The Insolvency and Bankruptcy Code, 2016 (IBC) has been one of the most revolutionary reforms in India’s economic and legal landscape. It streamlined the previously fragmented insolvency laws into one unified, time-bound mechanism. By introducing predictability and discipline in debt resolution, the Code has fundamentally changed how India deals with business failures and financial distress.
Let’s dive deeper into the legal framework and institutional setup that form the backbone of the IBC regime.
Overview of the Insolvency and Bankruptcy Code (IBC), 2016
Objective and Structure of the Code
The IBC was enacted with the following core objectives (as laid out in its Preamble):
- Consolidation and amendment of all laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals.
- Maximization of value of assets of such persons.
- Promotion of entrepreneurship, availability of credit, and balancing the interests of all stakeholders.
- Time-bound resolution to ensure business continuity and prevent value erosion.
The Code is structured into five parts:
- Part I: Preliminary provisions
- Part II: Insolvency resolution and liquidation for corporate persons
- Part III: Insolvency resolution and bankruptcy for individuals and partnership firms
- Part IV: Regulation of insolvency professionals, agencies, and information utilities
- Part V: Miscellaneous provisions
Key Definitions and Provisions
To understand the Code, one must be familiar with its key terminologies:
- Corporate Debtor (Section 3(8)) – A corporate person who owes a debt to any person.
- Financial Creditor (Section 5(7)) – A person to whom a financial debt is owed, such as banks or financial institutions.
- Operational Creditor (Section 5(20)) – A person to whom an operational debt (for goods, services, or dues to employees/government) is owed.
- Insolvency Resolution Process (Section 5(12)) – The process by which financial distress is resolved through restructuring or liquidation.
- Moratorium (Section 14) – A temporary prohibition on certain actions (like lawsuits or asset transfers) against the corporate debtor once insolvency proceedings commence.
Role of the Insolvency and Bankruptcy Board of India (IBBI)
Established under Section 188 of the IBC, the IBBI acts as the regulatory and supervisory authority for the entire insolvency ecosystem.
Its key responsibilities include:
- Framing and enforcing regulations for insolvency professionals (IPs), professional agencies (IPAs), and information utilities (IUs).
- Registering and monitoring IPs, IPAs, and IUs.
- Collecting and disseminating information on insolvency cases.
- Ensuring professional standards and ethical conduct among practitioners.
The IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and IBBI (Liquidation Process) Regulations, 2016 are two vital frameworks issued under its authority.
Institutional Framework
The IBC’s success depends heavily on its institutional pillars, which work together to ensure swift and fair resolutions.
Adjudicating Authorities
The Code establishes specific bodies to adjudicate insolvency matters:
- National Company Law Tribunal (NCLT) – Under Section 60, the NCLT is the adjudicating authority for corporate insolvency and liquidation proceedings.
- It admits or rejects insolvency applications.
- It appoints resolution professionals.
- It approves or rejects resolution plans.
- National Company Law Appellate Tribunal (NCLAT) – Established under Section 61, the NCLAT hears appeals against the orders of NCLT.
- Debt Recovery Tribunal (DRT) – Under Section 179, DRT serves as the adjudicating authority for individuals and partnership firms.
- Debt Recovery Appellate Tribunal (DRAT) – Established under Section 181, DRAT hears appeals against the orders passed by DRT.
Transition Note: Together, these tribunals form a hierarchical structure ensuring both specialization and appellate oversight within the insolvency framework.
Insolvency Professionals (IPs) and Insolvency Professional Agencies (IPAs)
Another cornerstone of the IBC framework is the network of licensed insolvency professionals, who manage the resolution and liquidation processes.
- Insolvency Professionals (IPs):
As per Section 206, no person can act as an IP without registration with the IBBI.
Their duties include:- Taking over the management of the corporate debtor during CIRP.
- Verifying creditor claims.
- Convening meetings of the Committee of Creditors (CoC).
- Facilitating preparation and evaluation of resolution plans.
- Insolvency Professional Agencies (IPAs):
Formed under Section 201, IPAs enroll and regulate insolvency professionals.
They set professional and ethical standards for their members and take disciplinary action when necessary.
The three recognized IPAs in India are:
- Indian Institute of Insolvency Professionals of ICAI
- ICSI Institute of Insolvency Professionals
- Insolvency Professional Agency of Institute of Cost Accountants of India
Information Utilities (IUs)
To ensure transparency and reliability of financial data, Information Utilities play a vital role under Section 210 of the Code.
- They store and authenticate information related to debt, defaults, and security interests.
- This verified data is used during insolvency proceedings to determine the existence of default.
- The first registered IU in India is National e-Governance Services Ltd. (NeSL).
Initiation of Insolvency Proceedings
The insolvency process begins when a default occurs (defined under Section 3(12) as non-payment of debt when due).
🧾 Who Can File an Application?
Under Sections 7, 9, and 10, the IBC provides three routes for initiating insolvency:
- By Financial Creditor (Section 7):
- Application filed before the NCLT once a default occurs.
- NCLT must ascertain the existence of default within 14 days.
- Once admitted, the process starts with a moratorium under Section 14.
- By Operational Creditor (Section 9):
- Before filing, the operational creditor must deliver a demand notice under Section 8.
- If the debtor does not pay or dispute within 10 days, the creditor may apply to NCLT.
- By Corporate Debtor Itself (Section 10):
- A corporate entity may voluntarily file for insolvency if it foresees financial distress.
Application Process and Timelines
The IBC is known for its time-bound resolution framework, which distinguishes it from previous laws.
- NCLT must admit or reject an application within 14 days of filing.
- Upon admission:
- Moratorium under Section 14 begins immediately.
- An Interim Resolution Professional (IRP) is appointed within 14 days.
- The Corporate Insolvency Resolution Process (CIRP) must be completed within 180 days (extendable up to 330 days in exceptional cases).
Admission and Moratorium
Once an application is admitted, a moratorium is declared under Section 14, which prohibits:
- Institution or continuation of suits or proceedings against the corporate debtor.
- Transfer or disposal of its assets.
- Enforcement of security interest.
- Recovery of property by an owner or lessor.
This ensures that the company gets a breathing space to reorganize without external interference.
The legal and institutional framework of the IBC is the backbone of India’s insolvency ecosystem. Through the coordinated functioning of tribunals, regulators, professionals, and utilities, the Code ensures transparency, efficiency, and accountability in resolving financial distress. In essence, the IBC is not merely a law—it’s a dynamic instrument fostering credit discipline, economic revival, and investor confidence in the Indian market.
For a deeper insight into corporate insolvency mechanisms and real-world practices, explore Corporate Insolvency: Law, Policy and Practice by Sumant Batra — a comprehensive guide for professionals and students of insolvency law.
