INSOLVENCY AND BANKRUPTCY CODE HIGHLIGHTS1
Insolvency and Bankruptcy Code is the new institutional and legal mechanism of India for dealing with debt default of corporate, limited liability entities, partnership firms and individuals. The need for such code was felt when Justice Eradi Committee in 1999 introduced changes in the Companies Act and proposed to repeal the Sick Industrial Companies Act and further when L.N. Mitra Committee in 2001 proposed a comprehensive bankruptcy code. However, it was not until November 2005 that the Bankruptcy Law Reforms Committer chaired by former Secretary General, T.K. Viswanathan submitted its final report that opened the gates for the new Insolvency and Bankruptcy Code in India.
Before the current code, there were in fact, several laws and statutes dealing with insolvency for companies, such as the Sick Industrial Companies Act, the Recovery of Debt Due to Banks and Financial Institutions Act and Securitisation and reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). Apart from these there were laws dating from the time of the British Raj, such as Presidency Towns Insolvency Act, 1909 dealing with individual debtors. However, this multiplicity and complexity of laws was the biggest obstacle in the way of banks failing to recover their debts.
The problem with insolvency laws in India was that there was no single umbrella legislation to govern the ongoing bankruptcy and insolvency proceedings in the country. Instead there were slew of legislation governing the same. The need for sole legislation to connect the numerous insolvency laws gave the push to bring about a new insolvency law, which was brought in the form of Insolvency and Bankruptcy Code, 2016.
The main objectives for introducing the new code can be summarised as follows:
- To provide a single code of laws in reference to bankruptcy and insolvency
1 * Pooja Singh ,University School Of Law And Legal Studies , GGSIOU
** Vikalp Srivastava, School of Law, KIIT University
- To eradicate inefficiencies in matters of bankruptcy and insolvency process by introduction of new mechanisms
- To reduce the time and cost in liquidation by making the process time bound
- The Insolvency And Bankruptcy Board Of India
The new code establishes the insolvency and bankruptcy board of India which will act as a regulator. The board will have administrative, legislative and quasi judicial powers .some of the important functions of the board will include regulation of insolvency professionals and insolvency professional agencies.
- Judicial Adjudicating Authority
Two adjudicating authorities are specified in the code which will exercise judicial powers over the process of liquidation and insolvency
- NCLT (National Company Law Tribunal): NCLT will act as the adjudicating authority in matters of Companies, LLP and other limited liability bodies as specified by the central government. National company law appellate tribunal will be the appellate authority (NCLAT)
- Debt Recovery Tribunal: the debt recovery tribunal will act as the adjudicating authority in matters of individuals and Partnerships. The debt recovery appellate tribunal will be the appellate authority in bankruptcy and insolvency case of individuals and partnerships.
The supreme court of India will be the appellate authority from NCLAT and DRAT
- Insolvency Professionals
Insolvency professionals are new introduction through the code. The insolvency professionals will perform quasi-administrative functions such as resolution process supervision, resolution process finalization with the creditors committee (COC)
- Insolvency Professionals Agencies
The insolvency Professionals agencies will act as a regulatory body for insolvency professionals. It will perform functions such as admitting, Insolvency professionals lay down code of conduct, act as disciplinary committee, redress grievances against the insolvency professionals.
- Information utilities
It is one of the most important introductions of the code, which aims to redress the problems of the old insolvency process. It code establishes a efficient infrastructure of information utilities which readily has all the necessary information available for the adjudicating authority. the Information utilities will collect, classify and store all the necessary information in regards to debtors, creditors , financial and operational defaults of the companies
- Time bound process
The biggest drawback of the old insolvency process was that it was time consuming . The new code redresses this issue by prescribing a time limit of 180 days for process of insolvency resolution which starts from the date the application to NCLT is admitted. The time period can be extended upto 90 days if the adjudication authority is convinced that 180 days would not be enough to complete the resolution process.
OFFENCES AND PENALTIES
The Code imposes punishment and penalties for offences committed by an officer of the Corporate Debtor, such as concealment of property; undergoing transactions to defraud the creditors; misconduct during the course of insolvency resolution process; falsification of books, papers, securities; for wilful and material omissions from statements relating to the debtor; misrepresentations to creditors and etc.
Such officer can be punishable with imprisonment of not less than 3 years but which may extend to 5 years, or with fine of not less than Rs. 1 lakh, but which may extend to Rs. 1 crore, or with both. That said, this doesn’t render a person liable to any punishment if he proves that he had no intent to defraud or to conceal the state of affairs of the Corporate Debtor.
For offences committed under individual insolvency the imprisonment varies based on the offence .Further, if anyone initiates the insolvency process with a fraudulent intention, a penalty ranging from Rs. 1 Lakh to Rs 1 Crore may be imposed upon such applicant.
The introduction of a comprehensive legislation foe bankruptcy and insolvency will redress the issues of the old insolvency process to a great extend .Though this conclusion is based on study of the theoretical aspect of the current law the actual effect of the code is still to be seen .it is important to note that India has a complex legal system and it is not easy to bring changes in such a complex system.
Even minor amendments are hard to enforce so it won’t be wrong to say that it won’t be easy to enforce this code at its full efficiency as it has brought massive overhaul of laws, infrastructures and procedures. The process under the Code requires establishment of various new bodies or entities. With all that said, there is no doubt that once the Code is fully implemented, it is going to be one of the best initiatives by the legislature.