Introduction to Insolvency and Bankruptcy Code

Highlights of the Bankruptcy Law Reforms Committee (BLRC) Report are as under:

1.The objectives of the Committee were to resolve insolvency with: lesser time involved, lesser loss in recovery, and higher levels of debt financing across instruments.

2.The Committee had recommended a consolidation of the existing legal framework, by repealing two laws and amending six others. It had proposed to repeal the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920. In addition, it had proposed to amend: (i) Companies Act, 2013, (ii) Sick Industrial Companies (Special Provisions) Repeal Act, 2013, (iii) Limited Liability Partnership Act, 2008, (iv) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (v) Recovery of Debts due to Banks and Financial Institutions Act, 1993 and (vi) Indian Partnership Act, 1932.

3.The Committee had proposed to establish a creditors committee, where the financial creditors will have votes in proportion to their magnitude of debt.

4.The creditors committee would undertake negotiations with the debtor, to come up with a revival or repayment plan.

5.The report outlined the procedure for insolvency resolution for companies and individuals. The process may be initiated by either the debtor or the creditors.

6.At that time, only secured financial creditors (creditors holding collateral against loans), could file an application for declaring a company sick. The Committee had proposed that operational creditors, such as employees whose salaries are due, be allowed to initiate the insolvency resolution process (IRP).

7.The entire IRP would be managed by a licensed insolvency professional. During the IRP, the professional would control and manage the assets of the debtor, to ensure that they are protected, while the negotiations take place.

8.The Committee had proposed to set up Insolvency Professional Agencies. The agencies would admit insolvency professionals as members and develop a code of conduct.

9.The report recommended speedy insolvency resolution and time bound negotiations between creditors and the debtors. To ensure this, a 180-day time period for completion of the IRP was recommended. For cases with high complexity, this time period could be extended by 90 days, if 75% of the creditors agree.

10.The Committee had proposed to establish information utilities which would maintain a range of information about firms, and thus avoid delays in the IRP, typically caused by a lack of data.

11.The Committee had proposed to establish the Insolvency and Bankruptcy Board of India as the regulator, to maintain oversight over insolvency resolution in the country. The Board would regulate the insolvency professional agencies and information utilities, in addition to making regulations for insolvency resolution in India.

12.The Committee proposed two Tribunals to adjudicate grievances under the law: (i) the National Company Law Tribunal would continue to have jurisdiction over insolvency resolution and liquidation of companies and limited liability partnerships; and (ii) the debt recovery tribunal would have jurisdiction over insolvency and bankruptcy resolution of individuals.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 5(a) (Syllabus 2017).

Doctrine of Repugnancy means the conflict between two pieces of legislation which when applied to the same facts produce different results. Repugnancy arises when the provisions of two laws are so inconsistent and irreconcilable that it is impossible to do one without disobeying the other.

A plain reading of Article 254 of the Constitution of India gives an impression that if both central and state governments frame laws on a same entry under the concurrent list, only then the Central law will prevail.

Case of Innoventive Industries Ltd. v. ICICI Bank:

The reference of Doctrine of Repugnancy was taken by the Supreme Court in the above case.

Facts of the Case : ICICI Bank had taken Innoventive Industries Ltd. to NCLT for the recovery of its due as the company had defaulted on loan repayment. The NCLT had given a verdict in favour of the ICICI Bank, which Innoventive Industries challenged in the National Company Law Appellate Tribunal (NCLAT), where it received yet another setback. The company later filed an appeal in the Supreme Court seeking relief under the Maharashtra Act, which states that if a company is facing bankruptcy, protection needs to be provided for the employees.

Judgement : On a bare reading of the judgement, it seems that the case involved more adjudication on grounds related to Constitutional Law than on the Code. This case related to the first-ever application filed for initiating insolvency proceedings under the new Code. The Court was cognizant of the fact and hence wanted to settle the law so that all 'Courts and Tribunals take notice of the paradigm shift in the Law'.

The case involved contradictory provisions in the Code and a state law of Maharashtra state, Maharashtra Relief Undertakings (Special Provisions) Act, 1958. This state law provided for overtaking of industries by the state by declaring them 'relief undertakings'.

Such overtaking can be done through government notifications to that effect under the Act. This is done to protect employment of the people who are working in such an undertaking.

The Code instead provides for overtaking of an undertaking's business by an 'Insolvency Professional through a committee of creditors. In the instant case, insolvency application was filed against Innoventive Industries which later claimed to be a relief undertaking under the Maharashtra Act. This brought the two legislations on a collision course, for the simple reason that enforcement of one will hinder the enforcement of the other.

Supreme Court dealt with the constitutional law doctrine of repugnancy. This doctrine stems from the operation of Article 254 of the Constitution. As per this doctrine, whenever central and state laws are framed on the same subject and are contradictory to each other, it is the central law which prevails, and the state law is rendered void.

In the instant case, however, the laws even though coming in conflict with each other, were framed under different entries of the concurrent list. This involved adjudication by the Supreme Court on this point. The National Company Law Tribunal (NCLT) had ruled that Innovative Industries cannot claim any relief under Maharashtra Act. It also decided that there is no repugnancy between the two laws, as they operate in different fields.

The appeal to the Supreme Court, hence involved two major questions. One was, whether the petitioner can seek relief under the Maharashtra Act at the cost of the Code.

The second was, whether both the laws are repugnant to each other.

Invoking a lot of international cases, especially of the Commonwealth countries and previous judgments of the Supreme Court, the bench ruled that there is indeed repugnancy between the two laws. The court held that even if the two legislations are framed on different entries of the concurrent list, the Central law will always prevail if it comes in conflict with the State law. The State law, therefore, was held inoperable to the extent that it was in contradiction to the Code.

The court delved into great detail of the provisions of the Code and held it to be intended as an 'exhaustive legislation by the Parliament, to cover the whole field of its operation. In such instances involving an exhaustive law, even though the State law may not be in strict violation of the Code, it will even then be rendered inoperative to give way to implement the exhaustive law on the point.

With respect to the Code, being acknowledged as an exhaustive law on the point is a very progressive step. It also, now brings in more clarity that the provisions of the Code will have supremacy over every other law, whenever and wherever any conflict arises.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2(b) (Syllabus 2017).

In fact, the law of Insolvency in India owes its origin to English law. India being a colony of the United Kingdom, followed the English insolvency system. In India, the earliest provisions relating to insolvency can be traced to sections 23 and 24 of the Government of India Act, 1800. These sections conferred insolvency jurisdiction on Supreme Court at Fort Williams (Calcutta), Madras and Recorder’s Court at Bombay as the need for an insolvency law was first felt in Presidency Towns of Calcutta, Bombay and Madras where the British majorly carried on their trade. These Courts were empowered to make rules and grant relief to insolvent debtors.

Later insolvency courts were established in the Presidency-Towns when Statute 9 (Geo. IV c. 73)

was passed in 1828. This Act of 1828 marks the beginning of special insolvency legislation in India.

The insolvency court had a distinct existence although the court was presided over by a Judge of the Supreme Court. The Act of 1828 was originally intended to remain in force for a period of four years but subsequent legislation extended its duration up to 1848. The Provisions of the Indian Insolvency Act was passed in 1848 and remained in force until the enactment of the Presidency Towns Insolvency Act, 1909. Later Provincial Insolvency Act was passed in 1920.

The Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920 were two major enactments that dealt with personal insolvency but the two differ in respect of their territorial jurisdiction. While Presidency Towns Insolvency Act, 1909 applied in Presidency towns of Calcutta, Bombay and Madras, the Provincial Insolvency Act, 1920 applied to all provinces of India. These two Acts were applicable to individuals as well as partnership firms.

Before the enactment of the Insolvency and Bankruptcy Code, 2016, the provisions relating to insolvency and bankruptcy were fragmented and there was no single law to deal with insolvency and bankruptcy in India.

Before the enactment of the Insolvency and Bankruptcy Code, 2016 the following Acts dealt with insolvency and Bankruptcy in India:

l The Presidency Towns Insolvency Act, 1909 l Provincial Insolvency Act, 1920 l Indian Partnership Act, 1932 l The Companies Act, 1956 l The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA)

l The Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDDBFI Act)

l The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002)

l The Companies Act, 2013.

In view of the above, the statement by Vedika is not correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 1(a) (Syllabus 2022).

In order to elaborate the objectives behind the enactment of the Insolvency and Bankruptcy Code, 2016 it is essential to refer to the preamble of the Code which states that:

“An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.”

1.The primary focus of the IBC is to ensure the revival and continuation of the corporate debtor:

In the matter of Gujarat Urja Vikas Nigam Limited Vs. Mr. Amit Gupta & Ors. [Civil Appeal No.

9241 of 2019 Judgment dated 8th March, 2021, the Hon’ble Supreme Court of India observed that the primary focus of the IBC is to ensure the revival and continuation of the corporate debtor.

The interests of the corporate debtor have been bifurcated and separated from the interests of persons in management.

The timelines which are prescribed in the IBC are intended to ensure the resuscitation of the corporate debtor. The enactment of the IBC is in significant senses a break from the past.

2.The foremost and primary objective of the IBC is the reorganization and insolvency resolution of the Corporate Debtor (CD) in a time bound manner:

Hon’ble Supreme Court of India in the matter of Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors. [WP (Civil) Nos. 99, 100, 115, 459, 598, 775, 822, 849, and 1221 of 2018, SLP (Civil) No. 28623 of 2018 and WP (Civil) 37 of 2019] Judgement dated 25th January, 2019 opined that the Code is a beneficial legislation which puts the CD back on its feet and is not a mere recovery legislation for creditors. The interests of the CD have, therefore, been bifurcated and separated from that of its promoters/those who are in management. The defaulter’s paradise is lost. In its place, the economy’s rightful position has been regained.

The Apex Court observed that as is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganization and insolvency resolution of corporate debtors. Unless such reorganization is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximization of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions.

What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern.

In the matter of Innoventive Industries Ltd. Vs. ICICI Bank & Anr. [Civil Appeal No. 8337-8338 of 2017] the Supreme Court had opined that one of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the objective of speeding up the insolvency process.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 1(b) (Syllabus 2022).

As per Preamble to the Insolvency and Bankruptcy, Code, 2016, the purpose of this Code is as under:

(a)To consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals.

(b)To fix time periods for execution of the law in a time bound manner.

(c)To maximize the value of the assets of interested persons.

(d)To promote entrepreneurship.

(e)To increase availability of credit.

(f)To balance the interest of all the stakeholders including alteration in order of priority of payment of Government dues.

(g)To establish Insolvency and Bankruptcy Board of India as a regulatory body for Insolvency and Bankruptcy Law.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2(b)(i) (Syllabus 2017).

Section 201(5) of the IBC provides that the Board may, by order, suspend or cancel the certificate of registration granted to an insolvency professional agency on any of the following grounds, namely:

(a)that it has obtained registration by making a false statement or misrepresentation or by any other unlawful means;

(b)that it has failed to comply with the requirements of the regulations made by the Board or bye-laws made by the insolvency professional agency;

(c)that it has contravened any of the provisions of the Act or the rules or the regulations made thereunder;

(d)on any other ground as may be specified by regulations No order shall be made under Section 201(5) unless the insolvency professional agency concerned has been given a reasonable opportunity of being heard and no such order shall be passed by any member except whole-time members of the Board.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 3(b) (Syllabus 2022).

Insolvency and Bankruptcy Code, 2016 is a complete code in itself. It is an exhaustive code on insolvency in relation to corporate entities and others. IBC is a single unified umbrella code, covering all law relating to insolvency resolution of corporate persons and others in a time-bound manner.

Under a State Act, the State Government may take over the management of the undertaking and impose a moratorium in the same manner as that contained in the IBC. However. by giving effect to the State Act, the plan/scheme that may be adopted under IBC will be directly hindered. There would be direct clash between moratoriums under the two statues.

Hon’ble Supreme Court in the case of M/s. Innoventive Industries Ltd. vs. ICICI Bank Ltd held that the non-obstante clause of the IBC (which is a Parliamentary enactment) will prevail over the non-obstante clause of any State Act (State Statue). On account of the non-obstante clause in the IBC, any right of the CD under any other law cannot come in the way of the IBC.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 3(b) (Syllabus 2022).

As per section 3(11) of the Insolvency and Bankruptcy Code, 2016, ‘debt’ means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 3(b)(ii) (Syllabus 2017).

As per section 3(13) of the Insolvency and bankruptcy Code, 2016, ‘financial information’, in relation to a person, means one or more of the following categories of information, namely:

(a)Records of debt of the person.

(b)Records of liabilities when the person is insolvent.

(c)Records of assets of the person over which security interest has been created.

(d)Records, if any, of instances of default by the person against any debt.

(e)Records of the Balance Sheet and Cash Flow Statements of the persons; and

(f)Such other information as may be specified.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5(c) (Syllabus 2017).

IBC has not explicitly defined the term “Control”. Pursuant to section 3(37) of IBC, it will have same meaning as defined in Section 2(27) of the Companies Act, 2013 as under:

"control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 3(d) (Syllabus 2022).

Under Insolvency and Bankruptcy Code Corporate Insolvency Resolution Process (CIRP) can be initiated only against Corporate Persons.

IBC defines “Corporate Person” means a company as defined in clause (20) of section 2 of the Companies Act, 2013, a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008, or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider [Section 3(7)].

National Highway Authority of India (NHAI) is a statutory body which functions as an extended limb of the Central Government and performs Governmental functions which obviously cannot be taken over by an RP, or by any other corporate body nor can NHAI ultimately be wound up under the Code. For all these reasons, it is not possible to either read in, or read down the definition of ‘corporate person’ in section 3 (7) of the Code to include NHAI. (Hindustan Construction Company Ltd. & Anr. Vs. Union of India & Ors. [WP (Civil) No. 1074 of 2019 with other Civil Appeals] SC judgement dated 27.11.2019).

Thus, Resolution Professional cannot file an application under Insolvency and Bankruptcy Code, 2016 against NHAI for recovery of bid amount.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 1(iv) (Syllabus 2017).

The facts of the question similar to the case of M/s. Educomp Infrastructure & School Management Limited (Applicant/ Operational Creditor) Vs M/s. Millenium Education Foundation (Respondents/ Corporate Debtor) decided by The National Company Law Tribunal, New Delhi Bench, Court-V, Company Petition No. (IB)-245(ND)/2022 dated 4th July, 2023.

In this case, the operational creditor stated that the proceedings under the IBC are maintainable against the Companies incorporated with charitable objects and Not for Profit companies. Also, Section 3 (8) of the Insolvency and Bankruptcy Code provides that a “corporate debtor” means a “corporate person” who owes a debt to any person and as per Section 3 (7) of the IBC provides that “corporate person” means a company as defined in clause (20) of section 2 of the Companies Act, 2013. To support the contention, the applicant had placed reliance on coordinate Bench of NCLT, Mumbai Judgement dated 10.06.2020 in C.P.(IB)/3976/2018; Bee Athletic Private Limited vs. DSK Shivajians Football Club Private Limited: and coordinate Bench NCLT, Kolkata Judgement dated 13.03.2020 in C.P. (IB)/2084/2019; Avani Oxford Owners Association versus Oxford Facilities Management. NCLT in its order stated that the contention of the Corporate Debtor that the proceedings under Insolvency and Bankruptcy Code, 2016 are not maintainable against the Corporate Debtor as the Corporate Debtor is a company registered under Section 8 of the Companies Act, 2013 is to be examined in the light of the provisions of the IBC, 2016 and Regulations.

On a reading of Section 3(7) of the Insolvency and Bankruptcy Code, 2016 that defines a “corporate person”, it is amply clear that the definition under Section 3 (7) inter alia, includes a “company”

under Section 2(20) of Companies Act” 2013. Section 2(20) of the Companies Act, 2013 defines “Company” as a company incorporated under the Companies Act, 2013 or under any previous company law. Further, Section 2 (a) of the Insolvency and Bankruptcy Code provides that the provisions of the Code, 2016 shall apply to, “any company incorporated under the Companies Act 2013 (18 of 2013) or under any previous company law for the applicability of the Insolvency and Bankruptcy Code, 2016”. Accordingly, the Insolvency and Bankruptcy Code, 2016 does not create a difference based on the objectives or nature of the company. Thus, clearly, Section 8 Companies are also covered under the Code, 2016 as a “Corporate Person” and therefore, Corporate Insolvency Resolution Process can be initiated against the Corporate Debtor herein.

Based on decided cases, it is clear that application for initiating CIRP under Insolvency and Bankruptcy Code can be filed against a Company registered with an objective of not for profit and such Company falls under the definition of corporate person.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 1(v) (Syllabus 2017).

Sl. No. Case Title Sl. No. Issue

1.Shivam Water Treaters Private H The High Court was requested not to enter Limited Vs. Union of India, Secretary into the debate pertaining to the validity of to Government, Ministry of the Insolvency and Bankruptcy Code, 2016 Corporate Affairs or the constitutional validity of the NCLT

2.Swiss Ribbons Pvt Ltd and Another I It would render the remedy of appeal Vs. Union of India and Others inefficacious and a circuit Bench be

established at every place where aggrieved party could avail of his remedy.

On this point, the Attorney General assured the Court that judgement of Madras Bar Association will be followed and Circuit Benches will be established as soon as it is practicable

3.Ultra Tech Nathdwara Cement Ltd A The Court noted that the purpose of the IBC Vs. Union of India and Others is solitary as it has been enacted to ensure

that an industry under distress does not fade into oblivion and can be reviewed by virtue of the resolution plan

Sl. No. Case Title Sl. No. Issue

4.Pioneer Urban Land and C The Court held that Article 19(1)(g) has Infrastructure Limited and Another not been infracted but has been saved Vs. Union of India and Others by Article 19(6) as the Amendment Act is

made in public interest, and it cannot be said to be unreasonable restriction on the Petitioners’ fundamental right under Article 19(1)(g)

5.Arcelor Mittal India Pvt Ltd Vs. Satish K It was held that a resolution applicant has Kumar Gupta and Others no vested right that his resolution plan be

considered, it is clear that no challenge can be preferred to the Adjudicating Authority at this stage

6.K Kishan Vs. Vijay Nirman Company B The Operational Creditors cannot use the Limited Insolvency Code either prematurely or for

extraneous considerations or as a substitute for debt enforcement procedures

7.State Bank of India Vs. Coastal E The Adjudicating Authority observed that Projects Ltd the resolution plan cannot be considered

at the stage when the CoC has, by majority decision, decided to proceed with liquidation

8.B K Educational Services Pvt Ltd Vs. D ‘The right to sue’ accrues when a default Parag Gupta and Associates occurs

9.The Deputy Director, Directorate J The Court held that the Bonafide third party of Enforcement Vs Axis Bank and claimant has a legitimate right to proceed Others ahead with enforcement of its claim in

accordance with law notwithstanding the order of attachment under PMLA

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 3(b) (Syllabus 2022).