Q : What Led to Enactment of the Code ?
Ans: The Bankruptcy Law Reforms Committee (BLRC) constituted by Government of India observed in its report in the year 2015, that the prevailing legal framework is highly fragmented and incoherent as well as marred by legislative and judicial uncertainty. It recommended for overhauling multiplicity of laws relating to insolvency and for constitution of a dedicated regulatory and institutional framework.
Q : What is the Objective behind Enactment of the Code ?
Ans: The objectives of enactment of the Code are as follows :
- To consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner;
- Maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all stakeholders;
- Alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India (IBBI) ;
- Any other connected and incidental matters
Q : What are the Most Significant Changes Brought About by the Code ?
Ans: The most significant change is that the prime objective of the Code is to facilitate the “ease of doing business” by way of promoting entrepreneurship, availability of credit and balance of interests of all stakeholders. The other changes are :
- Resolution of insolvency proceedings of the entities in a time bound manner. The objective of the Code is not “recovery of dues”;
- Maximization of value of assets;
- One of the most important changes is ‘alteration in the order of priority of payment of Government dues’. This enabling provision has not attracted much attention of the stake holders so far. The Code specifically provides for priority in distribution of the proceeds from sale of liquidation assets.
Q : To Which Entities, the Code is Applicable or what Type of Entities are Covered Under the Code ?
Ans: As per Section 2, in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the case may be, the Code shall apply to :
- Any company incorporated under the Companies Act, 2013 or under any previous Company Law;
- Any other company governed by any Special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act;
- Any Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008;
- Such other body incorporated under any law for the time being in force, as the Central Government may, by notification, specify in this behalf;
- Partnership firms and individuals.
Q : Which Acts Stand Repealed on Enactment of the Code ?
Ans: Two Acts, namely The Presidency Towns Insolvency Act, 1909 and The Provincial Insolvency Act, 1920 have been repealed.
Also Read: Insolvency and Bankruptcy Code - Objectives and Procedure
Q : What Institutional Infrastructure has been Envisaged by the Code ?
Ans: To achieve its objectives, the Code provides for following institutional infrastructure:
Insolvency and Bankruptcy Board of India (Board) : The Board is a body corporate and consists of ten members headed by Chairman and at least three whole-time members. Board has been vested with wide powers to regulate the Insolvency Professional Agencies, Insolvency Professionals and Information Utilities. The Board is also vested with powers to formulate regulations in respect of all processes, appointments, procedures, investigations, monitoring etc.
Adjudicating Authority : The Code provides that NCLT shall be the Adjudicating Authority in respect of corporates, limited liability partnership etc. It is further provided that Debts Recovery Tribunal shall be the Adjudicating Authority in respect of partnership firms and individuals. Further appeals from the orders of NCLT or DRT shall lie before NCLAT and DRAT respectively. Supreme Court shall have appellate jurisdiction over NCLAT and DRAT.
Insolvency Professional Agencies : These agencies are bodies that have been entrusted with the task of registration and governance of the ‘Insolvency Professional’ who play a vital role in insolvency process.
Insolvency Professionals : They play a central role in the whole insolvency resolution process. They take over management of the company, conduct insolvency process and manage liquidation process in case of failure of insolvency process.
Information Utilities : ‘Information Utilities’ are responsible for collecting, collating and disseminating financial information.
Q : What is Meant by the Term “Charge” Under the Code ?
Ans: As per sub-section (3) of Section 4, it means an interest or lien created on the property or assets of any person or any of its undertakings or both, as the case may be, as a security and includes mortgage.
Q : What is Meant by the Term “Claim” Under the Code ?
Ans: As per sub-section (6) of Section 3, it means :
- A right to payment, whether or not such right is reduced to judgement, fixed, disputed, undisputed, legal, equitable, secured or unsecured ;
- Right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgement, fixed, disputed, undisputed, legal, equitable, secured or unsecured.
