India: Note on the Insolvency and Bankruptcy Code, 2016

Last Updated: 29 March 2017
Practice Guide by Dhir & Dhir Associates

The Central Government has, vide notification dated 28.11.2016, notified “The Sick Industrial Companies (Special Provisions) Repeal Act, 2003” w.e.f. 01.12.2016.  As a result, BIFR and AAIFR have been abolished and the Sick Industrial Companies (Special Provisions) Act 1985 (SICA) is repealed. Pursuant to the same, all proceedings or appeals of whatever nature pending before BIFR/ AAIFR have abated.

Consequent to the above, the application of Sec. 22(1) of SICA, which granted protection to the Sick Industrial Companies against initiation of any coercive recovery measures or winding-up, etc. has ceased to be in force.  However, any scheme of revival, which has already been sanctioned by the BIFR in the past and is under implementation, shall continue to be in force.

Further, the Central Govt. has, vide notification dated 30.11.2016, also notified the relevant Sections of the Insolvency and Bankruptcy Code, 2016 (IBC) relating to Insolvency Resolution for Corporate Persons w.e.f. 01.12.2016.   

Under IBC, any company which has committed any default for an amount of Rs. One Lakh or more to its financial or operational creditors, may prefer an application for initiation of Corporate Insolvency Resolution Process.  Even one or more financial or operational creditors of a company are also entitled to file an application before the NCLT for initiation of Corporate Insolvency Resolution Process in respect of their Corporate Debtor in case the default made by the Corporate Debtor is for an amount of Rs. One Lakh or more.  The companies, whose references are abated under SICA, may also file an application under the provisions of IBC before the NCLT within 180 days from 01.12.2016 for initiation of Corporate Insolvency Resolution Process.

This enactment (IBC) paves the way for the complete overhaul of the Insolvency and Bankruptcy mechanism in India, which hitherto was governed primarily through the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 and the Companies Act (for Corporate entities) and other enactments like Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI).

Although the code is applicable to Companies, Limited Liability Partnerships (jointly defined as Corporate Persons (CP) under the Code) and to other Partnership Firms and Individuals, but presently we have restricted ourselves in dealing with some of the salient features of the Code and the procedures involved for Insolvency Resolution/ Liquidation of Corporate Persons and the same are set out below:

Adjudicating Authority (AA): NCLT/NCLAT for Companies and LLPs & DRTs/DRATs for Individuals and Partnership Firms.

Insolvency Regulator: The Code established an Insolvency Regulator called as The Insolvency and Bankruptcy Board of India (the Board) to regulate the Insolvency Professionals (IPs), Insolvency Professional Agencies (IPAs) and Information Utilities (IUs) and powers to recommend the name of IRPs/ RPs for appointment in case the Adjudicating Authority makes a reference to the Board.

Insolvency Professionals (IP): A new class of professionals has been created under the Code, called as Insolvency Professionals to conduct the insolvency process and to manage the affairs of Corporate Debtor (CD) (the Corporate Peron i.e. the Distressed Borrower Company/LLP) during the Corporate Insolvency Resolution Process (CIRP).

Insolvency Professional Agencies (IPA): Insolvency professional agencies under the Code will develop professional standards, code of ethics and be first level regulator for IPs leading to development of a competitive industry for such professionals.

Information Utilities: (IUs):  The code proposes to set up information utilities which would collect, collate, authenticate and disseminate financial information from companies/LLPs/Partnership Firms/individuals and financial and operational creditors of such entities.

Initiation of Corporate Insolvency Resolution Process (CIRP): Any creditor (whether financial or operational) of the Corporate Debtor (CD) may initiate CIRP by filing an application to Adjudicating Authority (NCLT) for commencing the process of resolution (restructuring/revival) of the Corporate Debtor. The application for CIRP shall be filed by the Financial Creditors (FC) u/s 7; by the Operational Creditor (OC) u/s 9 and/or by the CD u/s 10.

Process for Insolvency Resolution:

  1. Post the fling of application for initiation of CIRP the AA (NCLT) shall, within a period of 14 days, take a decision on the admission of the same or reject the said application. The CIRP shall be deemed to have commenced from date of admission of the said application and the entire process has to be completed with 180 days (extendable by 90 days) from the date of admission of CIRP application.
  2. Upon commencement of the CIRP the AA (NCLT) shall, by an order, declare a moratorium till the completion of CIRP (maximum 180-270 days) prohibiting initiation of any suit or continuation of any suit or proceeding or execution of any judgment or decree against the CD (section 14(1)(a)), disposal or alienation, in any manner by the CD of its assets or legal rights or beneficial interest in them (section 14(1)(b)), any action u/s 13(4) of SARFAESI by the secured lenders (section 14(1)(c)), recovery of any property which is in possession of the CD, whether or not owned by CD (section 14(1)(d). However the declaration of moratorium shall not result in suspension or termination of essential goods or services to the CD (Section 14(2)).
  3. Within 14 days of commencement of CIRP, the AA (NCLT) shall appoint an Interim resolution professional (IRP), as proposed in the application for initiation of CIRP and also cause a public announcement of the initiation of CIRP and call for submission of claims by the creditors of CD (section 13). From the date of appointment of IRP, the management of affairs of CD shall vest in the IRP and the powers of Board of Directors / partners of the CP shall stand suspended.
  4. The IRP shall collate all the claims received against CD and constitute a Committee of Creditors (CC) comprising all the Financial Creditors of the CD (irrespective of them being differently secured).  As such, there is no concept of class of Creditors (1st Charge / 2nd Charge / unsecured) amongst the FCs. The CC shall within seven days of its constitution, with a super majority vote, resolve to appoint the Interim RP as the Resolution Professional (RP) or replace him with another RP to run the CIRP.
  5. The RP shall manage the affairs of the CD and also prepare an Information Memorandum (IM) about the CD in the prescribed manner for the formulation of resolution plans. Any person (called a Resolution Applicant) can file a Resolution Plan in response to the IM prepared and circulated by the RP. The Resolution Plans for the Corporate Debtor filed by various Resolution Applicants shall be examined by the RP and placed before the CC.
  6. A resolution plan, if approved by the CC (by 75% or more voting share of FC), shall be submitted by the RP to the AA (NCLT) for its approval. The AA (NCLT), after satisfying itself that the resolution plan as approved by CC is compliant with the requisites of section 30(4) of the Act (i.e. approved by 75% or more of the voting share of FC, provision for payment of dues to OC which is not lower than the amount which the OC would be eligible to get in the event of liquidation etc.) shall approve the plan (section 31(1)) or in case it does not satisfy the criteria then it may reject the said plan (section 31(2)). 

The Liquidation Process

  1. In case the resolution plan is rejected by the AA (NCLT) for non compliance with the requisites of section 30(4) or no plan is received within the stipulated time frame of 180 days or 270 days, the AA (NCLT) may pass orders for liquidation of the CD and issue a public announcement to that effect. (Section 33)
  2. The AA may also direct liquidation of CD in the event the RP communicates to the AA that even during the pendency of the CIRP, the CC has decided to liquidate the company, or on determination by the AA (on an application filed by any person) that the provisions of resolution plan have been contravened by the CD.
  3. Upon passing of order of liquidation of CD by the AA the RP shall act as Liquidator and shall receive and collect claims of creditors, verify them and accordingly accept or reject the same and run the liquidation process in accordance with the provisions of the IBC.

Distribution of assets in case of liquidation The Code also provides for priorities [waterfall] wherein the proceeds from the realization of assets of the CD are to be distributed to its creditors in case of liquidation. The priority as envisaged in the code is as follows:

  1. Insolvency Resolution Process costs and liquidation costs paid in full;
  2. the following debts which shall rank equally between and among the following:

    1. Workmen dues for the period of twenty-four months preceding the liquidation commencement date; and
    2. Debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52;
  3. wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date;
  4. financial debts owed to unsecured creditors;
  5. the following dues shall rank equally between and among the following:

    1. any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date;
    2. Debts owed to a secured creditor for any amount unpaid following the enforcement of security interest;
  6. any remaining debts and dues;
  7. preference shareholders, if any; and
  8. equity shareholders or partners, as the case may be.

Cross – Border Insolvency: The code also covers certain provisions related to cases of Cross-Border Insolvency which envisage that:

  1. The Central Govt. may enter into an agreement with the government of any country outside India for enforcing the provisions of insolvency code
  2. Application of provision of insolvency code in relation to assets or property of corporate debtor or debtor, including personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified.

As such, it may be noticed that the code is a comprehensive attempt to try to restructure/ revive a Company in a time bound manner of 180-270 days and if no such Corporate Restructuring Plan is approved or implemented within the stipulated time, then the Company would go into liquidation.  In case of liquidation of a Corporate Debtor, the Personal Guarantor can file for and be declared as Bankrupt before the NCLT itself [Section 60(2)].  He will, however, remain disqualified from being appointed / elected to certain offices (as per Section 140 of IBC) and will have certain restrictions (as per Section 141 of IBC), unless and until the bankruptcy order against him is modified or recalled or he is discharged. 

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

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.

Contact the Author?
Click here to email the Author
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Other India Advice Centres
Arbitration, Litigation and Conciliation
More Advice Centers
Significant Recent Cases
Highlights of commercially relevant recent news and events.
Recent judgments and court decisions of interest.
Upcoming Events
Media from our most recent events and conferences.
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.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


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.