It has been one year since the Insolvency and Bankruptcy Code, 2016 ("I&B Code") came into effect. The I&B Code is one of the biggest economic reforms to have taken place recently. It consolidates the archaic insolvency laws and provides a unified single legislation extensively dealing with the insolvency regime in India. One of the highlighting features of the I&B Code is that it provides a time bound process of 180 days, extendable only by a further period of 90 days to conduct the insolvency resolution. During the past one year, there were many amendments that were made and significant efforts that were put in to overhaul the I&B Code.

At the initial stage, many financial creditors were hesitant to proceed under the I&B Code. Part of the inertia may have to do with the initial days of the I&B Code; but part of it was also the typical (and severe) agency and moral hazard problems of not resolving non performing assets (NPAs) when the banking sector is majorly government-owned.1 It was only when the 12 largest stressed accounts, totaling about 25% of the gross NPAs (approximately Rs. 2.5 trillion) were referred under the I&B Code by the Reserve Bank of India ("RBI"), that the financial creditors came ahead and moved applications for insolvency resolution under the I&B Code.

As on November 2017, over 4300 insolvency resolution applications were filed before the Adjudicating Authority for Corporates i.e. the National Company Law Tribunal ("NCLT") at its various benches. Out of the above 4300 cases, 470 cases were admitted by NCLT and are at various stages of the insolvency resolution process and NCLTs have approved the resolution plans or liquidation orders in 25 Corporate Insolvency Resolution Process ("CIRP") transactions.2 India's ranking on ease of doing business has jumped from 130 to 100. The ranking under the Insolvency head, taken alone, also improved sharply from 136 to 103.3 As on 30th November, 2017, an amount of Rs. 39.63 crore has been realized after filing of cases with NCLT, and an amount of Rs. 2.89 crore had been borne by the banks as haircut.4

This was further accompanied with the passing of many judicial pronouncements by the NCLTs, National Company Law Appellate Tribunal ("NCLAT") and the Supreme Court of India, evolving the insolvency jurisprudence.

There were a lot of pro active steps/decisions taken by the regulator, the Insolvency and Bankruptcy Board of India ("IBBI") and the central government in order to revamp the I&B Code from time to time especially with reference to credibility of the resolution applicant. Further, the IBBI on 31st December, 2017 amended and deleted the provision requiring disclosure of liquidation value of an asset undergoing resolution, in order to achieve better price discovery for stressed assets.5

Despite the above, there are many issues and ambiguities with regard to the I&B Code, which may hamper its effectiveness. Some of these issues are set forth below:

Shift in the paradigm approach – The I&B Code shifts the paradigm approach from liquidation to corporate rescue and endeavours to resolve the insolvency. It is only when the committee of creditors concludes that the resolution is not possible, liquidation is resorted to. The main objective of the law is that the corporate should succeed post resolution. An effective resolution plan may require the lenders to take a haircut. Considering the pre-conceived mindset of the lenders to only focus on recovery, it is not yet certain if the banks would be willing to take a higher haircut for a sustainable resolution plan aiming at corporate rescue. The use of insolvency as an outright debt collection tool may render the I&B Code as ineffective and futile.

Number of Creditors – The I&B Code provides for a committee of creditors comprising of all the financial creditors.6 This is without any restriction on their number and as such it may comprise of even a thousand financial creditors. This may lead to invariable difficulties in conducting meetings, taking decisions and balancing the interests of all creditors. Therefore, there should be some cap on the number of financial creditors in a committee as in the case of operational creditors wherein the maximum number of creditors in a committee (of operational creditors) is limited to (18) eighteen. In other jurisdictions, there are restrictions on the number of creditors in a committee or there is a provision for different committees for different creditors. Such practice may be followed.

Limitation Period – The I&B Code is silent on the applicability of the Limitation Act to the proceedings held thereunder. The NCLAT in Black Pearl Hotels Pvt. Ltd. v. Planet M Retail Ltd7 dealt with the question of applicability of the Limitation Act. The aforesaid appeal arose from the decision of NCLT, Mumbai rejecting an application for initiation of insolvency proceedings by an operational creditor on the ground that the debt was barred by limitation. The NCLAT ruled that even if it is accepted that the Limitation Act is applicable to the I&B Code for initiation of Corporate Insolvency Resolution process, the period of limitation would only start running from 1st December, 2016 (i.e. the date on which the I&B Code came into force). The NCLAT held as under:

"Insolvency and Bankruptcy Code, 2016 has come into force with effect from 1st December, 2016. Therefore, the right to apply under I&B Code accrues only on or after 1st December, 2016 and not before the said date (1st December, 2016). As the right to apply under section 9 of I&B Code accrued to appellant since 1st December, 2016, the application filed much prior to three years, the said application cannot be held to be barred by limitation.

Therefore, as a corollary, all debts will come under the purview of the I&B Code till the end of the limitation period as counted from 1st December, 2016. The order passed by the NCLAT in Black Pearl (supra) in effect allows the creditors to initiate insolvency proceedings on the basis of time-barred debts which could not be recovered due to expiry of limitation period. The NCLAT did not take into account the settled principle that rules of limitation are not meant to destroy the rights of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time8. As the law of insolvency evolves, it is to be seen whether the decision of NCLAT in Black Pearl will hold good or not in the coming period of time.

Scope and extent of Moratorium – Moratorium is dealt with under Section 14 of the I&B Code. Its scope and extent is defined to a very limited extent and as such it has been a subject matter of dispute before the NCLT and the NCLAT on a number of occasions. It was noted by the NCLT, Mumbai Bench in M/s Schweitzer Systemtek India Pvt. Ltd. v. Phoenix ARC Pvt. Ltd.9 that there are cases when moratorium is used by debtors to thwart or frustrate recovery proceedings initiated by lenders. To avoid such circumstances, it is imperative that the contours defining the scope and extent of a moratorium should be laid down by the IBBI. There should be specific exclusions and inclusions in Section 14 with regard to the applicability and scope of moratorium.

Difficulty in decision making – The I&B Code stipulates that all decisions of the committee of creditors shall be taken by a vote of not less than seventy-five (75%) per cent of voting share of the financial creditors.10 There may be times when the creditor holding 1% share may withhold its decision and can defeat the resolution process. In order to safeguard against such a situation there should be a provision that if decision is not achieved by 75% vote share than the decisions shall be taken by 60% in number.

Interim Finance – One of the objectives of the I&B Code is maximisation of value of assets by keeping the enterprise as a going concern. This may entail raising of interim finance from existing or new lenders. The existing lenders of a debtor are reluctant as providing new loan to NPA account renders new loan as NPA. If the funds are to be raised through a new lender, it would require the approval of the committee of creditors, which is difficult to get. This is because the lenders are reluctant to allow interim loans from other creditors as they fear losing charge over the assets.

Non-cooperation by Debtors – The Resolution process can be initiated by a financial creditor, corporate debtor itself or by a corporate applicant by way of filing an application under the I&B Code. In a case where the application is filed by a financial creditor, it is very difficult for the resolution professional to fetch the requisite information in the given amount of time to effectively conduct the resolution process. This is because the promoters of the debtor often see their displacement as a threat. The I&B Code provides for setting up of information utilities to create an accessible database of all the information. On 25th September 2017, the IBBI granted the final approval to National e-Governance Services Ltd. (NeSL), allowing it to become the first information utility. However, it will take some time to put in place the appropriate system in this regard.

Safety and security of resolution professionals– Resolution Professionals form a crucial pillar upon which rests the effective, timely functioning as well as credibility of the entire edifice of the insolvency and bankruptcy resolution process. An effective resolution process would require steps to be taken for proper safety and security of the resolution professionals. It was reported that a paper firm in Tamil Nadu gave a bitter experience to a resolution professional as he was locked up in a room for two days and was beaten up.11 To avoid such situations, it is imperative that proper police security be given to the resolution professionals. In order to implement the same, a new sub-clause (e) may be added to Section 14(1) whereby the NCLT will give direction(s) to all the concerned police stations to provide police help/ protection to the resolution professional without any further reference to NCLT in this regard.

Appointment of Interim Resolution Professional - In the applications filed under Section 7 (3)(b) and Section 10 (3) (b) of the I&B Code, it is mandatory for the financial creditor and the corporate applicant respectively to furnish the name of the resolution professional proposed to act as an interim resolution professional. However, in the case of an operational creditor, the same is not mandatory and Section 9(4) provides that an operation creditor may propose a resolution professional to act as interim resolution professional. If no name is proposed, the NCLT under Section 16(3)(a) shall make a reference to the IBBI for the recommendation of an insolvency professional who may act as an interim resolution professional. Thereafter, the IBBI shall refer the name within 10 days of the receipt of reference, this delays the resolution process. There is no justification or reason for giving such an exception to the operational creditor. As such it should also be made mandatory for the operational creditor to suggest the name of the interim resolution professional.

Misuse of the I&B Code by the operational creditors – It is noticed from the current trend that operational creditors are using the provisions under Section 9 of the I&B Code to pressurize the corporate debtor to make the payment and are using the I&B Code as a tool of recovery, which goes against the very intent and object of the I&B Code. This may also amount to preferential payment. At times, the corporate debtor may misuse the provisions in connivance with the operational creditor to make a preferential payment to its preferred creditors. Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 provides that the NCLT may permit withdrawal of application on a request made by the applicant before its admission. However, the Supreme Court in Impex Ferro Tech Limited v. Aggarwal Coal Corporation12 vide order dated 11th December, 2017 exercised its powers under Article 142 of the Constitution of India to allow withdrawal on account of settlement between the parties, even after the admission of the application. It is desirable that the NCLT, NCLAT and the Supreme Court should ensure, while allowing such withdrawals, that the same is not with the intent of making a recovery or to make a preferential payment.

Lack of proper provisions in relation to cross border insolvency – One of the issues is with regard to the limited provisions in the I&B Code to cover cross-border insolvencies. The I&B Code only provides for a provision for Central Government to enter into bilateral treaties with other countries.13 This process may take time and problems may arise due to variance in laws of different jurisdictions.


The I&B Code was a much needed legislation in India especially in the wake of rising NPAs. It provides a time bound process to conduct insolvency resolution, which earlier took around 3-4 years. Moreover, it aims at maximisation of value of assets by focusing on corporate rescue and promoting entrepreneurship. However, being a new law, it will take time to evolve. But looking at the joint efforts of lenders, borrowers, the regulator, resolution professionals, the central government and the judicial foras, the purpose and intent of the I&B Code will surely be achieved in the coming period of time.


1. Resolution of Stressed Assets: Towards the Endgame, Urjit R. Patel, Governor, Reserve Bank of India, August 19, 2017, Inaugural Session of the "National Conference on Insolvency and Bankruptcy: Changing Paradigm", Mumbai

2. See Financial Stability Report December, 2017, Reserve Bank of India dated 21st December, 2017.

3. Ibid.

4. Shri P.P. Chaudhary, Minister of State for Law & Justice / Corporate Affairs; Posted On: 19th December 2017, by PIB Delhi.

5. Amendments to (i) the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, and (ii) the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017

6. Section 21(2) of the Insolvency and Bankruptcy Code, 2016.

7. Order dated 17th October, 2017 in Company Appeal (AT) (Insolvency) No.91 of 2017

8. Balakrishnan v. M.A. Krishnamurthy; (1998) 7 SCC 123

9. TCP No. 1059/I&BP/NCLT/MB/MAH/2017

10. Section 21(8) of the Insolvency and Bankruptcy Code, 2016.

11. Economic Times, November 2017

12. SLP (C)No. 33687/ 2017

13. Section 234 of the Insolvency and Bankruptcy Code , 2016

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