Find the answers to above two questions in detailed post below
It is very intriguing that even though India's Independence was almost 70 years old when IBC was notified on 28th May, 2016, the country did not have a robust framework for handling insolvency and bankruptcy matters. The condition of Insolvency and Bankruptcy matters was haywire and credit market was run by only few players who could handle the defaulting amount. The legislative framework in pre-IBC era was as follows:
Legislative Framework Pre-IBC Era:
Individual bankruptcy and insolvency is legislated under two acts: the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920. High courts have the jurisdiction over insolvency related matters in the erstwhile Presidency towns of Chennai, Kolkata and Mumbai. Subordinate courts hear cases of individual insolvency in all other areas, with the district court being the court of appeal.
Corporate bankruptcy and insolvency is covered in a complex of multiple laws, some for collective action and some for debt recovery. These are:
The Recovery of Debt Due to Banks and Financial Institutions Act (RDDBFI Act), 1993 gives banks and a specified set of financial institutions greater powers to recover collateral at default. The law provides for the establishment of special Debt Recovery Tribunals (DRTs) to enforce debt recovery by these institutions only. The law also provides for the Debt Recovery Appellate Tribunals (DRATs) as the appellate forum.
Under certain specified conditions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002 enables secured creditors to take possession of collateral without requiring the involvement of a court or tribunal. This law provides for actions by secured creditors to take precedence over a reference by a debtor to BIFR. The DRT is the forum for appeals against such recovery.
To tackle these issues, a "Bankruptcy Law Reforms Committee" was formed in 2014 by the then Finance Minister Late Sh. Arun Jaitley. The committee presented its report and a draft Code to the Finance Minister in November, 2015.
The Committee set the following as objectives desired from implementing a new Code to resolve insolvency and bankruptcy:
Low time to resolution.
Low loss in recovery.
Higher levels of debt financing across a wide variety of debt instruments.
Hence, the Preamble of the IBC provides the purpose of the code as follows:
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
Balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues
Establish an Insolvency and Bankruptcy Board of India (IBBI).
To fulfil the above purposes, IBC provides for four important functionaries:
NCLT and NCLAT - The adjucating authority
IBBI - The regulator of Insolvency Professionals and Insolvency Professional Agencies
Insolvency Professionals - The regulated persons responsible for efficient execution of the process covered under IBC
Information Utilities - Data centres to store facts about lenders and terms of lending
A draft code incorporating the structure for fulfilment of above purposes was made open for public comments by the Government of India. A modified version of the draft bill, after the incorporation of public comments, was introduced in the Sixteenth Lok Sabha by Finance Minister Late Arun Jaitley as the Insolvency and Bankruptcy Code, 2015. The bill was tabled on 23rd December 2015. A Joint Parliamentary Committee on the Insolvency and Bankruptcy Code, 2015 (JPC) was set up and the bill was referred to it for detailed analysis. The JPC submitted its report, which included a new draft of the Bill, 28th April 2016. It was passed by the Lok Sabha on 5th May 2016, and by the Rajya Sabha on 11th May 2016. Subsequently, it received assent from President Late Shri Pranab Mukherjee and was notified in The Gazette of India on 28th May 2016.
The IBC is in its 7th year since notification and it is still evolving with various landmark judgements setting up precedents for the evolution. It has consolidated the Insolvency and Bankruptcy Framework to a Single Code for handling all the insolvency and bankruptcy matters be it related to individuals or corporates. It has given teeth to creditors while safeguarding debtors' interest as a going concern. The time bound completion of Insolvency Resolution Process can lead to reduction in burden on Indian credit market and gaining participants' trust and interest in investing further.
References:
"Bankruptcy Law Reforms Committee" report
Insolvency & Bankruptcy Code, 2016
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