- The Insolvency and Bankruptcy Code (Amendment) Bill, 2020 was passed by voice vote in Rajya Sabha. It had been approved by Lok Sabha earlier.
- The Bill is set to replace an ordinance which had brought provisions of the Bill into effect earlier after it was referred to the Standing Committee on Finance.
- The IBC, which came into force in 2016, has already been amended three times.
Purpose of introducing the bill
- It seeks to remove bottlenecks and streamline the corporate insolvency resolution process.
- It aims to provide protection to new owners of a loan defaulter company against prosecution for misdeeds of previous owners.
- The Bill also requires a minimum of 10 percent of allottees or 100 individual allottees in a real estate project to initiate insolvency proceedings for real estate projects to avoid “frivolous litigation”.
- As homebuyers are recognised as financial creditors under the IBC, individual homebuyers could initiate insolvency against a real estate company for delays in possession.
- The said amendments are in sync with time and also adhere to a Supreme Court order in “letter and spirit”.
The need for amendment in the IBC arose because of changing requirement and requirement of fine tuning the law.
What is IBC?
Insolvency and Bankruptcy Code, 2016 was enacted for reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of the value of assets of such persons.
Objectives of IBC
- To amend and consolidate all existing insolvency laws in India.
- To expedite and simplify the Insolvency and Bankruptcy Proceedings in India.
- To protect the interest of creditors including stakeholders in a company.
- To revive the company in a time-bound manner and to promote entrepreneurship.
- To work out a new and timely recovery procedure to be adopted by the banks, financial institutions or individuals.
- To maximize the value of assets of corporate persons.
- To get the necessary relief to the creditors and consequently increase the credit supply in the economy.
The Insolvency and Bankruptcy Code ecosystem
- National Company Law Tribunal (NCLT) - The adjudicating authority (AA), has jurisdiction over companies, other limited liability entities.
- Debt Recovery Tribunal (DRT) has jurisdiction over individuals and partnership firms other than Limited Liability Partnerships.
- The Insolvency and Bankruptcy Board of India (IBBI) - Apex body for promoting transparency & governance in the administration of the IBC and will be involved in setting up the infrastructure and accrediting IPs (Insolvency Professionals (IPs) & IUs (Information Utilities). It has 10 members from Ministry of Finance, Law, and RBI.
- Information Utilities (IUs) - Are a centralized repository of financial and credit information of borrowers and would accept, store, authenticate and provide access to financial data provided by creditors.
- IPs - Are the persons enrolled with IPA (Insolvency professional agency (IPA) and regulated by Board and IPA will conduct a resolution process and will act as Liquidator/ bankruptcy trustee.
- They are appointed by creditors and override the powers of the board of directors.
- IPs have the power to furnish performance bonds equal to assets of the company under insolvency resolutions
- Adjudicating authority (AA) - NCLT for corporate insolvency, to entertain or dispose of any insolvency application, approve/ reject resolution plans, decide in respect of claims or matters of law/ facts thereof.