CS Professional:Insolvency-Law & Practice [Ch-2 Introduction to IBC]

insolvency = insufficient assets to pay debts/general inability to pay debts

bankruptcy = legal status, begins with filing a court petition and evaluation of debtors' assets to pay creditors in accordance with law./formal insolvency declaration.

liquidation = closure/winding up legally where assets sold at reasonable rates

insolvency is a state and bankruptcy is the conclusion.

insolvency used for individual/organisations and corporates and leads to bankruptcy for individuals and liquidation for corporations.

HISTORICAL BACKGROUND

• govt. set up an expert committee under the chair of Shri T. Tiwari examined and recommended suitable remedies and enacted SICA,1985.
• Determining sickness and expediting revival/closure of potentially viable units
• idle investment becomes productive and locked up gets released for use elsewhere.
• timely detection
• BIFR set up in 01/1987 and functional w.e.f. 15/05/1987
• AAIFR constituted in 04/1987
• govt. co. brought under purview when extensive changes include changes in sickness determination criteria.
• constraint = applicable to only sick industrial companies except co. in trading,services and others
• other constraints like unsatisfactory,misuse of immunity
• IBC notified on 28/05/2016
• presently, SICA repealed and B/AAIFR stands dissolved and AA became NCLT.

BANKRUPTCY LAW REFORMS COMMITTEE REPORT (BLRC)

1. reported to the finance ministry on 04/11/2015
2. objectives:
• less time involved
• less recovery loss
• high debt financing
3. vol.1 = rationale/design & vol.2 = draft insolvency and bankruptcy bill
4. observed less powers of creditors to recover only 20%
5. proposed to establish a creditors committee where financial creditors votes proportionate to debt

NEW LAW-NECESSITY

As per World Bank data in 2015, insolvency resolution in India took 4.3 years on an average, which was way higher when compared to other countries such as United Kingdom (1 year) and United States of America (1.5 years). These delays were caused due to time taken to resolve cases in courts, and confusion due to a lack of clarity about the current bankruptcy framework.

• multiple overlapping laws and no single law
• The framework was inadequate,ineffective and resulted in undue delays in resolution.
• no effective/timely recovery/restructuring of defaulted assets and causing undue strain
• co. liquidation was handled by high courts and for individuals by presidency towns/provincial insolvency acts.
• effective & cumulative legal framework for ease of doing business and facilitating investments followed by higher economic growth/development.

IBC,2016 - INTRODUCTION

1.  IBC bill drafted by BLRC under finance ministry 
•  introduced in lok sabha on 21/12/2015 and subsequently referred to a joint parliament committee. 
•  modified on 05/05/2016 
• passed by rajya sabha on 11/05/2016 and presidential assent on 28/05/2016.
2. total 255 sections organised in 5 parts

1. Section 2- applicability

 IBC-KEY OBJECTIVES 

1. consolidate/amend existing laws w.r.t reorganisation,insolvency resolution
2. time-bound insolvency resolution mechanism
3. maximum asset value
4. promote entrepreneurship
5. increase credit availability
6. balance stakeholder interest
7. ESTABLISH IBBI as regulatory body
8. procedure for connected/incidental matters

SALIENT FEATURES OF IBC,2016

• uniform,comprehensive insolvency legislation except financial service providers
• regulates an altogether new class of Insolvency Professionals (IPs)
• control debtor's assets/run debtor's business during resolution
• verifies creditor claims
• constitutes creditors' committee
• assists creditors in finalizing revival plans
• ensures compliance
• To regulate the working of Insolvency Professional Agencies (IPAs), the Insolvency and Bankruptcy Board of India (IBBI) has framed the following regulations in exercise of the powers conferred by the Insolvency and Bankruptcy Code, 2016:
• The Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 and 
• The Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016.
• regulations for Info Utilities (IUs)
• new insolvency regulator = IBBI whose members include CG reps
• NCLT & DRT along with respective appellate tribunals to initiate insolvency proceedings after verification and ultimately, Supreme Court.
• ensure that the insolvency resolution is commercially viable, the Code separates the commercial aspects from the judicial aspects and thus limits the role of Adjudicating Authorities to ensuring due process rather than adjudicating on the merits of the insolvency resolution.
• corporate debtor default 1 crore or above (24/03/2020)
• Fresh Start process for individuals;eligible for debt waiver <35,000
• In the case of individuals and unlimited partnerships, the insolvency resolution process consists of preparation of a repayment plan by the debtor. If approved by creditors, the DRT passes an order binding the debtor and creditors to the repayment plan. If the plan is rejected or fails, the debtor or creditors may apply for a bankruptcy order.

• completed within 180+90 days and mandatorily within 330 days
• significant changes in claim priority
• Insolvency and Bankruptcy Fund. Section 224 provides credits
• grants made by CG
• contributions (can be withdrawn by applying to AA for workmen payments/asset protection/meeting incidental costs/others)
• received from another source
• stringent penalties for certain offences/imprisonment < 5 years/fined 1 crore or both
• cross-border insolvency proceedings, CG may enter into bilateral/reciprocal agreements
• interest/income from investments

INSTITUTIONS UNDER IBC,2016

1. Insolvency & Bankruptcy Board of India (IBBI)
• The constitution of a new insolvency regulator established on 01/10/2016.
• regulates profession/processes and oversees functioning of insolvency intermediaries (IPs/IPAs/IUs).
• code implementation and framing/enforcing rules for various processes.
• REMOVAL OF MEMBERS FROM OFFICE [Section 190 (CG)]
• undischarged bankrupt under Part III
• become incapable
• convicted of offence
• abused position to render continuation detrimental to public interest
• no member to be removed without being given a reasonable opportunity of being heard
• Section 188(2) of the Code provides that the Board shall be a body corporate
• section 189(4), the term of office of the Chairperson and members (other than ex officio members) shall be fifty years or till they attain the age of sixty-five years, whichever is earlier, and they shall be eligible for reappointment.
• POWERS & FUNCTIONS (196[1])
• register,renew,withdraw,suspend or cancel registrations and promote/regulate practices of intermediaries
• specify minimum eligibility requirements for registration
• levy/fee other charges for fee/registration and call for info/records
• lay down minimum exam curriculum and carry inspections/investigations
• publish info,data and research studies and specify data collection/storage
• constituting committees as per Section 197
• promote transparency and best practices
• maintain websites and accessible repositories
• enter into MoU and issue necessary guidelines
• specify grievance redressal mechanism/public consultation process and orders relating to complaints against code compliance
• periodic study,research and audit
• model bye-laws to be adopted by IPAs (196[2])
• same powers as vested in a civil court under CPC,1908
2. Insolvency Professionals (IPs)
• act as an intermediary in the IR process
• regulated but private having minimum standards of professional/ethical conduct
• Section 3(19) = definition
• An insolvency professional also acts as a “liquidator” in accordance with the provisions of Part II as well as a “bankruptcy trustee” for the estate of the bankrupt under section 125 in Part III of the Code.
• (206) enrollment in IPAs
• (207[1]) qualifications and experience

1. Insolvency Professional Agencies (IPAs)
• (3[20]) = definition
• regulate/enrol/provide pre-registration educational course to IPs
• enforce a code of conduct
• (199) certificate of registration mandatory
• (204) FUNCTIONS
• grant membership to persons who fulfill all requirements payment of membership fee
• lay down standards of professional conduct
• monitor member's performance
• safeguard the rights, privileges and interests of insolvency professionals 
• suspend or cancel membership of insolvency professionals
• redress the grievances of consumers
• publish functions, list of its members, performance and other info
2. Adjudicating Authority (AA)
• (5[1]) AA=NCLT to entertain corporate insolvency
• app/proceeding by/against corporate debtor
• claim made/by against debtor
• question of priorities/law relating to IBC
• (63) excludes civil court jurisdiction
• (79[1]) AA=Debt Recovery Tribunal under sub-section (1) of section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
• appellate tribunals followed by Supreme court
3. Info Utility (IUs)
• (3[21]) definition
• The purpose of such collection, collation, authentication and dissemination of financial information of debtors is to facilitate swift decision making in the resolution proceedings.
• The Insolvency and Bankruptcy Board of India has framed the IBBI (Information Utilities) Regulations, 2017
• IU obligations (214)
• create/store financial info
• accept electronic submission under Section 215
• meet minimum service quality standard
• get info authenticated by all concerned parties before storage
• provide access as required
• publish stats as specified by regulations
• have interoperability with IUs

Sections 3, 5 and 79 of the Insolvency and Bankruptcy Code, 2016 define important terms used in the Code. 

Section 3 of the Code defines general important terms used in the Code whereas section 5 of the Code defines important terms relating to insolvency resolution and liquidation for corporate Persons covered in Part II of the Code. Similarly section 79 of the Code defines important terms relating to Insolvency Resolution and Bankruptcy for individuals and Partnership Firms which is discussed in Part III of the Code.

Imp. CASE LAW=Innoventive Industries Ltd. v. ICICI Bank GIVING IMPORTANCE TO INSOLVENCY LAWS OVER OTHER LAWS