Introduction and Objective
Insolvency and Bankruptcy are the stages where a person or the company needs financial assistance. This is because he is in a position of not to repay his debts. Insolvency is a state in which financial difficulties of a company are such it is unable to run its business at its current pace. Bankruptcy is when the legal mechanism declares the status of a person as incapable of paying their dues and obligations.
The Insolvency and Bankruptcy Code, 2016 came with the objective of merging the existing laws of bankruptcy and insolvency. It came up with solving the issues of corporate persons, partnership firms and individuals related to reorganization and insolvency resolution in a time-bound manner.
Corporate Insolvency Resolution Process
The main object of coming up with this process is that a company which has gone insolvent cannot start the Liquidation Process unless it has gone through the process of Corporate Insolvency Resolution Process. Under this process, firstly it has to look into the options for the revival of the company. However, if there are no options left, then only the company goes into Liquidation.
The amount for Corporate Insolvency Resolution Process should be between one lakh to one crore rupees.The initiation of the process can be started by financial creditor under section 7, by operational creditor under section 9 and also by the corporate debtor itself under section 10 of the Act by giving an application to the Adjudicating Authority which is National Company Law Tribunal [NCLT] for the process of recovery of debt by the corporate persons.
Initiation by the Financial Creditor
If the financial creditor either jointly or through other financial creditors has to start the proceedings of Corporate Insolvency Resolution Process against a Corporate Debtor, then an application has to be filed to National Company Law Tribunal.
Along with an application, three more particulars have to be filed: (a) Record and evidence of the default of recovery of payment. (b) The name of the resolution professional to act as an interim resolution professional. (c) Any other information as may be specified by the Insolvency and Bankruptcy Board of India.The National Company Law Tribunal within 14 days of the receipt of the application ascertains the existence of the default. The National Company Law Tribunal will look into the matter as whether to admit or reject the application on the basis of the disciplinary proceedings pending against the resolution professional or not.
Initiation by the Operational Creditor
If the operational creditor has to initiate the Corporate Insolvency Resolution Process, then before approaching National Company Law Tribunal, he has to give a demand notice 10 days before the starting of the process, demanding repayment of the operational debt in respect of which the default has occurred to the corporate debtor. However, an operational creditor can directly approach the National Company Law Tribunal if the corporate debtor does not repay the outstanding dues of fails to show any existing difference.
Along with an application, four more particulars have to be filed: (a) A copy of the demand notice. (b) The corporate debtor has to give a copy of the affidavit stating that no notice relating to the dispute of the unpaid operational debt. (c) A copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of unpaid operational debt by the corporate debtor. (d) Any other information as may be specified.An operational creditor initiating a Corporate Insolvency Resolution Process may propose a resolution professional to act as an interim resolution professional. The National Company Law Tribunal will either accept or reject the application according to completion or non completion of various circumstances.
Initiation by the Corporate Applicant
Where a corporate debtor has committed a default, a corporate applicant may file an application for initiating Corporate Insolvency Resolution Process with the National Company Law Tribunal. Along with the application, two other particulars have to be filed:
(a) The books of account and such other documents relating to such period as may be specified. (b) The resolution professional proposed to be appointed as an interim resolution professional. However, The National Company Law Tribunal will either accept or reject the application. It will do so according to completion or non completion of various circumstances.Time limit for the completion of Insolvency Resolution Process
In all the cases mentioned above, the National Company Law Tribunal will give seven days to rectify the application. In all the cases mentioned above, the date of the Corporate Insolvency Resolution Process will commence from the date of the admission of the application.
However, The Process shall be completed within 180 days from the date of admission of the application to initiate such process. If NCLT thinks it cannot completethe Process within 180 days; it can pass an order to extend the period not exceeding 90 days. It is also provided that any extension of the period of CIRP shall not be granted more than once.
Conclusion
Insolvency and Bankruptcy Code, 2016 provides the complementary ecosystem for the insolvency law. Moreover, it aims to ensure smoother settlement of insolvency cases and enable faster turnaround of businesses. Also, it aims to provide for creating a database of creditors. Moreover, This Act provides for a detailed procedure for the Insolvency Resolution Process of Corporate, Individuals and Partnership Firms. It will help these people and entities to end the Insolvency process and start with the Liquidation process the soonest. Hence, This legislation is a huge step to bring business practices in India closer to more developed and advanced markets.