India: Insolvency And Bankruptcy Code 2015: Well Worth The Wait


No single umbrella legislation governs insolvency and bankruptcy proceedings in India. Instead, there is a slew of legislation governing the legal framework, including:

  • the Companies Act 2013;
  • the Sick Industrial Companies (Special Provisions) Act 1985;
  • the Recovery of Debts Due to Banks and Financial Institutions Act 1993;
  • the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002;
  • the Presidency Towns Insolvency Act 1909;
  • the Provincial Insolvency Act 1920; and
  • forums such as the Debts Recovery Tribunal, the company courts and the National Company Law Tribunal (this tribunal is proposed by the Companies Act and not yet in force).

The vast number of legislation and judicial forums, as well as the complex interplay between various legislation, has made the recovery of debts an agonising affair for creditors. Increasing inefficiency coupled with the archaic laws which govern insolvency were key factors for the substantial overhaul of India's insolvency laws.

A single piece of legislation to connect the various insolvency laws has been on the cards for some time, with recommendations from the Law Commission of India dating back to its 26th report on insolvency laws in 1964. Various committees have explored the idea of consolidating India's insolvency and bankruptcy laws, including:

  • the Tiwari Committee (1985), which introduced the Sick Industrial Companies Act;
  • the Narasimhan Committee I and II (1991 and 1998), which introduced the Recovery of Debts Due to Banks and Financial Institutions Act and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act;
  • the Justice Eradi Committee (1999), which introduced changes to the Companies Act and proposed the repeal of the Sick Industrial Companies Act; and
  • the LN Mitra Committee (2001), which proposed a comprehensive bankruptcy code.

However, it was not until November 4 2015 that the Bankruptcy Law Reforms Committee (chaired by TK Viswanathan) submitted its final report,1 which recommended the passage of the Insolvency and Bankruptcy Code 2015.2 On December 21 2015 Finance Minister Arun Jaitley tabled the code before the lower house of the Indian Parliament (the Lok Sabha).

Consolidated code

The code is a giant leap forward in terms of streamlining India's somewhat scattered insolvency laws into a single piece of legislation which governs bankruptcy and insolvency for all debtors, including companies, unlimited liability partnerships, limited liability partnerships (LLPs), individuals and other entities (as and when notified by the central government). The code also seeks to repeal the Presidency Towns Insolvency Act 1909 and the Provincial Insolvency Act 1920 and amend many of the existing statutes that govern insolvency proceedings (eg, the Companies Act, the Recovery of Debts Due to Banks and Financial Institutions Act and the Sick Industrial Companies Act).

The code is aligned with the government's initiative to make doing business in India easier, and even creditors residing outside India are included in the definition of 'creditor'. Divided into various chapters, the code aims to address the different aspects of insolvency and bankruptcy proceedings and the varying processes used by different types of debtor.

Corporate insolvency resolution process

The corporate insolvency resolution process for body corporates aims to resolve insolvencies and the recovery of dues in a strict time-bound manner. For instance, the insolvency resolution process for companies and LLPs must be completed within 180 days of submission. This deadline can be extended by 90 days if more than 75% of the creditors agree. Even within body corporates, small companies are fast-tracked and their insolvency resolution processes must be completed within 90 days of submission.

For body corporates, the resolution process may be initiated by way of an application by the debtor body corporate or a creditor to the adjudicating authority. The National Company Law Tribunal, which was constituted under Section 408 of the Companies Act 2013, is the adjudicating authority for corporate persons such as companies and LLPs. As the tribunal is not yet in force, insolvency proceedings against companies are presently handled by company court benches in various high courts across India.

The resolution process begins with a public announcement of the process, after which an interim insolvency resolution professional3 is appointed by the adjudicating authority and subsequently confirmed by the committee of creditors. This individual acts as an intermediary between the creditors and adjudicating authority during the determination of the debtor's assets, affairs and financial position.

The debtor must submit a resolution plan to the insolvency resolution professional with details of how it will pay for the resolution process and repay operational creditors. The adjudicating authority will then pass an order accepting or rejecting the resolution plan.

Liquidation and distribution of assets

If the adjudicating authority rejects the debtor's resolution plan as part of the corporate insolvency resolution process, it will order the liquidation of the debtor and appoint a liquidator to take charge of the debtor's assets and affairs. The liquidator will form a liquidation trust comprising of all of the debtor's assets and act as the fiduciary trustee of the trust for the benefit of the creditors.

After an extensive valuation of all the claims against the debtor, the code calls for the distribution of the debtor's assets in the following order:

  • insolvency resolution process costs;
  • dues owed to secured creditors;
  • dues owed to workers for a 12-month period preceding the date on which liquidation was commenced (on par with dues owed to secured creditors);
  • dues owed to other employees who are not workers for a 12-month period preceding the date on which liquidation was commenced;
  • dues owed to unsecured creditors;
  • dues owed to any state government or central government;
  • dues owed to a secured creditor for any unpaid amount following enforcement of the security (on par with dues owed to any state government or the central government);
  • any remaining debts;
  • preference shareholders; and
  • equity shareholders or partners.

The code proposes radical changes to the prioritisation of creditors in the liquidation process and is a remarkable shift from the existing regime, under which some of the dues owed to the government and statutory dues take precedence over the dues owed to secured creditors. The re-prioritisation of creditors in relation to the distribution of the insolvent body's assets is likely to act as a major incentive for investors and creditors alike, since it substantially increases the likelihood of successful debt recovery.

Insolvency resolution for individuals and partnership firms

An individual, unlimited liability partnership firm or any creditors may apply before the concerned adjudicating authority for an insolvency resolution. The Debts Recovery Tribunal, constituted under Section 1A of the Recovery of Debts Due to Banks and Financial Institutions Act, is the adjudicating authority for individuals and unlimited liability partnership firms.

Once the adjudicating authority admits the insolvency resolution application, it will appoint an insolvency resolution professional. This individual must submit a report to the adjudicating authority recommending the acceptance or rejection of the debtor's application. The debtor must also prepare a repayment plan containing a proposal to the creditors for the restructuring of its debts or affairs and submit it to the adjudicating authority.

Thereafter, the insolvency resolution professional will request that the creditors meet to vote on various aspects of the repayment plan. The insolvency resolution professional will then prepare and submit a report on the meeting to the adjudicating authority, on the basis of which the adjudicating authority will implement the repayment plan as approved by the creditors. On the basis of the repayment plan, the adjudicating authority may choose to pass an order for early discharge of the debtor from the proceedings or for discharge on complete implementation of the repayment plan.

'Fresh start' option

As part of the insolvency resolution process, individuals can also apply to be discharged from liability to repay debts. The key criteria for successfully applying for a 'fresh start'4 is that the debtor's gross annual income not exceed Rs60,000 and the aggregate value of the debtor's qualifying debts not exceed Rs35,000.

Once the adjudicating authority admits an application for a fresh start, it will appoint an insolvency resolution professional. This individual must submit a report to the adjudicating authority recommending the acceptance or rejection of the application.

The adjudicating authority will then pass an order on the basis of the insolvency professional's report. Should the adjudicating authority decide that the debtor's case is worthy of a fresh start, it will discharge the debtor from all liability in respect of the relevant debts.


In the event that the adjudicating authority does not accept an insolvency resolution process or fresh start proposal, or if the debtor fails to adhere to its repayment schedule, the debtor or creditor may jointly or individually apply to have the debtor declared bankrupt before the adjudicating authority.

In this case, a bankruptcy nominee will be appointed (who may also be the insolvency resolution professional), after which the adjudicating authority will pass a bankruptcy order. A public notice inviting claims from creditors will follow and a list of creditors and claims is prepared. Once the bankruptcy order is passed, the bankrupt's estate will be vested in the bankruptcy nominee, administered and distributed to the creditors in accordance with Chapter V of the code. Thereafter, the bankruptcy trustee may apply to the adjudicating authority for a discharge order. However, the discharge order will not affect the rights of secured creditors to enforce their securities, nor will it release sureties of the bankrupt from liability.


The Insolvency and Bankruptcy Code 2015 is a welcome initiative for creditors, investors and debtors alike. The streamlining of procedures, simplification of the insolvency process and fast-tracking of recovery are hallmarks of the code which, if passed, will have a palpably positive affect on India's lending climate.

The code allows investors to exit from failing projects and initiatives in a time-bound manner and without locking up funds in endless legal battles. Although the code was not passed in the Lok Sabha's winter session, it has been well received. Industry experts are thus eagerly awaiting the Lok Sabha's next budget session (February 2016 to May 2016).


(1) Available at

(2) Available at,%202015.pdf.

(3) Under Section 207 of the code, insolvency resolution professionals must be registered with the Insolvency and Bankruptcy Board of India.

(4) Under Section 80 of the code.

This article was first published in the January 2016 issue of the International Law Office's Insolvency & Restructuring – India Newsletter.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.