In India we are having a very casual attitude about introduction of any new laws. We are accustomed to the lethargic attitude of the Governmental systems to effectively implement any laws however strong it may be. It will take years to discuss it before it become an Act, then another few years to make the rules and few more years to notify and implement it. After implementation then there is no follow ups on its impact among the public/affected parties. And if there are any mis-jointers it wont be addressed for another set of years. This was the story which we experienced here in India, till the introduction of Insolvency and Bankruptcy Code, 2016.
The Insolvency and Bankruptcy Code, 2016 was enacted with a view to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bounded manner. The main intention behind the code is to maximize the value of the assets of such persons, promote entrepreneurship, ensure availability of credit and balance the interest of all the stakeholders including the alteration in the order of priority of the payment of government dues.
The summary of the Code
The code is designed, as mentioned, to ensure the resolution of the debts of corporate persons, in a time bounded manner. The creditors, operational as well as financial creditors, may subject to the required compliance and observation of necessary formalities mentioned under the code, file an application with National Company Law Tribunal (NCLT) for initiating the insolvency resolution process against the Corporate debtor. Apart from it, there is a provision in the code which enables the Corporate Debtor itself to file application for initiating the resolution process. The NCLT shall, within fourteen days of the receipt of the application, ascertain the existence of the default from the records. If there is an existence of debt and the same is defaulted, then the application shall be admitted and a resolution professional shall be appointed as interim resolution professional.
The corporate insolvency resolution process (CIRP) shall be completed within a period of 180 days, which can be further extended with the consent of the NCLT, upto a maximum of 270 days, from the date of insolvency commencement date. On admission of the application, moratorium shall come into effect, which prohibits institution of suits, alienation of properties, actions under SARFAESI, recovery proceedings etc against the corporate debtor. A public announcement shall be made in newspapers inviting claims from the creditors of the corporate debtor and after collating and verifying all the claims, the interim resolution professional shall constitute a committee of creditors (CoC) for taking decisions regarding the insolvency resolution. The CoC at its first meeting shall reappoint, the interim resolution professional or replace the interim resolution professional, as resolution professional. The resolution professional shall conduct the entire corporate insolvency resolution process and manage the operations of the corporate debtor during the corporate insolvency resolution process period. The resolution professional shall prepare an information memorandum for formulating a resolution plan. Any person, except those who are specifically excluded under section 29A of the Code, are eligible to submit a resolution plan. The resolution plan shall provide for the modalities, source and manner in which the debts of the corporate before can be resolved. On approval of the resolution plan by the CoC, the Resolution professional shall submit the same to NCLT for its final nod. On approval of the resolution plan, the moratorium shall come to an end and the resolution plan shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. If there is no resolution plan or the plan has been rejected by the NCLT, the corporate debtor shall face liquidation under the provisions of the Code.
The story so far; in short.
The code, when introduced into the Indian legal environment, spurts lot of confusions, misalignments etc, mainly due to the lack of jurisprudence and precedents. Since its introduction, the code was embraced by the creditors community in an overwhelming manner, and more than 12000 cases were filed before various benches of National Company Law Tribunal, across the nation. Due to the lack of clarity on the various provisions of the Code, though the process is highly time-bounded, the time limits specified under the code were not duly adhered to, which resulted in huge delay in the entire resolution process, that originally envisaged. The government had, in very timely fashioned manner, intervened whenever bottlenecks noticed, and amended the provisions of the code to keep the spirit of the same.