India: The Insolvency And Bankruptcy Code, 2016 – A Brief Snapshot

Last Updated: 18 May 2016
Article by Seema Jhingan, Neha Yadav and Vishal Ranjan

The Insolvency and Bankruptcy Code, 2016 ("Code") has been passed by the Lok Sabha on May 5, 2016 and Rajya Sabha on May 11, 2016, and shall come into force, once, it receives the Presidential assent. The Code, seeks to consolidate and amend the existing laws on bankruptcy and insolvency matters and creates a unified legal framework for resolution of insolvency/bankruptcy issues in a time bound manner.

A brief snapshot of certain key features of the Code, with a particular focus on corporate insolvency process, is given as under:

(i) Applicability.

  • The Code applies to companies, limited liability partnerships, partnership firms, other corporate persons, and individuals, and any other body specified by the Government.

(ii) Insolvency Board, professionals and agencies.

  • The Code envisages that the insolvency resolution processes will be conducted by insolvency professionals ("IPs"). The IPs will be licensed professionals and will be members of insolvency professional agencies ("IPAs"), which will be created for regulation of such IPs.
  • The Code also provides for establishment of information utilities ("IUs"), for collection, collation and dissemination of financial information to facilitate insolvency resolution.
  • The regulation and operation of these IPs, IPAs, and IUs is to be overseen by an Insolvency and Bankruptcy Board ("Board") established under the Code.

(iii) Adjudicating Authority.

  • The adjudicating authority for insolvency issues of a Company/LLP is prescribed to be the National Company Law Tribunal ("NCLT") and National Company Law Appellate Tribunal ("NCLAT"), and for individuals and partnership firms, it is the extant Debt Recovery Tribunal ("DRT") and Debt Recovery Appellate Tribunal ("DRAT").

(iv) Corporate Insolvency Resolution Process.

A. Initiation of Proceedings.

  • Where any corporate debtor ("CD") commits a default in payment of debt, insolvency resolution process under the Code can be initiated by a financial creditor ("FC"), either by itself or jointly with other financial creditor, an operational creditor ("OC") or by the CD itself, by filing an application in the NCLT. A default, for this purpose, includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the CD.
  • The Code distinguishes between a FC and OC, and lays down different procedure for initiating the proceedings. FC is a creditor to whom a financial debt is owed and includes anyone to whom such debt is assigned/transferred. OC is one to whom an operational debt is owed i.e., debt in respect of goods or services including employment or debt arising under any law in force for the time being and payable to Central Government/State Government/Local Authorities.
  • The FC has to move an application before the NCLT showing them the proof of default and proposing an interim IP. The NCLT will then ascertain the existence of default from the records of an IU (i.e. information utilities) or on the basis of other evidence furnished by the creditor. However, in the case of an OC, the OC has to first serve a demand notice along with the proof of default, giving the debtor ten days to respond to dispute the claim. If the claim remains undisputed, then the OC can file an application before the Adjudicating Authority.

B. Broad Steps after admission of application.

Broadly, the insolvency resolution process, after an application has been admitted by the Adjudicating Authority, will entail the following steps:

  • Declaration a moratorium period for prohibiting actions such as, institution of suits, continuation of pending suits/ proceedings against the CD including execution of any judgement, decree or order; disposal/encumbering of CD's assets or rights/interests therein; any action to foreclose, recover or enforce any security interest created by the CD, etc.
  • Appointment of an interim IP.
  • Issuance of public announcement of the initiation of insolvency resolution process and call for the submission of claims.
  • Interim IP inter alia takes over the management and powers of the board of directors of the CD, and collects all information relating to assets, finances and operations of the CD for determining its financial position; collates all claims submitted by the creditors and constitutes a Committee of Creditors ("COC").
  • The COC thereafter either resolves to appoint the interim IP as the IP or replaces the interim IP by appointing a new IP, in accordance with the prescribed procedure.
  • The IP will then take over the management and assets of the CD, and can exercise the wide powers granted to it, in the manner prescribed under the Code. It will prepare an information memorandum in relation to the CD, on the basis of which the resolution applicant will prepare a resolution plan. IP will scrutinize the resolution plan and present it to the COC.
  • The COC approved plan will be submitted to the Adjudicating Authority, for its acceptance, and it is only when the Adjudicating Authority, gives it a final nod that the resolution plan becomes binding upon all the stakeholders and the insolvency resolution process of the CD is initiated.
  • In case the Adjudicating Authority rejects the plan, the liquidation process of the CD will commence.

C. Time Period.

  • The Code mandates completion of the insolvency resolution process within a period of 180 days. This period can be extended for a period of up to 90 days, upon an application filed by the IP subject to authorization by the COC by a vote of 75%.
  • The Code also envisages a fast track insolvency of CDs, within 90 days (further extendable upto 45 days), which has income and assets value below such limit, or which has such class of creditors or such amount of debt or such other category of persons, as notified by the Central Government.

(v) Liquidation Proceedings.

  • Liquidation proceedings can be initiated against a CD if:
  • The resolution plan has not been approved by the Adjudicating Authority, or it does not receive a resolution plan within the prescribed time period;
  • If the COC with a 75% majority vote, decides to liquidate the debtor, but before confirmation of the resolution plan; or
  • If an application is made for liquidating the CD in case of any violation of the resolution plan.
  • The Liquidator will collate all the claims, verify and then either admit the claims or reject them. If any creditor's claim has been rejected, it may appeal to the Adjudicating Authority. The Adjudicating Authority is also empowered to avoid any preferential, undervalued and extortionate transactions, undergone at relevant time, which will adversely affect the assets of CD and eventually right of creditors, in the manner prescribed under the Code.
  • The assets of the CD, in case of liquidation will be distributed in the following order: (i) fees of insolvency professional and costs related to the resolution process, (ii) workmen's dues and secured creditors, (iii) employee wages, (iv) unsecured creditors, (v) government dues and remaining secured creditors (any remaining debt if they enforce their collateral), (vi) any remaining debt, and (vii) shareholders.

(vi) Cross-Border Insolvency.

  • The Code also provides that the Government may, by notification, direct application of its provisions, subject to such conditions as may be specified, in relation to assets or property of a CD, including a personal guarantor of a CD, situated in a country outside India with which reciprocal arrangements have been made by the Government.

(vii) Offences and Penalties.

  • The Code imposes punishment and penalties for offences committed by an officer of the CD, such as concealment of property of a CD; undergoing transactions to defraud the creditors; misconduct during the course of insolvency resolution process; falsification of books, papers, securities; for willful and material omissions from statements relating to CD; misrepresentations to creditors and etc.
  • Such officer can be punishable with imprisonment of not less than three years but which may extend to five years, or with fine of not less than one lakh rupees, but which may extend to one crore rupees, or with both. That said, this doesn't render a person liable to any punishment if he proves that he had no intent to defraud or to conceal the state of affairs of the CD.
  • For offences committed under individual insolvency (such as providing false information), the imprisonment varies based on the offence.
  • Further, if anyone initiates the insolvency process with a fraudulent intention, a penalty ranging from Rupees One Lakh to Rupees One Crore may be imposed upon such applicant.

The process under the Code requires establishment of several new entities, and accordingly it may take several months before its effective implementation. That said, it may be worthwhile for companies facing difficulties in meeting their debt obligations, to start the process of re-examining their future approach, when the stringent insolvency ecosystem under the Code does come into existence.

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.

Seema Jhingan
Neha Yadav
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions