MODULE 1:

1.1 Historical background and constitutional allocation of the subject of

insolvency and bankruptcy
1.2 Preliminary under IBC
1.2.1 Short title, extent and commencement of IBC
1.2.2 Application of IBC
1.2.3 Definitions under IBC
1.3 MISCELLANEOUS
1.3.1 Insolvency and Bankruptcy Fund
1.3.2 Power of Central Government
1.3.3 Bar of jurisdiction
1.3.4 Protection of action taken in good faith
1.3.5 Appeal and revision
1.3.6 IBC to override other laws
1.3.7 Limitation

Historical background and constitutional allocation of the subject of

insolvency and bankruptcy

The Central government introduced the Insolvency and Bankruptcy Code(IBC) in

2016 to resolve claims involving insolvent companies. This was intended to tackle
the bad loan problems that were affecting the banking system. Two years on the
IBC has succeeded in a large measure in preventing corporates from defaulting on
their loans. The IBC process has changed the debtor-creditor relationship. A
number of major cases have been resolved in two years, while some others are in
advanced stages of resolution.
What is IBC?
▪ Insolvency and Bankruptcy Code, 2016 is considered as one of the biggest
insolvency reforms in the economic history of India.
▪ This was enacted for reorganization and insolvency resolution of corporate
persons, partnership firms and individuals in a time bound manner for
maximization of the value of assets of such persons.
Background
▪ The era before IBC had various scattered laws relating to insolvency and
bankruptcy which caused inadequate and ineffective results with undue
delays. For example,
 ▪ Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act SARFAESI –for security enforcement.
▪ The Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(RDDBFI) for debt recovery by banks and financial institutions.
▪ Companies Act for liquidation and winding up of the company.
▪ Ineffective implementation, conflict in one of these laws and the time-
consuming procedure in the aforementioned laws, made the Bankruptcy
Law Reform Committee draft and introduce Insolvency and Bankruptcy
Law bill.
Objectives of IBC
▪ Consolidate and amend all existing insolvency laws in India.
▪ To simplify and expedite the Insolvency and Bankruptcy Proceedings in
India.
▪ To protect the interest of creditors including stakeholders in a company.
▪ To revive the company in a time-bound manner.
▪ To promote entrepreneurship.
▪ To get the necessary relief to the creditors and consequently increase the
credit supply in the economy.
▪ To work out a new and timely recovery procedure to be adopted by the
banks, financial institutions or individuals.
▪ To set up an Insolvency and Bankruptcy Board of India.
▪ Maximization of the value of assets of corporate persons.
The Insolvency and Bankruptcy Code ecosystem
▪ National Company Law Tribunal (NCLT) – The adjudicating authority
(AA), has jurisdiction over companies, other limited liability entities.
▪ Debt Recovery Tribunal (DRT) has jurisdiction over individuals and
partnership firms other than Limited Liability Partnerships.
▪ The Insolvency and Bankruptcy Board of India (IBBI) – apex body for
promoting transparency & governance in the administration of the IBC; will
be involved in setting up the infrastructure and accrediting IPs (Insolvency
Professionals (IPs) & IUs (Information Utilities).
▪ It has 10 members from Ministry of Finance, Law, and RBI.
▪ Information Utilities (IUs) - a centralized repository of financial and credit
information of borrowers; would accept, store, authenticate and provide
access to financial data provided by creditors.
▪ IPs- persons enrolled with IPA (Insolvency professional agency (IPA) and
regulated by Board and IPA will conduct resolution process; it will act as
Liquidator/ bankruptcy trustee; they are appointed by creditors and override
the powers of the board of directors.
 ▪ IPs have the power to furnish performance bonds equal to assets of the
company under insolvency resolutions
▪ Adjudicating authority (AA) - would be the NCLT for corporate insolvency;
to entertain or dispose of any insolvency application, approve/ reject
resolution plans, decide in respect of claims or matters of law/ facts thereof.
Key aspects of the Insolvency and Bankruptcy Code
▪ IBC proposes a paradigm shift from the existing 'Debtor in possession' to a
'Creditor in control' regime.
▪ IBC aims at consolidating all existing insolvency related laws as well as
amending multiple legislation including the Companies Act.
▪ The code aims to resolve insolvencies in a strict time-bound manner - the
evaluation and viability determination must be completed within 180 days.
▪ Moratorium period of 180 days (extendable up to 270 days) for the
Company. For startups and small companies the resolution time period is 90
days which can be extended by 45 days.
▪ Introduce a qualified insolvency professional (IP) as intermediaries to
oversee the Process
▪ Establishment of Insolvency and Bankruptcy board as an independent body
for the administration and governance of Insolvency & bankruptcy Law;
and Information Utilities as a depository of financial information.

224. Insolvency and Bankruptcy Fund. –

(1) There shall be formed a Fund to be called the Insolvency and Bankruptcy Fund
(hereafter in this section referred to as the “Fund”) for the purposes of insolvency
resolution,
liquidation and bankruptcy of persons under the Code.
(2) There shall be credited to the Fund the following amounts, namely —
(a) the grants made by the Central Government for the purposes of the Fund;
(b) the amount deposited by persons as contribution to the Fund;
(c) the amount received in the Fund from any other source; and
(d) the interest or other income received out of the investment made from the Fund.
(3) A person who has contributed any amount to the Fund may, in the event of
proceedings initiated in respect of such person under this Code before an
Adjudicating Authority, make an application to such Adjudicating Authority for
withdrawal of funds not exceeding the amount contributed by it, for making
payment to workmen, protecting the assets of such persons, meeting the incidental
cost during the proceedings or such purposes as may be prescribed.
(4) The Central Government shall, by notification, appoint an administrator to
administer the fund in such manner as may be prescribed.

225. Power of Central Government to issue directions. –

(1)Without prejudice to the foregoing provisions of this Code, the Board shall, in
exercise of its powers or the performance of its functions under this Code, be
bound by such directions on questions of policy as the Central Government may
give in writing to it from time to time:
Provided that the Board shall, as far as practicable, be given an opportunity to
express its views before any direction is given under this sub-section.
(2) The decision of the Central Government as to whether a question is one of
policy or not shall be final.

226. Power of Central Government to supersede Board. –

(1) If at any time the Central Government is of opinion –
(a) that on account of grave emergency, the Board is unable to discharge the
functions and duties imposed on it by or under the provisions of this Code; or
(b) that the Board has persistently not complied with any direction issued by the
Central Government under this Code or in the discharge of the functions and duties
imposed on it by or under the provisions of this Code and as a result of such
noncompliance the financial position of the Board or the administration of the
Board has deteriorated; or
(c) that circumstances exist which render it necessary in the public interest so to
do, the Central Government may, by notification, supersede the Board for such
period, not exceeding six months, as may be specified in the notification.
(2) Upon the publication of a notification under sub-section (1) superseding the
Board,
(a) all the members shall, as from the date of supersession, vacate their offices as
such;
(b) all the powers, functions and duties which may, by or under the provisions of
this Code, be exercised or discharged by or on behalf of the Board, shall until the
Board is reconstituted under sub-section (3), be exercised and discharged by such
person or persons as the Central Government may direct; and (c) all property
owned or controlled by the Board shall, until the Board is reconstituted under sub-
section (3), vest in the Central Government.
(3) On the expiration of the period of supersession specified in the notification
issued
under sub-section (1), the Central Government may reconstitute the Board by a
fresh appointment and in such case any person or persons who vacated their offices
under clause (a) of sub-section (2), shall not be deemed disqualified for
appointment: Provided that the Central Government may, at any time, before the
expiration of the period of supersession, take action under this sub-section.
(4) The Central Government shall cause a notification issued under sub-section (1)
and a full report of any action taken under this section and the circumstances
leading to such action to be laid before each House of Parliament at the earliest.

231. Bar of jurisdiction. -

No civil court shall have jurisdiction in respect of any matter in which the
[Adjudicating Authority or the Board] is empowered by, or under, this Code to
pass any order and no injunction shall be granted by any court or other authority
in respect of any action taken or to be taken in pursuance of any order passed by
such [Adjudicating Authority or the Board] under this Code.

233. Protection of action taken in good faith. -

No suit, prosecution or other legal proceeding shall lie against the Government or
any officer of the Government, or the Chairperson, Member, officer or other
employee of the Board or an insolvency professional or liquidator for anything
which is in done or intended to be done in good faith under this Code or the rules
or regulations made thereunder.

237. Appeal and revision. -

The High Court may exercise, so far as may be applicable, all the powers conferred
by Chapters XXIX and XXX of the Code of Criminal Procedure, 1973 (2 of 1974)
on a High Court, as if a Special Court within the local limits of the jurisdiction of
the High Court were a Court of Session trying cases within the local limits of the
jurisdiction of the High Court.

238. Provisions of this Code to override other laws. -

The provisions of this Code shall have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time being in force or any
instrument having effect by virtue of any such law.

238A. Limitation. –
The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be,
apply to the proceedings or appeals before the Adjudicating Authority, the
National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the
Debt Recovery Appellate Tribunal, as the case may be.

239. Power to make rules. -

(1) The Central Government may, by notification, make rules for carrying out the
provisions of this Code.
(2) Without prejudice to the generality of the provisions of sub-section (1), the
Central Government may make rules for any of the following matters, namely: —
(a) any other instrument which shall be a financial product under clause (15) of
section 3;
(b) other accounting standards which shall be a financial debt under clause (d)
of sub-section (8) of section 5;
(c) the form, the manner and the fee for making application before the
Adjudicating Authority for initiating corporate insolvency resolution process by
financial creditor under sub-section (2) of section 7;
(d) the form and manner in which demand notice may be made and the manner
of delivery thereof to the corporate debtor under sub-section (1) of section 8;
(e) the form, the manner and the fee for making application before the
Adjudicating Authority for initiating corporate insolvency resolution process by
operational creditor under sub-section (2) of section 9;
[(ea) other proof confirming that there is no payment of an unpaid operational debt
by the corporate debtor or such other information under clause (e) of sub-section
(3) of section 9;]
(f) the form, the manner and the fee for making application before the
Adjudicating Authority for initiating corporate insolvency resolution process by
corporate applicant under sub-section (2) of section 10;
(g) the persons who shall be relative under clause (ii) of the Explanation to
subsection (1) of section 79;
(h) the value of unencumbered single dwelling unit owned by the debtor under
clause (e) of sub-section (13) of section 79;
(i) the value under clause (c), and any other debt under clause (f), of sub-section
(14) of section 79;
(j) the form, the manner and the fee for making application for fresh start order (3)
of section 81;
(l) the information and documents to support application under sub-section (3)
of section 86;
(m) the form, the manner and the fee for making application for initiating the
insolvency resolution process by the debtor under sub-section (6) of section 94;
(n) the form, the manner and the fee for making application for initiating the
insolvency resolution process by the creditor under sub-section (6) of section 95;
(o) the particulars to be provided by the creditor to the resolution professional
under sub-section (2) of section 103;
(p) the form and the manner for making application for bankruptcy by the debtor
under clause (b) of sub-section (1) of section 122;
(q) the form and the manner of the statement of affairs of the debtor under
subsection (3) of section 122;
(r) the other information under clause (d) of sub-section (1) of section 123;
(s) the form, the manner and the fee for making application for bankruptcy under
sub-section (6) of section 123;
(t) the form and the manner in which statement of financial position shall be
submitted under sub-section (2) of section 129;
(u) the matters and the details which shall be included in the public notice under
sub-section (2) of section 130;
(v) the matters and the details which shall be included in the notice to the
creditors under sub-section (3) of section 130;
(w) the manner of sending details of the claims to the bankruptcy trustee and
other information under sub-sections (1) and (2) of section 131;
(x) the value of financial or commercial transaction under clause (d) of subsection
(1) of section 141;
(y) the other things to be done by a bankrupt to assist bankruptcy trustee in
carrying out his functions under clause (d) of sub-section (1) of section 150;
(z) the manner of dealing with the surplus under sub-section (4) of section 170;
(za) the form and the manner of proof of debt under clause (c) of sub-section
(2) of section 171;
(zb) the manner of receiving dividends under sub-section (7) of section 171;
(zc) the particulars which the notice shall contain under sub-section (2) of
section 176;
(zd) the salaries and allowances payable to, and other terms and conditions of
service of, the Chairperson and members of the Board under sub-section (5) of
section 189;
(ze) the other functions of the Board under clause (u) of sub-section (1) of
section 196;
(zf) the other funds under clause (c) of sub-section (1) of section 222;
(zg) the other purposes for which the fund shall be applied under clause (d) of
sub-section (2) of section 222;
(zh) the form in which annual statement of accounts shall be prepared under
sub-section (1) of section 223;
(zi) the purpose for which application for withdrawal of funds may be made
under sub-section (3) of section 224;
(zj) the manner of administering the fund under sub-section (4) of section 224;
(zk) the manner of conducting insolvency and liquidation proceedings under
section 227;
(zl) the form and the time for preparing budget by the Board under section 228;
(zm) the form and the time for preparing annual report under sub-section (1) of
section 229;
(zn) the time up to which a person appointed to any office shall continue to hold
such office under clause (vi) of sub-section (2) of section 243.

[240A. Application of this Code to micro, small and medium enterprises. –

(1) Notwithstanding anything to the contrary contained in this Code, the provisions
of clauses (c) and (h) of section 29A shall not apply to the resolution applicant in
respect of corporate insolvency resolution process of any micro, small and medium
enterprises.
(2) Subject to sub-section (1), the Central Government may, in the public interest,
by notification, direct that any of the provisions of this Code shall—
(a) not apply to micro, small and medium enterprises; or
(b) apply to micro, small and medium enterprises, with such modifications as may
be specified in the notification.
(3) A draft of every notification proposed to be issued under subsection (2), shall
be laid before each House of Parliament, while it is in session, for a total period of
thirty days which may be comprised in one session or in two or more successive
sessions.
(4) If both Houses agree in disapproving the issue of notification or both Houses
agree in making any modification in the notification, the notification shall not be
issued or shall be issued only in such modified form as may be agreed upon by
both the Houses, as the case may be.
(5) The period of thirty days referred to in sub-section (3) shall not include any
period during which the House referred to in sub-section (4) is prorogued or
adjourned for more than four consecutive days.
(6) Every notification issued under this section shall be laid, as soon as may be
after it is issued, before each House of Parliament.
Explanation.— For the purposes of this section, the expression "micro, small and
medium enterprises" means any class or classes of enterprises classified as such
under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises
Development Act, 2006 (27 of 2006).]