The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. ‘Insolvency’ is a situation where in any person or a corporate entity is unable to fulfil its financial obligations whereas ‘Bankruptcy’ is a situation where in a court of competent jurisdiction declares a person or an entity insolvent, passes appropriate orders to resolve it and protect the rights of the creditors. Indian economy has been facing the ‘Twin Balance sheet’ problem in last few years wherein the balance sheets of  both, banks as well as corporate houses, are under stress and is acting as a major obstacle to investment and growth of our economy. In this context, the Insolvency and Bankruptcy Code, 2016 (IBC) has come into existence to address the structural problems hampering the efficient recycling of capital and rebalance the rights of creditors, giving the much needed recourse to take timely and effective action against defaulting borrowers.

Pillars of IBC- There are four pillars of IBC institutional mechanism – Insolvency Professionals (IP), Information Utilities, Adjudicators (NCLT, DRT) and Regulators (The Insolvency and Bankruptcy Board of India).The resolution processes are conducted by licensed Insolvency Professionals (IPs) which are members of Insolvency Professional Agencies (IPAs). Information utilities (IUs) have been established to collect, collate and disseminate financial information to facilitate insolvency resolution. The National Company Law Tribunal (NCLT) is created for adjudicating insolvency resolution for companies. The Debt Recovery Tribunal (DRT) is meant to adjudicate insolvency resolution for individuals. The Insolvency and Bankruptcy Board of India are set up to regulate functioning of IPs, IPAs and IUs. Given that many corporate transactions and businesses involve an international element, the IBC also attempts to address the issue by including provisions for cross border insolvency.

Procedure for Insolvency Resolution– The creditors (financial/operational) are required to submit a plea for insolvency to the adjudicating authority i.e. NCLT. The plea has to be accepted/rejected within 14 days from the filing of the plea. In case of acceptance of the plea, an Insolvency Resolution Professional (IRP) is appointed. The IRP has to draft an insolvency resolution plan within 180 days (can be extended by 90 days in exceptional cases) while the Board of Directors of the company remain suspended and the promoters do not have a say in the management. If the resolution plan is accepted by 75% of the creditors, it is put into action. In case of rejection of the insolvency resolution plan, the company is liquidated.

Positive Impact of IBC – The Insolvency and Bankruptcy Code, 2016 is a major economic reform next only to the adoption of Goods and Services Tax in India. It offers advantages to corporate sector, banking sector, Government and corporate employees as well. Down the lane of two years of IBC in India, this insolvency law has helped in directly and indirectly addressing stressed assets worth Rs 3 lakh crore in the last two years. The estimated amount included recoveries made through resolution plans and cases settled before admission by the NCLT under this Code. IBC has disposed off 4,400 cases, out of the 9,000 cases it received in last two years. Over 3,500 cases have been resolved at a pre-admission stage and resulted in settlement of claims worth Rs 1.2 lakh crore. It is to be noted that under this Code, cases are taken up for resolution only after approval from the NCLT. In last two years, about 1,300 cases have been admitted and out of that – corporate insolvency resolution process has been completed in 400 cases; resolution plans have been approved in 60 cases; liquidation orders have been issued in 240 cases and 126 cases are still in the stage of appeal.

It is to be noted that IBC is not a panacea for all the NPAs in Indian economy. Approximately 18 lakh crore Rupees are still stuck up in Indian economy as NPAs, including approximately Rupees 8 lakh crore in Debt Recovery Tribunals. By the effective implementation of IBC, this amount of money stuck up as NPAs can be released and would be able to give a thrust to economic growth in India.

(The author of this article ,Lt Col (Dr) Satish Dhage, is an ex Army officer and has been qualified for IPS (Indian Police Services) through IPS LCE 2012. Presently, he is Director, MGM Institute of Competitive Exams Aurangabad. For any queries or feedback, he can be contacted on email id : drsatishdhage@gmail.com)