 3 of the Provincial Insolvency Act, Today, Vol. 25, Issue: 13, p.32, July 03, 2016
1920 xiv
Financial creditors are those whose relationship
v
The 2016 Code was introduced in the Lok-Sabha with the entity is purely financial, in the form of a
by the Finance Minister, Mr. Arun Jaitley on loan or a debt security.
21.12.2015; and on 23.12.2015 the 2016 Code was xv
Operational creditors include employees, vendors
referred to a Joint Committee of Parliament, the and suppliers of the ailing/defaulting company.
Chairperson being Mr. Bhupender Yadav. xvi
Supra 11
vi
The 2016 Code provides for a class of regulated
persons, the “Insolvency Professionals”; they
would play a key-role in the efficient working of
the bankruptcy process; they would be regulated by
the “Insolvency Professional Agencies”.
According to Section 2(19) of the Code,
insolvency professional means a person enrolled
under Section 206 of the Code with an insolvency
professional agency as its member and registered
with the Board as an insolvency professional under
Section 207 of the Code.
According to Section 2(20) of the Code,
insolvency professional agency means any person
registered with the Board under Section 201 of the
Code as an insolvency professional agency.
vii
The 2016 Code provides for a new industry of
“Information Utilities”. These would store facts
about lenders and terms of lending in electronic
databases. This would eliminate delays and
disputes about facts when default takes place.
According to Section 2(21) of the Code,
information utility means a person who is
registered with the Board as an information utility
under Section 210 of the Code.
According to Section 2(23) of the Code, “person”
includes: an individual; a Hindu Undivided Family;
a Company; a trust; a partnership; a limited liability
partnership; any other entity established under a
statute, and includes a person resident outside
India.
viii
The National Company Law Tribunal (NCLT) is
the forum where matters pertaining to corporate
insolvency will be heard. The Debt Recovery
Tribunals will be the forums where matters
pertaining to individual insolvency and insolvency

Imperial Journal of Interdisciplinary Research (IJIR) Page 1730

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