Insolvency and Bankruptcy Code, 2016 _ Succinctly
The Insolvency and
Bankruptcy Bill passed by the Lok Sabha on May 6, 2016 and Rajya Sabha by May
11, 2016. After passing the Bill by Rajya Sabha the president has given its
assent on 28th May, 2016 and published for general information.
The objective of the
Insolvency and Bankruptcy Code is to promote entrepreneurship, availability of
credit and balance interests of all stake holders by amending law relating to
reorganisation and insolvency resolution of corporate person partnership firm,
and individuals in a time bound manner.
Maximize the value of
assets of such person, empower the government and its prosecutions agency to
take massive action against corporate defaulters.
Help to Bank for
recovery of Loan of Rs. 8 Lakh Crore approx.
Need and Importance –
Number of cases were pending before the DRT (Debt Recovery Tribunal) and DRAT
(Debt Recovery Appellate Tribunal) and it’s increasing by cats and dogs.
Finance Minister Arun
Jaitely had said that the almost 586 corporate litigation cases were pending
for over 20 years with the Company Law Board, BIFR (Board for Industrial and
Financial Reconstruction) and OL (Official Liquidator) adding that efforts to
speedup resolution of such cases.
Definition
of Insolvency
Insolvency is a
situation where individuals or companies are unable to repay their outstanding
debt. It may be resolved by changing the repayment plan of the loans, or writing
off part of the debt. If insolvency cannot be resolved, assets of the debtor
may be sold to raise money, and repay to outstanding debts.
Key
Highlights of the Code:
·
Adjudicating authority for Individuals
and Unlimited Liability Partnership Firms – Debt Recovery Tribunal
·
Adjudicating authority for Companies and
Limited Liability Entities – National Company Law Tribunal
·
Information utilities will be setup to
collect and collate financial information from listed companies and their
creditors.
·
A time bound process to resolve the
insolvency. If default happen, creditors have control over debtors assets and
decisions to solve insolvency should be taken within 180 Days period by
creditors.
·
Debtor could be send behind bars for up
to 5 years for concealing property or defaulting creditors. Bankrupt
individuals would be barred from contesting election as well.
·
Empower creditors to decide whether a
defaulter is declaring insolvent or not.
Before the Bankruptcy
Code, recovering money from a defaulted corporate borrower is a nightmare for
bankers, Since it taken long years for the DRT to finish the litigation, But
Bankruptcy Code enable bank to push for recovery of the money from troubled
Company with in a period of 180 days, with a grace period of another 90 days if
2/3rd of creditors agrees. If the recovery doesn’t happen even then
the company will be liquidated automatically.
Applicability
of Code:
2. 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,
Institutions
to facilitate Resolution of Insolvency
Insolvency Professional agencies:
“Clause 20 of section 3 of Bankruptcy Code” means any person registered with
the Board under section 201 as an insolvency professional agency. The agency
conducts examination to certify the insolvency professional and enforce a code
of conduct for their performance.
Insolvency Professionals: “Clause 19 of section
3 of Bankruptcy Code” means a person enrolled under section 206 with an
insolvency professional agency as its member and registered with the Board as
an insolvency professional under section 207. It’s a specialised cadre of
licensed professionals. These professional will administer the resolution
process, manage the assets of the debtors, and provide information for
creditors to assists them in decision making.
Information utility: “Clause 21 of section
3 of Bankruptcy Code” means a person who is registered with the Board as an
information utility under section 210. Creditor will report financial
information of the debt owed to them by the debtor. Such information will
include records of the debt, liabilities and defaults.
Adjudicating authority: “Clause 1 of section
5 of Bankruptcy Code”, the proceedings of the resolution process will be
adjudicated by National Company law Tribunal for Companies and Debt Recovery
Tribunal for Individuals. The duties of the authority will include approval to
intimate the resolution process, appoint the insolvency professional, and
approve the final decision of creditors.
Insolvency and Bankruptcy Code:
“Clause 1 of section 3 of Bankruptcy Code”, means the Board who regulate the
insolvency professionals, insolvency professional agency and information
utilities setup under the Bill. The Board will consist of representative from
RBI, and Ministries of Finance, MCA and Law.
Procedure
Step
to resolve the Insolvency
Initiation:
when any default occurs, the resolution process may be initiated by the
creditor and debtor. The insolvency professional will administer the process.
The process ends in 180 days and any legal action is prohibited against the
debtor during this period.
Decision
to resolve insolvency: A committee of the financial
creditors who lent money to the debtors will be formed by the insolvency
professional. The creditors committee will take a decision regarding the future
of the outstanding debt owed to them. If decision is not taken in 180 days, the
assets of debtor’s go to liquidation.
Liquidation: If the
debtor goes to liquidation, an insolvency professional administer the
liquidation process.
Distribution of the
assets of the debtors:
1.
Insolvency resolution cost and
remuneration to insolvency professional
2.
Secured creditor
3.
Unsecured creditor
4.
Government dues
5.
Preferential shareholders
6.
Equity Shareholders
Effect on Companies Act, 2013
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Sr. No.
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Section
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Amendments To
The Companies Act, 2013
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1
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2(23)
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Company
Liquidator means a person appointed by the Tribunal as the Company Liquidator
in accordance with the provisions of section 275 for the winding up of a
company under this Act.
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2
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2(94A)
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Winding
up means winding up under this Act or liquidation under the Insolvency and
Bankruptcy Code, 2016, as applicable.
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3
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8(9)
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For
the words "the Rehabilitation and Insolvency Fund formed under section
269", the words "Insolvency and Bankruptcy Fund formed under
section 224 of the Insolvency and Bankruptcy Code, 2016" shall be
substituted.
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4
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66(8)
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For
the words, brackets and figures is unable, within the meaning of sub-section
(2) of section 271, to pay the amount of his debt or claim, the words
and figures "commits a default, within the meaning of section 6 of the
Insolvency and Bankruptcy Code, 2016, in respect of the amount of his debt or
claim," shall be substituted
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5
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77(3)
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In
sections 77, in sub-section (3), after the words "the
liquidator", the words and figures "appointed under this Act or the
Insolvency and Bankruptcy Code, 2016, as the case may be," shall be
inserted.
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6
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117(3)(f)
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In
section 117 in sub-section (3), in clause (f), for the word and
figures "section 304", the words and figures "section 59 of
the Insolvency and Bankruptcy Code, 2016" shall be substituted.
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7
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224(2)
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After
the words "wound up under this Act", the words and figures "or
under the Insolvency and Bankruptcy Code, 2016" shall be inserted.
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8
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230(1)
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After
the word "liquidator", the words "appointed under this Act or
under the Insolvency and Bankruptcy Code, 2016, as the case may be,"
shall
be inserted;
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230(6)
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After
the word "on the liquidator", the words "appointed under this
Act or under the Insolvency and Bankruptcy Code, 2016, as the case may
be," shall be inserted;
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Chapter XIX,
Containing Section 253-269 shall be omitted by the Insolvency and Bankruptcy Code,
2016 (Not yet enforced)
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9
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271
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For
section 271, the following section shall be substituted, namely:—
"271.
A company may, on a petition under section 272, be wound up by the Tribunal,—
(a)
if the company has, by special resolution,
resolved that the company be wound up by the Tribunal;
(b)
if the company has acted against the interests of
the sovereignty and integrity of India, the security of the State, friendly
relations with foreign States, public order, decency or morality;
(c)
if on an application made by the Registrar or any
other person authorised by the Central Government by notification under this
Act, the Tribunal is of the opinion that the affairs of the company have been
conducted in a fraudulent manner or the company was formed for fraudulent and
unlawful purpose or the persons concerned in the formation or management of
its affairs have been guilty of fraud, misfeasance or misconduct in
connection therewith and that it is proper that the company be wound up;
(d)
if the company has made a default in filing with
the Registrar its financial statements or annual returns for immediately
preceding five consecutive financial years; or
(e)
If the Tribunal is of the opinion that it is just
and equitable that the company should be wound up.
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10
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272
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For
section 272, the following section shall be substituted, namely:—
"272.
(1) Subject to the provisions of this section, a petition to the
Tribunal for the winding up of a company shall be presented by—
(a)
the company;
(b)
any contributory or contributories;
(c)
all or any of the persons specified in clauses (a) and (b);
(d)
the Registrar;
(e)
any person authorised by the Central Government in that behalf; or
(f)
in a case falling under clause (b) of section 271, by the Central
Government or a State Government.
(2)
A contributory shall be entitled to present a petition for the winding up of
a company, notwithstanding that he may be the holder of fully paid-up shares,
or that the company may have no assets at all or may have no surplus assets
left for distribution among the shareholders after the satisfaction of its
liabilities, and shares in respect of which he is a contributory or some of
them were either originally allotted to him or have been held by him, and
registered in his name, for at least six months during the eighteen months
immediately before the commencement of the winding up or have devolved on him
through the death of a former holder.
(3)
The Registrar shall be entitled to present a petition for winding up under
section 271, except on the grounds specified in clause (a) or clause (e)
of that sub-section: Provided that the Registrar shall obtain the previous
sanction of the Central Government to the presentation of a petition: Provided
further that the Central Government shall not accord its sanction unless the company
has been given a reasonable opportunity of making representations.
(4)
A petition presented by the company for winding up before the Tribunal shall
be admitted only if accompanied by a statement of affairs in such form and in
such manner as may be prescribed.
(5)
A copy of the petition made under this section shall also be filed with the
Registrar and the Registrar shall, without prejudice to any other provisions,
submit his views to the Tribunal within sixty days of receipt of such petition."
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11
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275(2)
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The
provisional liquidator or the Company Liquidator, as the case may, shall be
appointed by the Tribunal from amongst the insolvency professionals
registered under the Insolvency and Bankruptcy Code, 2016.
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12
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280
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For
section 280, the following section shall be substituted, namely:—
"280.
The Tribunal shall, notwithstanding anything contained in any other law for
the time being in force, have jurisdiction to entertain, or dispose of,—
(a)
any suit or proceeding by or against the company;
(b) any claim made by or against
the company, including claims by or
against
any of its branches in India;
(c)
any application made under section 233;
(d)
any question of priorities or any other question
whatsoever, whether of law or facts, including those relating to assets,
business, actions, rights, entitlements, privileges, benefits, duties,
responsibilities, obligations or in any matter arising out of, or in relation
to winding up of the company,
Whether
such suit or proceeding has been instituted, or is instituted, or such claim
or question has arisen or arises or such application has been made or is made
or such scheme has been submitted, or is submitted, before or after the order
for the winding up of the company is made.".
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13
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326
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For
section 326, the following section shall be substituted, namely:—
"326.
(1) In the winding up of a company under this Act, the following debts
shall be paid in priority to all other debts:—
(a)
workmen's dues; and
(b)
where a secured creditor has realised a secured asset, so much of the debts
due to such secured creditor as could not be realised by him or the amount of
the workmen's portion in his security (if payable under the law), whichever
is less, pari passu with the workmen's dues:
Provided
that in case of the winding up of a company, the sums referred to in
sub-clauses (i) and (ii) of clause (b) of the Explanation,
which are payable for a period of two years preceding the winding up
order or such other period as may be prescribed, shall be paid in priority to
all other debts (including debts due to secured creditors), within a period
of thirty days of sale of assets and shall be subject to such charge over the
security of secured creditors as may be prescribed.
(2)
The debts payable under the proviso to sub-section (1) shall be paid
in full before any payment is made to secured creditors and thereafter debts
payable under that subsection shall be paid in full, unless the assets are
insufficient to meet them, in which case they shall abate in equal
proportions.
Explanation.—For the purposes of this section,
and section 327—
(a) "workmen'',
in relation to a company, means the employees of the company, being workmen
within the meaning of clause (s) of section 2 of the Industrial
Disputes Act, 1947 (14 of 1947);
(b) "workmen's
dues'', in relation to a company, means the aggregate of the following sums
due from the company to its workmen, namely:—
(i)
all wages or salary including wages payable for time or piece work and salary
earned wholly or in part by way of commission of any workman in respect of
services rendered to the company and any compensation payable to any workman
under any of the provisions of the Industrial Disputes Act, 1947 (14 of
1947);
(ii)
all accrued holiday remuneration becoming payable to any workman or, in the
case of his death, to any other person in his right on the termination of his
employment before or by the effect of the winding up order or resolution;
(iii)
unless the company is being wound up voluntarily merely for the
purposes
of reconstruction or amalgamation with another company or unless the company
has, at the commencement of the winding up, under such a contract with
insurers as is mentioned in section 14 of the Workmen's Compensation Act,
1923 (19 of 1923), rights capable of being transferred to and vested in the
workmen, all amount due in respect of any compensation or liability for
compensation under the said Act in respect of the death or disablement of any
workman of the company;
(iv)
all sums due to any workman from the provident fund, the pension
fund,
the gratuity fund or any other fund for the welfare of the workmen,
maintained by the company;
(c) "workmen's
portion'', in relation to the security of any secured creditor of a company,
means the amount which bears to the value of the security the same proportion
as the amount of the workmen's dues bears to the aggregate of the amount of
workmen's dues and the amount of the debts due to the secured creditors.
Illustration
The
value of the security of a secured creditor of a company is Rs. 1,00,000. The
total amount of the workmen's dues is Rs. 1,00,000. The amount of the debts
due from the company to its secured creditors is Rs.3,00,000. The aggregate
of the amount of workmen's dues and the amount of debts due to secured creditors
is Rs. 4,00,000. The workmen's portion of the security is, therefore,
one-fourth of the value of the security, that is Rs. 25,000."
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14
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329
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Any
transfer of property, movable or immovable, or any delivery of goods, made by
a company, not being a transfer or delivery made in the ordinary course of
its business or in favour of a purchaser or encumbrance in good faith and for
valuable consideration, if made within a period of one year before the
presentation of a petition for winding up by the Tribunal under this Act
shall be void against the Company Liquidator."
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15
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334
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In
the case of a winding up by the Tribunal, any disposition of the property
including actionable claims, of the company and any transfer of shares in the
company or alteration in the status of its members, made after the
commencement of the winding up shall, unless the Tribunal otherwise orders,
be void.
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16
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429(1)
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In
section 429, for sub-section (1), the following sub-section shall be
substituted, namely:—
"(1)
The Tribunal may, in any proceedings for winding up of a company under this
Act or in any proceedings under the Insolvency and Bankruptcy Code, 2016, in
order to take into custody or under its control all property, books of
account or other documents, request, in writing, the Chief Metropolitan
Magistrate, Chief Judicial Magistrate or the District Collector within whose
jurisdiction any such property, books of account or other documents of such
company under this Act or of corporate persons under the said Code, are
situated or found, to take possession thereof, and the Chief Metropolitan
Magistrate, Chief Judicial Magistrate or the District Collector, as the case
may be, shall, on such request being made to him,—
(a)
take possession of such property, books of account
or other documents; and
(b)
Cause the same to be entrusted to the Tribunal or
other persons authorised by it.
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17
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434(1)
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For
section 434, the following section shall be substituted, namely:—
"434.
(1) On such date as may be notified by the Central Government in this
behalf,—
(a)
all matters, proceedings or cases pending before
the Board of Company Law Administration (herein in this section referred to
as the Company Law Board) constituted under sub-section (1) of section
10E of the Companies Act, 1956 (1 of 1956), immediately before such date
shall stand transferred to the Tribunal and the Tribunal shall dispose of
such matters, proceedings or cases in accordance with the provisions of this
Act;
(b)
any person aggrieved by any decision or order of the Company Law
Board
made before such date may file an appeal to the High Court within sixty days
from the date of communication of the decision or order of the Company Law
Board to him on any question of law arising out of such order:
Provided
that the High Court may if it is satisfied that the appellant was prevented
by sufficient cause from filing an appeal within the said period, allow it to
be filed within a further period not exceeding sixty days; and
(b)
all proceedings under the Companies Act, 1956 (1
of 1956), including proceedings relating to arbitration, compromise,
arrangements and reconstruction and winding up of companies, pending
immediately before such date before any District Court or High Court, shall
stand transferred to the Tribunal and the Tribunal may proceed to deal with
such proceedings from the stage before their transfer:
Provided
that only such proceedings relating to the winding up of companies shall be
transferred to the Tribunal that are at a stage as may be prescribed by the
Central Government.
(2)
The Central Government may make rules consistent with the provisions of this
Act to ensure timely transfer of all matters, proceedings or cases pending
before the Company Law Board or the courts, to the Tribunal under this
section.
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18
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SCH
V
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In
Schedule V, in Part II, in section III, for clause (b), the following
clause shall be substituted, namely:—
"(b)
where the company—
(i)
is a newly incorporated company, for a period of
seven years from the date of its incorporation, or
(ii)
is a sick company, for whom a scheme of revival or
rehabilitation has been ordered by the Board for Industrial and Financial
Reconstruction for a period of five years from the date of sanction of scheme
of revival, or
(iii)
is a company in relation to which a resolution
plan has been approved by the National Company Law Tribunal under the
Insolvency and Bankruptcy Code, 2016 for a period of five years from the date
of such approval, it may pay remuneration up to two times the amount
permissible under section II.
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Disclaimer: The entire contents of above document have
been prepared on the basis of Insolvency
and Bankruptcy Code, 2016. Whereas deep care
has been taken by author to ensure the correctness and completeness of the
information provided.
This is nothing but a knowledge sharing initiative by
author and author do not intend to
accost any business or professio
