The Indian Parliament has passed the major economic reform Bill moved by the Government i.e. the Insolvency and Bankruptcy Code, 2016 (‘Code’). The law aims to consolidate the laws relating to insolvency of companies and limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals, which is regulated through a number of legislations, into a single legislation. It may be noted that the basic premise on which the Code has been formulated is that when an entity defaults on its debt, control of such entity shifts from the shareholders/promoters to a Committee of Creditors, who have 180 days to evaluate proposals from various interested parties or third parties, as to whether the company should be resuscitated or be taken into liquidation. According to Ministry of Finance Press Release dated 11 May, 2016 issued in this regard, the Code envisages four different and novel modes of institutional infrastructure:
- ‘Insolvency Professionals’ would ensure efficient working of the any bankruptcy process which has been initiated. ‘Insolvency Professional Agencies’ shall regulate and govern the operations and functioning of the Insolvency Professionals.
- ‘Information Utilities’ would be responsible for keeping an inventory on lenders and terms of lending in their electronic databases.
- Adjudication would be done mainly by the National Company Law Tribunal, for insolvency of companies or firms, and by the Debt Recovery Tribunal for insolvency of individuals.
- ‘The Insolvency and Bankruptcy Board of India’ shall regulate the functioning of the Insolvency Professional, Insolvency Professional Agencies and Information Utilities.