The Insolvency and Bankruptcy Code (‘IBC’) was enacted in the year 2016 with the main purpose to consolidate the existing framework of laws by creating a single law for insolvency and bankruptcy process in India. It was enacted for reorganization 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. Before the Code had come into existence, various scattered laws relating to insolvency and bankruptcy were present which would cause inadequate and ineffective results with a lot of delay in resolutions. But with the IBC, the Code repealed the Presidency Towns Insolvency Act, 1909, and Provincial Insolvency Act, 1920 legislation and amended nearly eleven acts. The establishment of this code has done away with overlapping provisions for example in the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act also known as SARFAESI Act that deals with security enforcement, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI) which covers debt recovery by banks and financial institutions, the Sick Industrial Companies (Special Provisions) Act, 1985, etc., are found to be ineffectual and ineffective implementations as there is a conflict between these laws and the time-consuming procedure in such laws had arisen the need for this code to be brought in force.
The main objective of the Insolvency and Bankruptcy Code, 2016 is to consolidate and amend all existing insolvency laws in India and simplify and expedite the proceedings as well. This act had consolidated and amended the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit, and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.
The code provides for a time-bound process to resolve insolvency. It is known that the Insolvency and Bankruptcy Code, 2016 will expedite the cases pending for a long time and resolve them within 180 days with a further period of 90 days. For instance, when a default in repayment occurs, creditors gain control over the debtor’s assets and must make decisions to resolve insolvency within 180 days. To ensure an uninterrupted resolution process, the Code also provides immunity to debtors from resolution claims of creditors during the aforementioned period.
An instance to prove that the code is a complete one we can see that the earlier laws before the enactment of the Insolvency and Bankruptcy Code, 2016 had merely just introduced the terms ‘creditors and ‘debtors’ without any further classification under them. However, the Insolvency and Bankruptcy Code, 2016 has introduced the concept of ‘financial creditor’ and operational creditor’, and similarly, the debts also fall into two categories such as ‘financial debt’ and ‘operational debt’. This helps in determining and interpreting the law in depth after finding out the parties as classified instead of the general terminology of debtors and creditors, this shows that the code is complete and has an in-detailed analysis of all the aspects from the laws in existence and has in a very fine manner established the code and amended as and when required.
In India, the Insolvency and Bankruptcy Code, 2016 is a great step towards settling the legal position concerning financial failures and insolvency. The code is highly noteworthy as it ensures easy exit in cases of insolvency of individuals as well as companies, all stakeholders including various Government regulators. This is a comprehensive code as far as insolvency proceedings are concerned and will have an overriding effect over all other laws concerning insolvency proceedings. It is also to be noted here that the civil courts and other authorities are barred from entertaining any kind of petitions which fall under the domain of Adjudicating Authority specified under this Code. The winding-up procedure is under the supervision of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), which ensures that there is quick and prompt action taken during the early stage of debt default by a firm, thereby resulting in an optimum recovery rate.
Undoubtedly, the Insolvency and Bankruptcy Code, 2016 has been effective to a very large extent and the code puts great emphasis on professionals in the insolvency resolution process through the role of Adjudicating Authority as confined only to the legal aspect. The Code as rightly said provides for time-bound resolution of insolvency and liquidation process thereby facilitating greater debt recovery. It also throws light on the resolution of issues ailing a corporate debtor by financial creditors, failing on which liquidation commences. It is, therefore, the biggest insolvency reform in the economic history of India. The current legislative framework along with the consolidation of the earlier laws and amendments forms a common forum for debtors and creditors of all classes to resolve insolvency. As, earlier multiple agencies were dealing with matters relating to debt, defaults, and insolvency which generally leads to delays, complexities, and higher costs in the process of insolvency resolution.
Therefore, the actual intention of bringing the Insolvency and Bankruptcy Code, 2016 was to rescue the corporate debtors in distress with a specification of a time-bound insolvency resolution process, including any litigation, has to be completed within 330 days. The fulfilment of the objectives as per the code is evident from the cases that have seen successful resolutions. This has with time produced major gains for the corporate sector and the economy as a whole as with this code, it would be easier to recover the money and provide necessary relief to the creditors. However, within such a short period of nearly only five years, the Insolvency and Bankruptcy Code, 2016 has proven to be a sustainable solution for both the debtors and the creditors.