Insolvency and bankruptcy code 2016 India

Insolvency and bankruptcy code 2016 of India. A big step forward to resolve insolvency and bankruptcy in India in time bound manner.

1. By: Ca Sanjay Gupta Ph:9311025900 [email protected] M/s Sanjay Ram Shanker & Associates Chartered Accountants

2. TOI 15-3-2017

3. Economic times 6-3-2017

4. News Makers First case filed -ICICI Bank moves NCLT against steel maker Innoventive Industries Ltd to initiate corporate insolvency process under the Insolvency and Bankruptcy Code 2016- First case admitted-The National Company Law Tribunal (NCLT) admitted on 18-1-2017 an insolvency petition filed by UB Engineering Ltd (UBEL). Its Mumbai bench, where the petition was filed, appointed insolvency professional A K Mehta to initiate the process. “This is the first such case NCLT has admitted (under the Insolvency and Bankruptcy Code ),” 

5. Laws regulating insolvency in India There are several laws which regulate insolvency resolution for companies in India. These include ( i ) Sick Industrial Companies Act, 1985 (Sick Industrial Companies Act, 1985 was repealed in 2003. However, the repealing legislation has not been brought into effect ) (ii) Recovery of Debt Due to Banks and Financial Institutions Act, 1993 (DRT Act), (iii) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), (iv) Companies Act 2013 These laws provide for the restructuring of debt, seizure and sale of the debtor’s assets for repayment of outstanding loans. The Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920 regulate insolvency resolution for individuals. While these laws specify processes for resolving insolvency, a creditor may also approach civil courts for recovery of debt.

6. Need for Code The Bankruptcy Law Reforms Committee in 2015 observed that there have been delays in insolvency resolution. These delays are on account of overlapping jurisdictions of laws and lack of clarity in their provisions. As of 2015, insolvency resolution in India took 4.3 years on an average, which was higher when compared to United Kingdom (1 year), United States of America (1.5 years), and South Africa (2 years). Further, time taken by courts and tribunals in delivering judgements was long due to various reasons including capacity of courts. For example, there were 62,000 cases pending before the Debt Recovery Tribunals as of December, 2014, while the number of cases disposed during the year was around 10,000.

7. “Code” A  code of law , also called a  law code  or  legal code , is a type of legislation that purports to exhaustively cover a complete system of laws or a particular area of law as it existed at the time the code was enacted.

8. Journey of The Insolvency and Bankruptcy Code, 2016 No.31 of 2016 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. The Insolvency and Bankruptcy Code, 2015 was introduced in  Lok Sabha  in December 2015. It was passed by Lok Sabha on 5 May 2016.  The Code received the assent of the President of India on 28 May 2016. Various provisions of the Act and Rules has come into force. Several provisions still to come into force.

9. Journey cont. 01.06.2016 National Company Law Tribunals constituted 05.08.2016 The provisions relating to establishment of the IBBI in the Code came into force. 19.08.2016 The provisions relating to finance of the IBBI and other matters in the Code came into force. 29.08.2016 The Insolvency and Bankruptcy Board of India (Salary, Allowances and other Terms and Conditions of Service of Chairperson and Members) Rules, 2016 came into force 01.10.2016 The IBBI established. Head office of the IBBI to be in Delhi.

10. Journey contd. 01.11.2016 The provisions relating to powers and functions of the IBBI in the Code came into force. 15.11.2016 The provisions relating to Insolvency Professional Agencies (IPAs) and Insolvency Professionals (IPs) in the Code came into force. 22.11.2016 The IBBI (Model Bye- Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 and the IBBI (Insolvency Professional Agencies) Regulations, 2016, notified on 21.11.2016, came into force.

11. Journey contd. 01.12.2016 The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, notified on 30.11.2016, came into force. – RULES RELATED TO CORPORATE INSOLVENCY RESOLUTION PROCEDURE 01.12.2016 The IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, notified on 30.11.2016, came into force. 01.12.2016 The provisions relating to corporate insolvency resolution in the Code came into force. 15.12.2016 The provisions relating to liquidation in the Code came into force. 15.12.2016 The IBBI (Liquidation Process) Regulations, 2016 came into force. 31.12.2016 The Limited Insolvency Examination commenced

12. Preamble 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 ofIndia , and for matters connected therewith or incidental thereto

13. Extends to the whole of India Provided Part-III of this code shall not extend to the State of Jammu and Kashmir (Part-III insolvency and Bankruptcy for Individuals and Partnership firms )

14. The provisions of this Code shall apply to ( a) any company incorporated under the Companies Act, 2013 or under any previous company law; ( b) 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; ( c) any Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008; ( d) such other body incorporated under any law for the time being in force, as the Central Government may, by notification, specify in this behalf; and ( e) partnership firms and individuals, in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the case

15. DNA of Code Total Sections: 255 Part I to V Schedules- 11 Part-I Preliminary section 1 to 3 ( Both inclusive)

16. Part-II Insolvency Resolution and Liquidation for Corporate persons Total Sections 4 to 77 (Both inclusive) Chapter I to VII

17. Part-III insolvency and Bankruptcy for Individuals and Partnership firms Total Chapter-7 Total Sections 78 to 187 (Both inclusive)

18. Part-IV Regulation of Insolvency Professionals, Agencies and Information Utilities Total Chapter-7 Sections 188 to 223 (Both inclusive) Chapter-1 &2 The Insolvency and Bankruptcy Board of India Chapter-3 Insolvency Professional Agencies Chapter-4 Insolvency professionals Chapter-5 Information Utilities Chapter-6 &7 Inspection, Finance etc.

19. Part-V Miscelleneous Sections 224 to 255 (Both inclusive) Sec.243 –The Presidency Towns Insolvency Act,1909 and the Provincvial Insolvency Act,1920- REPEALED Sec-245 to255 provides for amendments in various Acts namely Indian Partnership Act , The Central Excise Act,The Income Tax Act, The Custom Act, DRT act,Finance Act,1994, SARFAESI act, The Sick Industrial Companies Repeal Act,The Payment and settlement systems act,2007,LLP act, Companies act 2013- TOTAL 11 Acts Total Schedules 11- Provide for the amendments in these 11 Acts

20. Key Features The Code seeks to consolidate the existing framework by repealing the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920. It amends 11 laws including Companies Act, 2013, DRT Act, 1993 and SARFAESI Act, 2002, The Indian Partnership Act,1932,LLP Act,2008. The 11 Schedules provide the details. The Code specifies a framework for time bound insolvency resolution, with two similar processes for ( i ) companies and limited liability partnerships (liability of partners restricted to their investment), and (ii) individuals and partnership firms . ( First time a framework prescribed)

21. Creations of following institutions under proposed framework . Insolvency Professionals A specialised cadre of certified professionals known as insolvency professionals (IPs) will be created to handle insolvency resolution. These IPs will conduct the insolvency resolution process, take over the management of a company, assist creditors in the collection of relevant information, and manage the liquidation process. Insolvency Professional Agencies The IPs will be enrolled with insolvency professional agencies (IPAs). The IPAs will conduct examinations, certify IPs, and enforce a code of conduct for their functioning. Further, an IPA will furnish a performance bond to the regulator (Bankruptcy Board) on the commencement of insolvency resolution by a member IP. This bond will act as a surety against any misconduct by the IP during the resolution process. Information Utilities Information utilities will be set up to collect, collate and disseminate financial information related to debtors. Such information will be collected from creditors and include records of debt, liabilities and defaults of a debtor. The information available with these utilities will be used as evidence to initiate insolvency resolution, and assist creditors in drafting a plan to resolve insolvency. Insolvency and Bankruptcy Board of India The Insolvency and Bankruptcy Board of India set up as a regulator to oversee functioning of entities created under the Code, including IPs, IPAs and information utilities.

22. Adjudicating Authorities Two adjudicating authorities to: ( i ) evaluate applications for initiating insolvency proceedings, (ii) approve appointment of IPs, and (iii) approve resolution plans. These authorities are: 1. National Company Law Tribunal (NCLT) will adjudicate cases for companies and limited liability partnerships. Appeals against its orders will be heard by the National Company Law Appellate Tribunal. 2. Debt Recovery Tribunal (DRT) will adjudicate cases for individuals and partnership firms. Appeals against its orders will be heard by the Debt Recovery Appellate Tribunal

23. Corporate Insolvency Resolution Process- Some definitions "financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to; ( 8) "financial debt" means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes— ( a) money borrowed against the payment of interest ( b) any amount raised by acceptance under any acceptance credit facility or its de- materialised equivalent; ( c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; ( d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; ( e) receivables sold or discounted other than any receivables sold on nonrecourse basis; ( f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; ( g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; ( h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; ( i ) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses ( a) to (h) of this clause

24. Deinitions-contd . "operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred; "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;

25. Definitions contd. “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 provid er;( Theses are governed by regulators like IRDA,SEBI,RBI etc.) "corporate debtor" means a corporate person who owes a debt to any person;

26. Corporate Insolvency Resolution Proces - ( Part-II-Chapter-II) Default by any corporate debtor WHO CAN FILE- a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process by making application to NCLT ( Adjudicating Authority) Financial Creditor AA within 14 days of receipt of application shall ascertain the existence of default and may admit Before rejecting give notice to the applicant to rectify the defect. The order of admission or rejection to be communicated within 7 days The corporate insolvency resolution process shall commence from the date of admission of the application

27. Corporate-cont. Additional step for Operational creditor First serve demand notice for demanding payment The corporate debtor within 10 days of the receipt of notice may bring to the notice of creditor of existence of any dispute or of payment if already made. After expiry of 10 days if unresolved may make an application to AA Corporate DEBTOR itself may file application if it has committed a default.

28. Process-contd. The following persons shall not be entitled to make an application to initiate corporate insolvency resolution process under this Chapter, namely:— ( a) a corporate debtor undergoing a corporate insolvency resolution process; or ( b) a corporate debtor having completed corporate insolvency resolution process t welve months preceding the date of making of the application; or ( c) a corporate debtor or a financial creditor who has violated any of the terms of resolution plan which was approved twelve months before the date of making of an application under this Chapter; or ( d) a corporate debtor in respect of whom a liquidation order has been made.

29. Process cont.. The AA shall appoint an interim resolution professional within fourteen days from the insolvency commencement date. The term of the interim resolution professional shall not exceed thirty days from date of his appointment The corporate insolvency resolution process shall be completed within a period of 180 days from the date of admission of the application. AA may by order further extend the period by maximum 90 days only Upon admission AA shall declare a moratorium period for suits/actions etc and make a PUBLIC announcement and call for submission of claims. As on date Total 19 public announcements are on the website of Board .

30. Duties of interim Insolvency Professional Management of affairs of corporate debtor by interim resolution professional. The powers of Board of directors/ partners suspended

31. Insolvency Professional The eligibility, qualification and experience for registration as an insolvency professional, governs by Regulations 4, 5 & 9 in Chapter III of Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016

32. Eligibilty 4. No individual shall be eligible to be registered as an insolvency professional if he - (a) is a minor. (b) is not a person resident in India. (c) does not have the qualification and experience specified in Regulation 5 or Regulation 9, as the case may be. (d) has been convicted by any competent court for an offence punishable with imprisonment for a term exceeding six months or for an offence involving moral turpitude, and a period of five years has not elapsed from the date of expiry of the sentence. Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be registered. (e) he is an undischarged insolvent, or has applied to be adjudicated as an insolvent. (f) he has been declared to be of unsound mind. (g) he is not a fit and proper person. Explanation: For determining whether an individual is fit and proper under these Regulations, the Board may take account of any consideration as it deems fit, including but not limited to the following criteria-   ( i ) integrity, reputation and character.   (ii) absence of convictions and restraint orders.   (iii) competence, including financial solvency and networth .

33. Qualifications and Experience 5. Subject to the other provisions of these Regulations, an individual shall be eligible for registration, if he - a. has passed the National Insolvency Examination. b. has passed the Limited Insolvency Examination, and has fifteen years of experience in management, after he received a Bachelor’s degree from a university established or recognized by law. c. has passed the Limited Insolvency Examination and has ten years of experience as -   ( i ) a chartered accountant enrolled as a member of the Institute of Chartered Accountants of India.   (ii) a company secretary enrolled as a member of the Institute of Company Secretaries of India.   (iii) a cost accountant enrolled as a member of the Institute of Cost Accountants of India, or   (iv) an advocate enrolled with a Bar Counc

34. Registration for a limited period 9. (1) Notwithstanding any of the provisions of Regulation 5, an individual shall be eligible to be registered for a limited period as an insolvency professional if he - a. has been ‘in practice’ for fifteen years as -   ( i ) a chartered accountant enrolled as a member of the Institute of Chartered Accountants of India.   (ii) a company secretary enrolled as a member of the Institute of Company Secretaries of India.   (iii) a cost accountant enrolled as a member of the Institute of Cost Accountants of India, or   (iv) an advocate enrolled with a Bar Council and b. submits an application for registration in Form A of the Second Schedule to these Regulations to the insolvency professional agency with which he is enrolled on or before 31st December, 2016 along with a non-refundable application fee of five thousand rupees which shall be collected by such insolvency professional agency on behalf of the Board. (2) The insolvency professional agency shall submit to the Board the fee collected and the details of the applications received under sub-regulation (1)(b). (3) An individual referred to sub-regulation (1) shall be registered for a limited period upon submission of the details and fee to the Board under sub-regulation (2), which shall be valid for a period of six months from the date of such submission. (4) An insolvency professional registered under sub-regulation (3) shall not undertake any assignment as an insolvency professional after the expiry of his registration. Provided that he may complete the pending assignments undertaken before the expiry of his registration and his registration shall be deemed to be valid for this limited purpose.