| Deconstructing the Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016 (“Code”) is a significant shift towards streamlining and consolidating India's various insolvency laws into a single piece of legislation which will govern bankruptcy and insolvency for all debtors, including companies, unlimited liability partnerships, limited liability partnerships (“LLPs”) and individuals.
The Code which came into effect on May 28, 2016 creates a new institutional framework, consisting of a regulator, insolvency professionals, information utilities and adjudicatory mechanisms, to facilitate a formal and time bound insolvency resolution process and liquidation.Insolvency Process for Corporate Debtors
To initiate an insolvency process for corporate debtors, the default should be at least Rs. 1,00,000/- (Rupees One Lakh only). The Code proposes two independent stages:
A fast track process is available for corporate debtor with low income and assets, specified class of creditors and any other category notified by the Government which has to be completed within ninety (90) days.Adjudicating Authorities
The Code prescribes setting up of an Insolvency and Bankruptcy Board of India which shall regulate the insolvency procedures in India and oversee the functioning of IPs and Information Utilities. The adjudicating authority for corporate insolvency and liquidation is NCLT. Appeals from NCLT orders lie to the National Company Law Appellate Tribunal and thereafter to the Supreme Court of India.Penalties
The Code proposes up to five (5) years jail term or fine up to Rs. 1,00,00,000/ - (Rupees One Crore only) or both for corporate debtors for concealment of property, non declaration of property / assets owned, false representations to creditors, falsification of books of account etc.
The Code will amend existing laws governing bankruptcy in India which include the Companies Act, 2013, SARFAESI Act, Sick Industrial Companies Act, 1985 and Recovery of Debt Due to Banks and Financial Institutions Act, 1993.