The Insolvency and Bankruptcy Code, 2016 (IBC) is India's comprehensive law for insolvency resolution of companies, partnerships, and individuals. It consolidates and streamlines various laws to ensure a time-bound resolution of distressed entities. Here's a structured guideline to help you understand and navigate IBC, 2016:
๐ Overview of IBC, 2016
๐ฏ Objectives
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Promote resolution over liquidation.
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Maximize value of assets of a corporate person.
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Ensure timely resolution (within 180/270 days).
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Balance interests of all stakeholders.
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Improve credit discipline and ease of doing business.
๐ข Who Can Be Resolved Under IBC?
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Corporate Persons: Companies, LLPs (excluding financial service providers).
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Partnership Firms & Individuals (Part III – notified only for personal guarantors to corporates so far).
⚖️ Key Definitions
| Term | Meaning |
|---|---|
| Financial Creditor | A person to whom a financial debt is owed (e.g., banks, NBFCs). |
| Operational Creditor | A person owed an operational debt (e.g., suppliers, employees). |
| Corporate Debtor | A company or LLP that owes a debt. |
| Insolvency Resolution Process | Legal proceedings initiated to resolve or liquidate the corporate debtor. |
| Default | Non-payment of a debt when due. |
๐ Key Sections & Process Flow
๐น 1. Initiation of CIRP (Corporate Insolvency Resolution Process)
| Creditor Type | Section | Threshold |
|---|---|---|
| Financial Creditor | Section 7 | ₹1 crore |
| Operational Creditor | Section 9 | ₹1 crore |
| Corporate Applicant | Section 10 | No threshold |
๐น 2. Timeline of CIRP
| Action | Time Limit |
|---|---|
| Filing & Admission | Within 14 days |
| Completion of CIRP | 180 days (+90 extension) |
| Moratorium under Section 14 | Immediate after admission |
| Resolution Plan submission & approval | Before 180/270 days |
| Liquidation (if no resolution) | Post CIRP failure |
๐️ Insolvency Authorities
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NCLT (Adjudicating Authority for corporates)
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NCLAT (Appellate Tribunal)
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IBBI (Regulator)
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DJs/Civil Courts: Barred from interfering (Section 63 & 231)
๐ก Important Concepts
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Moratorium (Section 14): Legal freeze on all suits, enforcement of security, etc., during CIRP.
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Committee of Creditors (CoC): Only financial creditors vote on resolution plans (based on voting share).
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Resolution Professional (RP): Appointed to conduct CIRP, manage the company.
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Liquidation: If CIRP fails or CoC rejects all plans, liquidation begins under Chapter III.
๐ Practical Compliance Points
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Demand notice (Sec. 8) mandatory before Sec. 9.
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Limitation: Application must be filed within 3 years from date of default (Art. 137 of Limitation Act).
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Pre-existing dispute = ground for rejection of Sec. 9 application.
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Supreme Court has held IBC is beneficial legislation, not punitive.
๐งพ Recent Key Amendments / Developments
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Threshold raised to ₹1 crore for initiation by operational creditors.
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Section 29A: Disqualification of certain persons from bidding (e.g., promoters of NPA accounts).
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Pre-Pack Insolvency: Introduced for MSMEs (under separate framework).
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Personal Guarantors to Corporate Debtors: Brought under Part III.
๐ Landmark Judgments
| Case | Principle |
|---|---|
| Innoventive v. ICICI Bank | Differentiated financial vs. operational creditors |
| Mobilox v. Kirusa | Defined “existence of dispute” under Sec. 9 |
| Essar Steel Case | Upheld commercial wisdom of CoC |
| Swiss Ribbons v. UOI | Validated constitutionality of IBC |
| Vidarbha Industries v. Axis Bank | Admission not automatic under Sec. 7 |
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