Insolvency and Bankruptcy Code (IBC)
The Supreme Court has upheld the constitutional validity of various sections, including section 32A of the ‘Insolvency and Bankruptcy Code’ (IBC).
Section 32A of IBC:
- Section 32A of the IBC provides that after a judicial authority approves a resolution plan, the corporate debtor will not be prosecuted for the earlier offenses before the commencement of the corporate bankruptcy resolution process.
- Under this section of the IBC itself, the assets of the corporate debtor covered under the settlement scheme will not be processed.
Insolvency:
Insolvency is a situation where a person or company is unable to repay its outstanding debt.
Legal provisions:
- Till 1985, India had only one law (Companies Act, 1956) to deal with corporate insolvency and bankruptcy.
- In 1985, after the ‘Sick Industrial Companies Act, 1985’, the Research Debt Recovery Act was enacted in the year 1993 to banks and financial institutions, under which Debt Recovery Tribunals were established.
SARFAESI Act – 2002
- The SARFAESI Act was enacted in the year 2002 and at the same time a scheme for corporate debt restructuring was introduced by RBI which included comprehensive guidelines for banks.
- This code applies to both lending companies and individuals. Also, this code prescribes a time bound process for insolvency.
- The ‘Insolvency and Bankruptcy Code’ was implemented in 2016 to address problems such as delay in the insolvency process and legal complications.
IBC and Corporate Bankruptcy:
- The Insolvency and Bankruptcy Code, 2016 is the demand of the present time, as it makes the insolvency process comprehensive and easy for both individuals and corporations.
- Its range includes a wide variety of people, ranging from farmers to billionaire businessmen and startups to large corporate houses.
- The Lending and Bankruptcy Code provides a time bound insolvency and liquidation solution (within approximately 180 days, as the case may be).
- If a company does not repay the loan, then the company is declared insolvent to recover the debt under the IBC.
- For this, the special team of NCLT talks to the company and the company is declared insolvent after the management of the company agrees.
- After this, the bank gets possession of its entire property and the bank can recover its debt by selling that property to another company.
- The IBC provides for a market-based and time-bound insolvency resolution process.
- Section 29 of the IBC provides that only an outsider (third party) can buy the company.
Source – The Hindu
