A landmark enactment for the purpose of ensuring economic stability and progress was notified on the gazette on 28th May 2016 as The Insolvency and Bankruptcy Act 2016. As the existing insolvency laws to recover the public debt became insufficient, the necessity of this enactment was inevitable. The purpose of this enactment at a glance is to bring the equity owners or holders debt obligations are transferred to the creditors through aligning of insolvency laws in national and international standards. The code in elaborate 255 sections state every aspects insolvency and bankruptcy issues including the power for consolidation and amendment of the existing insolvency laws. The code aims to one stop protection to small investors and have hassle free process in smooth running or functioning of business.
Section 2 of the code specifically states that any company incorporated under companies Act and a company instituted under any special Act is subject to the provisions of the code as this section itself serves the purpose of this enactment to have uniformity in insolvency law. A resolution plan is a comprehensive document detailing the resolution strategy in accordance with the code or any existing laws.
The code is also applicable to individuals, limited liability partnership firms, unlimited partnership firm or any corporate persons defined in existing corporate laws in the country. Code aims to the insolvency resolutions at short span of time there by preventing the increase of any public debt. Section 7 of the code defines the legal capacity of the financial creditors to be the applicant in insolvency matters. The code is applicable only to the financial debt of one lakh. The insolvency resolution time is fixed to a time period of 180 days unless it is a fast track insolvency resolution process where the process needs to be expeditiously disposed within 90 days.
The process involves the proper collection and distribution of the debtors assets as per the prescribed legal procedures of the code. The time limit for the liquidation of a company is from six to 24 months. Though the code aims at resolution to pay off debts to the creditors section 29 of the code also provides restrictions if the applicant subject to disqualification subject to provisions of the code or any existing law.
A moratorium period is two years in an insolvency application and under 74 of the code official corporate debtors violating moratorium provisions are liable to be punished for an imprisonment of 3 years.
Though High court has writ jurisdiction on exceptional matters in insolvency resolution petition under Article 226, the code under section 63(xii), 180 (xiii) and 236 (xiv) had barred jurisdiction of civil courts. Section 254 and 254 has amending powers that makes the code itself complete unlike other enactments and by it’s completion feature had repealed the earlier insolvency law of 1986. The impact of this code is subject to time test as it is still midst controversies in its implementation and still in its experimental operative state.