The Government of India introduced the Insolvency and Bankruptcy Code, 2016 (IBC) to simplify and consolidate various existing laws relating to insolvency and bankruptcy and to provide for a single legal framework to deal with all instances of insolvency and bankruptcy in India.
IBC is an economic legislation which was brought in to fulfill multiple objectives. Firstly, the earlier laws depended on executive and judicial branches of the government for resolution of insolvency or conduct of liquidation process. This resulted in severe delays. IBC sets it right by reducing the role of government agencies to a bare minimum of overseeing if the commercial decision taken is lawful and fair. All commercial decision making has been transferred to the most affected stakeholders i.e. the creditors of the corporation undergoing the insolvency process including, the assessment of viability of resolution process its effective time frame and deciding the best outcome for the corporation - be it debt restructuring, sale as a going concern, liquidation or a hybrid of one or more of these arrangements are all now left to the creditors alone. Secondly, IBC provides for strict statutory timelines within which the resolution process ought to be completed. IBC also provides for identification and qualification of neutral experts to act as Resolution Professionals to enable and oversee the process of resolution under IBC. The Resolution Professional is also vested with the responsibility of running the Corporation during the pendency of the resolution process. This ensures that the resolution is done in a timely and efficient manner under the able guidance of Resolution Professional. During the period of resolution, the Corporation remains going concern so as to maximise its value or prevent devaluation of its assets during the pendency of the resolution process.
Originally, IBC aimed to curb the menace of rising non-performing assets which was plaguing the financial market and to swiftly resolve long pending liquidation proceedings that were stalled at various stages of resolution. However, additionally, since its enactment, IBC has become an effective tool in the hands of any creditor to recover their ageing dues from the corporation in a timely manner. At the same time, IBC provides various safeguards to a solvent and profitable entity to re-organize itself to best serve the interest of its creditors and continue its entrepreneurial activities.
The Government of India has been extremely receptive to recommendations from all corners and has made several amendments to the Code since the inception to make the IBC a robust law and to ensure its primary objectives of timely resolution, maximisation of value and protection of interest of all stakeholders. IBC is an all-encompassing code dealing with time bound insolvency resolution of corporates, limited liability partnerships, partnership firms and individuals. However, certain parts of IBC concerning partnership firms and individuals have not come into force.