Demystifying - The Insolvency and Bankruptcy Code 2016

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What is Insolvency and Bankruptcy? Are they different?

Insolvency is when an individual or a firm is unable to meet their financial obligations. This is the financial state of the company. Bankruptcy is the legal process that serves the purpose of resolving the issue of insolvency. This is the legal state of the company

What is the need for the Act in India?

Under the existing archaic-old laws, banks have had a hard time recovering bad debt, with the case of Kingfisher tycoon Vijay Mallya, who owes banks more than US$1.3 billion bringing the issue into focus. In fact, there was no single law dealing with insolvency and bankruptcy in India which leads to overlapping judgements and process becomes extremely cumbersome. Provisions of insolvency and bankruptcy related can found under various Acts:

o The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
o   Presidency Towns Insolvency Act, 1909
o   The Provincial Insolvency Act, 1920
o   Companies Act 2013
o   Recovery of debts due to banks and financial Institutions Act

And there are many more :)

Nearly 60,000 bankruptcy cases are pending in India’s courts. As per the World Bank data, it takes an average 4.3 years to wind up a company in India while Singapore takes just 0.8 years. Thus the need.

Ease of doing business is not just about easy entry but also easy exit. To ensure the survival of fittest in a market economy, ease of exit is also very important. (India now ranks at abysmal 130 out of 189 countries, World Bank’s doing business report 2016)

What are the Key Highlights of the Act?


What are the potential benefits of the Act?

The code would have an overriding effect on all other laws relating to Insolvency & Bankruptcy. Thus it will make it easier for companies to wind up failed businesses and bring India on a par with developed nations in terms of resolving bankruptcy issues. The code aims to resolve insolvencies in a strict time-bound manner and introduces a qualified insolvency professional (IP) as intermediaries to oversee the process. Easy process of claim by the creditors also encourages financial institutions to extend credit facilities thus strengthening the financial markets with increased availability of credit for business. To sum up this code is a huge step towards ease of doing business in India



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