INSOLVENCY AND BANKRUPTCY CODE

inbatv Articles, India, Legal Reforms

INTRODUCTION

Insolvency and Bankruptcy Code, 2016[i] was introduced in Lok Sabha in December 2015. It was passed by Lok Sabha on 5 May 2016 and by Rajya Sabha on 11 May 2016.[1] The Code received the assent of the President of India on 28 May 2016.[2] Certain provisions of the Act have come into force from 5 August and 19 August 2016.[ii]

The Insolvency and Bankruptcy Code, 2015 was introduced in the Lok Sabha on 21 December 2015 by Finance Minister, Arun Jaitley.[iii] The Code was referred to a Joint Committee of Parliament on 23 December 2015, and recommended by the Committee on 28 April 2016.[iv] The Code was passed by the Lok Sabha and the Rajya Sabha on 5 May and 11 May 2016 respectively. Subsequently it received assent from President Pranab Mukherjee and was notified in The Gazette of India on 28 May 2016.[v]

The Code was passed by parliament in May 2016 and became effective in December 2016.[vi] It aimed to repeal the Presidency Towns Insolvency Act, 1909 and Sick Industrial Companies (Special Provisions) Repeal Act, 2003, among others.[vii]

PROCEDURE

A plea for insolvency is submitted to the adjudicating authority (NCLT in case of corporate debtors) by financial or operation creditors or the corporate debtor itself. The maximum time allowed to either accept or reject the plea is 14 days. If the plea is accepted, the tribunal has to appoint an Interim Resolution Professional (IRP) to draft a resolution plan within 180 days (extendable by 90 days). following which the Corporate Insolvency Resolution process is initiated by the court. For the said period, the board of directors of the company stands suspended, and the promoters do not have a say in the management of the company. The IRP, if required, can seek the support of the company’s management for day-to-day operations. If the CIRP fails in reviving the company the liquidation process is initiated.[viii] [ix]

RECENT CASES[x]

Mr. Hemang Phophalia vs The Greater Bombay Co-operative Bank Limited

It was held that CIRP application against companies struck off by the RoC is maintainable. Further, it was also stated that NCLT also has the power to restore the name of the company and all other persons in their respective position for the purpose of initiating CIRP under section 7 and 9 of IBC.

State Bank of India v Rohito Ferro Tech Pvt Ltd

The NCLAT dismissed the order passed by NCLT stating that only the circular had been declared ultra vires and not the CIRP. It was clarified by the NCLAT that any creditor cannot only rely upon the circular to initiate insolvency proceedings, it needs to be backed by proper evidence.

Jet Airways (India) Ltd. vs. State Bank of India & Anr.

The NCLAT held that the Dutch Trustee also hold the same position as the RP in India. Therefore, the NCLAT after a guarantee from the Dutch counterpart that it wont be interfering with the CIRP in India, it allowed Dutch Trustee to attend the CoC meetings in India.

Jignesh Shah and another v. Union of India and Anr.

The Supreme Court stated that in winding up or commercial insolvency cases, first there is a requirement that the default should takes place, after which the debts remain outstanding. It is only on this date that the limitation period is triggered. It also clarified that the winding up proceeding is a right in rem and not a recovery proceeding. Thus, concluding that the Limitation Act is applicable in cases of insolvency.

NUI Pulp and Paper Industries Pvt Ltd v Roxcel Trading GmbH

The NCLAT stated that there is no such restrictions which have been imposed upon the NCLT to pass orders under rule 11 of the NCLT Rules. If the NCLT feels that there has been a situation of abuse of process of law or injustice, then the NCLT can pass such interim relief at any stage.

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MANISH GOYAL

INBA-INTERN

[i] https://www.mca.gov.in/Ministry/pdf/TheInsolvencyandBankruptcyofIndia.pdf

[ii] Gazette of India. Retrieved 22 August 2016.

[iii] www.prsindia.org. Retrieved 20 February 2018.

[iv]  PRS Legislative Research. Retrieved 20 February 2018.

[v]  http://www.indiacode.nic.in/acts-in-pdf/2016/201631.pdf

[vi] http://www.livemint.com/Industry/qHRj0OlhehKDXFXFlckkoJ/NCLT-okays-first-insolvency-resolution-scheme-underIBC.html

[vii] PRS India. Retrieved 18 August 2016.

[viii] ibid at 6.

[ix] https://www.businesstoday.in/latest/trends/breaking-down-bankruptcy-what-are-the-steps-involved/story/271770.html

[x] http://www.mondaq.com/india/x/876962/Insolvency+Bankruptcy/2019+CHANGING+DIMENSIONS+OF+IBC