Insolvency and Bankruptcy Code, 2016


In the month of May 2016, Rajya Sabha passed the Insolvency and Bankruptcy code bill, 2016. By creating a single law for Insolvency and bankruptcy it, consolidate the existing framework. 

The objective of the law:

  • To promote entrepreneurship and innovation. 
  • Credit availability. 
  • Balance the interests of all stakeholders by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a timely manner. 
  • Maximizing the asset value. 
  • Gives the backing for the establishment of The Insolvency and bankruptcy board of India for regulating IPs, IPA and IUs. 
  • Established the information utilities to collect, collate, authenticate and disseminate financial information used in insolvency regulation. 
  • Provides a clearly defined mechanism for payment of debt. 
  • Ensure time bound settlement of insolvency, faster turnaround of business. 

A key innovation of the code is four pillars of institutional infrastructure.

1. A class of regulated persons, Insolvency Professionals regulated by ‘Insolvency Professional Agencies’.
2. A new industry of information Utilities that store facts about lenders and terms of lending in electronic databases and eliminate delays and disputes
3. in adjudication. NCLT and DRT will adequately strengthened to achieve world class functioning of the bankruptcy process.
4. A regulator ‘The Insolvency and Bankruptcy Board of India’ that regulate over the Insolvency Professional, agencies and information utilities.

Key facts:

  • For resolution of individuals, two distinct processes namely- “Fresh Start” and “Insolvency Resolution”. 
  • For resolution of insolvency, liquidating and bankruptcy, it provides for establishment of National Companies Law Tribunal (NCLT) and Debt Recovery Tribunal (DRT) as a nodal adjudicating authority. 
  • It also strengthened the rights of workers and the creditor. 
  • The code give a push for ease of doing business in the country. 
  • It gives clear and speedy process for identifying financial distress and resolution of companies and limited liability entities. 
  • It also enable the provision to deal with cross border insolvency. 
The code is thus a comprehensive and systematic reform, which will give a breakthrough to the functioning of the credit market.
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