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Insolvency and Bankruptcy Code, 2016

Insolvency and Bankruptcy Code, 2016

In order to bring a straight jacket law and to avoid multiple overlapping laws and adjudicating forums dealing with financial failure and insolvency of companies, firms and individuals in India, Insolvency and Bankruptcy Code 2016 (‘Code’) has been passed.

It is an Act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner 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.

This Act extends to whole of India. However, insolvency resolution and bankruptcy for individuals and partnership firms shall not be applicable to the State of Jammu and Kashmir. The code does not address financial firms. The Act is yet to be notified.

Application of the provisions of the code

The provisions of this Code shall apply to:

  • Any company incorporated under the Companies Act,2013 or under any previous Company law.
  • Any other company governed by any special Act.
  • Any Limited Liability Partnership incorporated under the Limited Liability Partnership Act,2008.
  • Such other body incorporated under any law for the time being in force.
  • Partnership firms and individuals.

Insolvency and Bankruptcy Code 2016

IB 1

The idea of the new law is that when a company defaults on its debt, control shifts from the shareholders/promoters to a committee of creditors, who have 180 days to evaluate proposals from various players about resuscitating the company or taking it into liquidation.

Insolvency resolution and liquidation for corporate persons

IB 2

  • Insolvency and liquidation of corporate debtors is applicable where the minimum amount of default is Rs. 1 lakh and this limit may be increased up to Rs. 1 crore by the Central Government.
  • A financial creditor, an operational creditor or the corporate debtor itself may initiate insolvency resolution process at the NCLT. the process can be initiated when there is a default.
  • The insolvency resolution process shall be completed within a period of 180 days. This can be extended for 90 days by the Adjudicating Authority where 75% of the financial creditors agree.
  • NCLT shall, within 14 days of the receipt of the application for insolvency resolution either admit or reject the application.
  • However, there is a moratorium on the debtor’s operations ordered by the NCLT for the insolvency resolution process. This operates as a calm period during which no judicial proceedings for recovery, enforcement of security interest, sale or transfer of assets, or termination of essential contracts can take place against the debtor.
  • A resolution professional inclusive of interim resolution professional is appointed to conduct the insolvency resolution process. The resolution professional is appointed by the NCLT and the Resolution Professional’s basic function is to take over the management of the corporate borrower and operate its business as a going concern under the board directions of a committee of creditors 1.
  • The committee of creditors will have the power to decide the final solution by majority vote in the negotiations and also to consider the proposals for the revival of the debtor and must decide whether to proceed with a revival plan or liquidation within a period of 180 days.
  • An insolvency resolution plan prepared by the resolution professional has to be approved by a majority of 75% of voting share of the financial creditors. If the resolution plan does not receive the requisite votes, the Adjudicating Authority will make an order for the liquidation.

Insolvency Resolution Process for Individuals/ Partnership firms

IB 3

  • Insolvency resolution and bankruptcy for individuals and partnership firms is applicable where the minimum amount of default is Rs. 1000/- and this limit may be increased up to Rs. 1 Lakh by the Central Government.
  • Under the automatic fresh start process, eligible debtors (basis gross income) can apply to the Debt Recovery Tribunal (DRT) for discharge from certain debts not exceeding a specified threshold, allowing them to start afresh.
  • In the Insolvency Resolution Process, the creditors and the debtor will engage in negotiations to arrive at an agreeable repayment plan for composition of the debts and affairs of the debtor, supervised by a resolution professional 2.

Insolvency and bankruptcy Institutions

IB 4

Adjudicatory Authorities


1. For corporate insolvency and liquidation-

IB 5


2. For Individuals and other persons-

IB 6


The Code extends to speed up the process of revival/re-organisation and early identification of financially distressed companies, limited liability entities,individuals and partnerships. Also, this Code attempts to streamline and consolidate all the provisions of different laws and make it more simple. The institutional framework created by the Code helps in time bound insolvency resolution process and liquidation. When decisions are take in a time-bound manner, there is a greater chance that the company can be saved as a going concern and the productive resources of the economy be put to best use.


  2. ibid

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