INTRODUCTION

This paper seeks to provide an overview of the Insolvency and Bankruptcy

Bill, 2015 which has been tabled in the parliament. It also deals with the
study of the present framework in place regarding insolvency and
bankruptcy laws and tries to analyse the implications of the new bill and
the framework on the insolvency and bankruptcy laws currently in place. It
also tries to explore the positives of the new insolvency and bankruptcy
code.
THE PRESENT
BANKRUPTCY

LEGAL

FRAMEWORK

FOR

INSOLVENCY

AND

The current framework of Insolvency and Bankruptcy in India is a multilayered structure covered by many laws. Following are the laws presently
in force:
The Presidency Towns Insolvency Act, 1909
Deals with the insolvency of Individuals and Partnerships and Associations
of Individuals in the Presidency towns of Chennai, Kolkata and Mumbai.
The High Courts of these presidencies have the jurisdiction over the
insolvency proceedings.
The Provincial Insolvency Act, 1920
Deals with the insolvency of Individuals and Partnerships and Associations
of Individuals in areas other than the Presidency Towns. The State
Governments have assigned the Subordinate courts to handle the
insolvency proceedings and District courts being the courts of appeal.
The Limited Liability Partnership Act, 2008 (LLPA)
Deals with the whole proceedings of compromise, arrangements,
reconstruction, winding up and dissolution of Limited Liability
Partnerships. A few minor changes have been brought through in this Act
in the Limited Liability Partnership Rules, 2012, which excludes the
rehabilitation or revival of a sick LLP.
The Sick Industrial Companies (Special Provision) Act, 1985 (SICA)
Deals with the rehabilitation of sick/potentially sick industrial companies.
It is presently the only central corporate rescue law. There has been a
repealing legislation, the Sick Industrial Companies Repeal Act, 2003
which hasnt been notified yet.
The Companies Act, 1956 (CA 1956)
Deals with the corporate revival and rehabilitation of companies other
than the industrial companies. It also deals with the winding up

proceedings of a company. The proceedings

compulsorily carried on by the high courts.

are

voluntarily

and

The SARFAESI Act, 2002

Deals with the formation of specialized resolution agencies in the form of
ARCs to resolve NPAs and other specified bank loans under distress.
The current framework for insolvency resolution is fragmented and has
evolved over a long period of time. Several committees have been
constituted in the past to bring about reforms in the legal structure
governing insolvency. Following is a list of the various committees formed
on bankruptcy reforms and their principle outcome.
Government committees on bankruptcy reforms1
Yea Committee
r
196 24th Law Commission
4
198
1
199
1
199
8
199
9
200
1
200
5
200
8
201
3

201
4

Outcome

Amendments
to
the
Provincial
Insolvency Act,
1920
Tiwari Committee (Dept. SICA, 1985
of Company Affairs)
Narasimham Committee I RDDBFI Act, 1993
(RBI)
Narasimham Committee SARFAESI Act, 2002
II (RBI)
Justice Eradi Committee Companies (Amendment) Act, 2002,
(GOI)
Proposed
repeal of SICA
L N Mitra Committee Proposed a comprehensive bankruptcy
(RBI)
code
Irani Committee (RBI)
Enforcement of Securities Interest and
Recovery of Debts Bill, 2011. (With
amendments to RDDBFI and SARFAESI)
Raghuram
Rajan Proposed improvements to credit
Committee
(Planning infrastructure
Commission)
Financial
Sector Draft Indian Financial Code which
Legislative
Reforms includes a
Committee (Ministry of Resolution Corporation for resolving
Finance)
distressed financial firms
Bankruptcy Law Reform Draft Insolvency and Bankruptcy Bill,
Committee
2015

THE INSOLVENCY AND BANKRUPTCY BILL, 2015

Bankruptcy is a legal status usually declared by a court upon an individual

or firm which is unable to meet its debt obligations. Bankruptcy and
insolvency are a result of corporate failure and can have major impact on
shareholders, creditors, employees, other businesses and economy on the
whole. The latest Doing Business2 report of the World Bank ranks India at
a dismal 130 overall and 136 in terms of resolving insolvency. According to
the report, recovery rate is only 25% and average time taken to resolve
insolvency in India is 4.3 years. This necessitates the introduction of a
highly efficient insolvency and bankruptcy regime and thus comes into
picture The Insolvency and Bankruptcy Bill, 20153. The new bill strives to
create a detailed and unified insolvency resolution process which is time
bound. This bill will be applicable to individuals, partnerships, limited
liability partnerships (incorporated under Limited Liability Partnership Act,
2008) and companies (incorporated under Companies Act 2013).
Corporate insolvency resolution process can be initiated by financial
creditor, operational creditor or the debtor itself. The bill proposes some
major recommendations which have been listed below:
Insolvency Regulator
The code seeks to establish a regulatory body which will oversee
insolvency resolution in the country. The regulator will exercise regulatory
oversight over insolvency professionals, insolvency professional agencies
and informational utilities. The regulatory authority will be known as
Insolvency and Bankruptcy Board of India4.
Insolvency Professional Agency
These agencies will be registered with the insolvency and bankruptcy
board and all insolvency professionals will be members of these agencies.
The primary function of these agencies would be to grant membership to
insolvency professionals who will be the persons in charge of insolvency
resolution process and enact bye-laws pertaining to their professional
competence and ethical conduct.
Information Utilities
It is an established fact that information asymmetry is a critical barrier to
fair negotiations and ensuring swiftness of the insolvency resolution
process. The bill recommends the creation of regulated information
utilities which will be institutions maintaining financial information of firms
and provide the same to all the stakeholders as and when needed.
Adjudicating Authority
There is a provision for two type of Adjudicating authority that will have
jurisdiction to hear and to dispose cases by or against the debtor. National

Company Law Tribunal (Companies and Limited Liability Partnerships) and

Debt Recovery Tribunal, incorporated under the RDDBFI Act, 1993
(Individuals and partnership firms)
Appellate Authority
Appeals pertaining to the orders of NCLT shall be heard by the National
Company Law Appellate Tribunal (NCLAT) and those pertaining to DRT
shall be heard by the Debt Recovery Appellate Tribunal (DRAT). Civil
courts will not have any jurisdiction in matters which are before the NCLT,
DRT, NCLAT or DRAT. Though an appeal can be made in the Supreme
Court of India.
Time bound redressal
The whole process will have to be completed in a time bound manner
subject to a maximum of 180 days from the date of commencement of the
process. This period may be extended by 90 days if three fourth of the
financial creditors agree for the same.
ANALYSIS OF THE BILL
As per the prevailing laws (Companies Act) the following can file an
application with NCLT to declare a company sick a) Company b) Secured
creditor c) Government d) Reserve Bank e) Financial institutions, and f)
Banks. According to the provisions of the new bill any financial or
operational creditor can approach NCLT to initiate insolvency proceedings.
This will empower all types of creditors, secured or unsecured and provide
the workmen, protection against non-payment of dues in case of
insolvency. Following are some other positives of the proposed bill:

The possibility of assets of the company being stripped by the

promoters is controlled before and after default
The bill aims to strike a balance between liquidation and
restructuring by providing ample scope for both
The bill has a provision for the promoters or any other person/entity
to make an offer to buy the company undergoing restructuring
All parties involved in the process will be aware of the fact that if no
deal is struck within the stipulated period, the company will go into
liquidation. This will avoid the delaying tactics usually employed by
the promoters
The bill recognizes the rights of the creditor and lays out clear order
of priority of claims, of the different types of creditors
The whole process is time bound and the is no scope of delays
The involvement of Information Utilities will make sure that there is
no delay in resolution of dispute due to the lack or absence of

financial information about the firm in question. Thus enabling

symmetry of information between creditor and debtor
The involvement of Insolvency Professional and Insolvency and
Bankruptcy Board ensures fairness and transparency in the
insolvency resolution process
This is an umbrella bill which brings all the fragmented laws
together and reduces any scope of ambiguity and at the same time
making the process much simpler
The bill adheres to internationally accepted insolvency resolution
framework and thus making it attractive for foreign companies to
set shop in India
The bill does away with the involvement of civil courts in matters of
insolvency resolution, firstly because civil courts dont have the
proper expertise to deal with such cases and secondly to reduce the
timeframe of dispute resolution

The bill tries to remove all difficulties in the present arrangement and
provide a sound framework for insolvency resolution. The bill adheres to
all the objectives needed to establish an effective insolvency law as laid
down in the UNCITRAL, Legislative Guide on Insolvency Law5.
IMPLEMENTATION OF INSOLVENCY AND BANKRUPTCY BILL, 2015
In order to ensure smooth enforcement of Insolvency and Bankruptcy Bill,
it is essential to do away with conflicting or parallel provisions in other
laws. As mentioned before, presently there are several laws covering
insolvency of companies, limited liability partnerships, partnerships and of
individuals. In order to avoid ambiguity, there is a need to bring
amendments to some existing laws. It is also essential to repeal some
obsolete laws which are no longer required once the new bill comes into
picture. Below mentioned are the Acts which need to be amended 6 or
repealed7:

Companies Act, 2013: Thirty five substitutions/insertions and forty

omissions needed
Sick Industrial Company (Repeal) Act, 2003: One substitution
needed
Limited Liability Partnership Act, 2008: One omission needed
SARFAESI Act, 2002: One insertion needed
RDDBFI Act, 1993: Six substitutions/insertions needed
Presidency Towns Insolvency Act, 1909 and Provincial Insolvency
Act, 1920: Repealment required

REFERENCES

The report of the Bankruptcy Law Reforms Committee, November 2015

Doing Business, 2016-Measuring Regulatory Quality and Efficiency, An annual

report published by the World Bank Group, available at
http://www.doingbusiness.org/data/exploreeconomies/india/
3

Draft, the Insolvency and Bankruptcy Bill, November 2015, available at

http://www.finmin.nic.in/reports/DraftInsolvencyBankruptcyBil2015.pdf
4

Sub-section (1) of Section 188 of the draft of the Insolvency and Bankruptcy Bill,
2015
5

United Nations Commission on International Trade Law, Legislative Guide on

Insolvency Law, available at
https://www.uncitral.org/pdf/english/texts/insolven/05-80722_Ebook.pdf
6

Section 235 of the draft of the Insolvency and Bankruptcy Bill, 2015

Section 234 of the draft of the Insolvency and Bankruptcy Bill, 2015