This article is submitted by Anklesh Mahunta 4th year, currently pursuing BBA LLB from SOA National Institute Of Law.


Prior to the Insolvency and the Bankruptcy code 2016, the legislations dealing with insolvency and restructuring procedures of corporate bodies, partnership firms and individual entities was dealt by –

  1. the Companies Act, 1956, the Sick Industrial Companies (Special Provisions) Act, 1985, [1]
  2. the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), [2]
  3. the Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI Act), 1993, etc.[3]

These legislations were very complex and failed to address timely resolution for the distressed corporate entities eventually leading to devaluation of the assets of the borrower and failing the whole process of insolvency proceedings. This act was made with an objective to solve the above-stated issue and encourage entrepreneurship and innovation.

Insolvency and Bankruptcy Code 2016

The IBC was recommended by a Joint Committee of Parliament in it report of 2015 and passed in December 2016. It deals with the provisions of bankruptcy i.e. a state when an individual fails to repay its creditors and facilitates a procedure for recovering the debt. It is not only applicable to the organization but also to individuals. In case where a corporate body fails to repay the loans, the insolvency proceeding is known as corporate insolvency.

It makes the process of liquidation more efficient and handles it rapidly and swiftly. A collective mechanism for resolution of insolvencies has been laid down in the IBC 2016 for preserving the economic value of the process in a time bound manner. The Insolvency and Bankruptcy Code 2016 provides a time-stipulated process by which creditors and borrowers must take decisions within the time frame of 180 days. In case of a default in repayment, the creditor gains control over the borrower’s assets and both take decisions to resolve the insolvency.

Key features of IBC in resolution process

Adjudicating authority

The Adjudicating authority in case of corporate bodies like companies and LLCs is the National Company Law Tribunal (NCLT) under the Companies Act, 2013 and in case of individuals and partnership it is the Debt Recovery Tribunal (DRT) under Recovery of debts due to Banks and Financial Institution Act, 1993.The National Company Law Appellate Tribunal is empowered to undertake appeals arising out of the NCLT and similarly the Debt Recovery Appellate Tribunal is empowered to undertake appeals from the DRT. Further appeals are made before the Supreme Court Of India.

Committee of creditors

 Sec.  21 deals with the Committee of creditors. It consists of financial creditors of the corporate debtor. After the collation of claims and assessing the information of the debtor the interim resolution professional would constitute the committee of creditors. The committee would approve or disapprove the resolution plan and the voting share is determined on  the basis of the financial debt owed to them. A minimum of 75% is required to approve the resolution plan.

Insolvency Professionals

There are 2 kinds of Insolvency Professionals-

  1. Interim insolvency professional
  2. Insolvency professional

These professionals are regulated by the IBBI and are registered through Insolvency Professional Agency. These professionals act as first level regulators and maintain a code of ethics and develop a framework of how to proceed with the insolvency proceeding.

Insolvency and Bankruptcy Board The board regulates the conduct of insolvency professionals & insolvency agencies. The Insolvency and Bankruptcy board consists of representatives of The Reserve Bank of India, the Ministries of Law, Corporate Affairs and Finance.


Who can file for Corporate insolvency Resolution?

Financial Creditor- Sec.5(7) of IBC 2016 deals with financial creditor. They are basically creditors who give money to the promoters. Eg- Bank, financial institutions etc.

1.      a financial creditor can file an application before the adjudicating authority.

2.     After submitting application, the adjudicating authority will ascertain the default and admit the same within 14 days. If the adjudicating authority finds that there’s no default then the application would be rejected.

3.     The adjudication authority would communicate about the admission of application to the creditor within 7 days of admission and after that corporate insolvency resolution process would initiate

Operational Creditor- Sec.5(20) of IBC 2016 deals with Operational Creditor. These creditors do not give money or cash to the promoters but rather they give goods and services to the promoters. It also includes employment r debt in respect to the repayment of dues.

1.     In case of default, a demand notice is sent to the debtor by the Operational creditor. Further the Debtor has to the provide a notice for repayment to the creditor creditor within 10 days.

2.     The operational creditor can submit an application to the adjudicating authority for initiating the insolvency resolution.

3.     If the application is admitted then the insolvency resolution process will commence.

Corporate Debtor- Sec. 5(a) of IBC 2016, deals with Corporate Debtor. A corporate debtor is the Corporate Person who owes a debt to a Financial Creditor or Operational Creditor.

1.     If a Corporate Debtor defaults payment of debt then he can file an application before the adjudicating authority.

2.     After furnishing the application the adjudicating authority, the authority would pass an order within 14 days to either admit or reject the application

3.     If the application is admitted then the insolvency resolution process takes place but if the application has some defects then it would be rejected.

An Employee can be defined as A person who is working in a Company or has worked in an Company/ LLP may also file a petition if his dues are 1,00,00,000 or more.

Service Provider can be defined as Any service provider who has given the services and raised the Invoice but unable to recover the dues may file a petition if his dues are 1,00,00,000 or more. (After central govt. notification dated 24.03.2020)

Goods Provider can be defined as Any Goods Provider who has delivered the goods and raised the Invoice but unable to recover the dues may file a petition if his dues are 1,00,00,000 or more.

Corporate Insolvency Resolution Process

Step by Step Process

  1. When there is default by the Corporate debtor, the Financial Creditor or the Operational Creditor or the Corporate Applicant (according to the Sec-7,8 &10 respectively) may initiate the corporate insolvency resolution process. A creditor in case of default by the debtor may submit a notice to the debtor along with a copy of invoices stating the amount involved in the default in the prescribed form and manner. A financial creditor may either by itself or jointly with the other Financial Creditors file an application against the Corporate debtor for the resolution process before the Adjudicating Authority. Provided it should confer to the terms of the resolution plan which was approved by the authority.
  2. The application is to be filed with “Form 1” of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 along with a DD of Rs. 25000/- in favour of the Accounts officer, Ministry of Corporate Affairs along with a Written Consent of Insolvency Resolution Process in Form 2 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and a verifying affidavit in Form No.-NCLT6.
  3. The Financial Creditor is required to propose the name of Interim Resolution Professional when filling the Application. The Date of commencement of Corporate Insolvency Resolution Process will be notified when the NCLT admits the application. The NCLT/DRT after receiving the application will look into the existence of default and then admit the application within 14 days of receipt of application.
  4. After initiation by the Creditors, and after ascertaining the default along with the satisfaction that no pending disciplinary processes the application is admitted by the Authority. In case the Creditor is an Operational Creditor he is required to send a demand notice or invoice demanding payment of the default to the Corporate Debtor, who is further required to deliver the disputed records, suit or arbitration proceedings or the proof of payment within 10 days. After the completion of this period, he can again file an application before the adjudicating authority, who may admit or reject the application within 14 days of the receipt of it.
  5. After acceptance of application, a moratorium will be issued u/s 13(1) (a) if the IBC which means all the pending suits before the corporate debtor will be stayed and no fresh suits can be filed against it. A public announcement of Corporate Insolvency Resolution Process by the IRP containing the details of the Corporate Debt (name and address of the Corporate Debtor etc.)
  6. When the Interim Resolution Professional is appointed for drafting a plan of resolution within a period of 180 days (that can be extended by 90 days), that will form the Committee of Creditors (CoC) under section 18(c) of the Code which shall constitute of only the Financial Creditors as given under section 21(2) of the Code, for taking decisions regarding insolvency resolution.
  7. CIRP must be completed within 180 days from ‘insolvency commencement date’. A single time extension can be granted provided it should not exceed 90 days. If the Adjudicating Authority is may grant extension upto 90 days if he is satisfied that CIRP cannot be completed within 180 days. For start-ups and micro and small companies the resolution time period is 90 days and upon the discretion of Adjudicating Authority it can be extended by 45 days.
  8. The Committee of Creditors (CoC) will take a decision regarding the future of the outstanding debt owed to them and also would choose to revive the debt owed to them by selling the assets, rescheduling the payment date or directly repaying the debt. In case where a decision is not undertaken within 180 days, the assets of the Debtor go into liquidation. Where the Committee of Creditors decides to revive, then they have to find someone who is willing to buy the firm. The creditors of the firm also have to accept a significant reduction in debt amount. The term for this reduction is known as “haircut”.
  9. The CoC may either decide to restructure the debtor’s debt by preparing a resolution plan or liquidate the debtor’s assets. To accept the resolution plan by creditors, committee is required to have minimum 66% vote, otherwise it may be rejection (which means liquidation of Corporation Debtor). (Before 16.08.2019, voting share was 75%)
  10. Liquidation- If the debtor goes into liquidation under section 33 of the Code, an Insolvency Professional administers the liquidation process and shall act as the liquidator under section 34 of the Code. The liquidator will appoint two registered valuers for evaluating the assets & consolidate, verify, admit and determine the claim of the Creditor. The IBC restricts the Insolvency Professional to sell Corporate Debtor’s property to any person who is ineligible to be the resolution applicant. Proceeds from the sale of the debtor’s assets are distributed in the following order of precedence:
  11. Firstly, it is used for payment of Insolvency Resolution Cost and remuneration to the Insolvency Professional.
  12. Secured creditors, whose loans are backed by collateral, dues to workers, other employees (upto 12 months),
  • Unsecured creditors
  1. Dues to government (upto 2 years),
  2. Priority shareholders
  3. Equity shareholders

Important Judgements

  1. In the case of Surendra Trading Company Vs. Juggilal Kamlapat Jute Mills Ltd. & Ors,[4] The question before the NCLAT was, whether time of fourteen days mentioned under section 9(5) granted to the adjudicating authority for deciding the existence of default and admitting or rejecting the application is directory or mandatory. Also NCLAT held that the provision mentioned under section 7(5) or section 9 (5)or section 10(4) is procedural in nature, an important tool for expeditious dispensation of justice and is directory. Further question (with which supreme Court is concerned) was as to whether the period of seven days for rectifying the defects under proviso to sub-section (5) of Section 9 is mandatory or directory. The provision mentioned for removing the defects within 7 days is not mandatory, rather it is directory in nature.
  2. In the case of Indian Overseas Bank & Ors. v. Kamineni Steel & Power India Private Limited The Hyderabad bench of the NCLT, in an insolvency petition against Kamineni Steel & Power India, allowed a resolution plan approved by 66.67% of its committee of creditors. The Hyderabad NCLT in its order stated that stated Section 30 (4) does not clearly specify whether the said percentage is out of the total voting share of the financial creditors or does it refer those financial creditors present during the meetings of the CoC. “Since IBC is a new code and still evolving, the above percentage has to be read with various circulars issued by the Reserve Bank of India”[5] it observed. The National Company Law Appellate Tribunal has set aside the order passed by the bankruptcy court. The court assented the resolution plan for Kamineni Steel & Power despite of the fact that it did not receive the pre requisite 75 percent vote, as stated by the Insolvency and Bankruptcy Code (IBC) to get the plan endorsed by the court.
  3. In the case of Brilliant Alloys Private vs. Mr. S. Rajagopal &Ors, Supreme Court in Special Leave to Appeal (C) No(s)-31557/2018[6] an application was filed by the Resolution Professional before NCLT seeking for withdrawal of CIRP on the ground that all claims of operation and financial creditors of the corporate debtor have been settled. The withdrawal application was filed under Section 60(5) of the IBC instead of Section 12A because the settlement happened after the issue of invitation for expression of interest under regulation 36A of CIRP Regulation. The NCLT dismissed the application because it cannot pass an order allowing the withdrawal, ignoring the conditional clause enumerated under 30A which provides a condition that the application of withdrawal has to be filed before invitation for expression of interest.



The Insolvency and Bankruptcy Code is the first code to regularise the insolvency process in our country. It is solely responsible to bringing out significant changes in the commercial laws of India but this nascent legislation is filled with controversies and speedy resolutions. It is one of the important tools for the banks to regularise various NPAs (Non-Performing Assets) which were detrimental to the economic health of India.

It has an immense contribution in resolving issues of bankruptcy and is driving towards a new age of economy. With more than 11% of loans being bad loans in our country, IBC became the need of the hour and has made a plethora of significant changes which turn out to be beneficial to the country’s economy.





[4] Surendra Trading Company vs Juggilal Kamlapat Jute Mill CIVIL APPEAL NO. 8400 of 2017


[5] Indian Overseas Bank & Ors vs Kamineni Steel & Power India Pvt Company Appeal (AT) (Insolvency) No. 45 of 2018


[6] Brilliant Alloys Private Limited vs Mr. S. Rajagopal Special Leave to Appeal (C) No(s).31557/2018


*The views in this article are author’s point of view. BSK Legal may or may not subscribe to the views of the author. This article is not intended to substitute legal advice. Any portion or part of this article can be reproduced, copied or used, in whole or in part, after giving due credit to the publisher. The Copyright of the article is with the author.