Insolvency and Bankruptcy Board of India

INSOLVENCY AND BANKCRUPTY BOARD OF INDIA

LEGAL ARTICLE

INTRODUCTION

The Insolvency and Bankruptcy Board of India (IBBI) was established under the Insolvency and Bankruptcy Code, 2016.

In India, the Insolvency and Bankruptcy Code (IBC) of 2016 governs insolvency and bankruptcy proceedings for companies, partnerships, and individuals.

The purpose of this legislative framework is to balance the interests of all stakeholders, maximise asset value, and encourage entrepreneurship by consolidating and amending laws pertaining to corporate reorganisation and insolvency resolution for individuals, partnership firms, and corporate people in a timely manner. The IBBI is essential to carrying out and overseeing the IBC's regulations.

The Chairman of IBBI is Mr. Ravi Mittal. The IBBI is headquartered in New Delhi and has two offices: one at Mayur Bhawan, Connaught Circus and the other at Jeevan Vihar, Parliament Street.

The IBBI has 10 members, representing the Ministry of Finance, the Ministry of Corporate Affairs and the

BODY

The legal concepts of bankruptcy and insolvency both refer to a person's or company's inability to pay off debts. While bankruptcy is a legal process that enables an individual or organisation to seek relief from their debts by declaring bankruptcy, insolvency refers to a person or entity's inability to pay their debts when they fall due.

It is a crucial component of the ecosystem that oversees the application of the Code, which unifies and modifies the laws pertaining to the timely reorganisation and insolvency resolution of corporate entities, partnership firms, and individuals in order to maximise their asset values, encourage entrepreneurship, increase credit availability, and balance the interests of all parties involved.

1. It is a special kind of regulator because it controls both procedures and a profession. Information utilities, insolvency professionals, insolvency professional agencies, and insolvency professional entities are all under its regulatory purview.

• It creates and implements procedures for individual bankruptcy, corporate liquidation, corporate insolvency resolution, and corporate bankruptcy under the Code.

• In order to advance the goals of the Code, it has been entrusted with encouraging the growth and regulation of the operations and procedures of insolvency professionals, insolvency professional agencies, information utilities, and other organisations.

POWERS AND FUNCTIONS OF BOARD

Section 196. (1) The Board shall, subject to the general direction of the Central Government, perform all or any of the following functions namely:

(a) Register insolvency professional agencies, insolvency professionals and information utilities and renew, withdraw, suspend or cancel such registrations.

(aa) promote the development of, and regulate, the working and practices of, insolvency professionals, insolvency professional agencies and information utilities and other institutions, in furtherance of the purposes of this Code.

(b) Specify the minimum eligibility requirements for registration of insolvency professional agencies, insolvency professionals and information utilities.

(c) Levy fee or other charges for carrying out the purposes of this Code, including fee for registration and renewal of insolvency professional agencies, insolvency professionals and information utilities.

(d) Specify by regulations standards for the functioning of insolvency professional agencies, insolvency professionals and information utilities.

(e) Lay down by regulations the minimum curriculum for the examination of the insolvency professionals for their enrolment as members of the insolvency professional agencies.

(f) Carry out inspections and investigations on insolvency professional agencies, insolvency professionals and information utilities and pass such orders as may be required for compliance of the provisions of this Code and the regulations issued hereunder.

(g) Monitor the performance of insolvency professional agencies, insolvency professionals and information utilities and pass any directions as may be required for compliance of the provisions of this Code and the regulations issued hereunder.

(h) Call for any information and records from the insolvency professional agencies, insolvency professionals and information utilities.

(i) Publish such information, data, research studies and other information as may be specified by regulations.

(j) Specify by regulations the manner of collecting and storing data by the information utilities and for providing access to such data.

(k) Collect and maintain records relating to insolvency and bankruptcy cases and disseminate information relating to such cases.

(l) Constitute such committees as may be required including in particular the committees laid down in section 197.

(m) Promote transparency and best practices in its governance.

(n) Maintain websites and such other universally accessible repositories of electronic information as may be necessary.

(o) Enter into memorandum of understanding with any other statutory authorities

(p) Issue necessary guidelines to the insolvency professional agencies, insolvency professionals and information utilities.

(q) Specify mechanism for redressal of grievances against insolvency professionals, insolvency professional agencies and information utilities and pass orders relating to complaints filed against the aforesaid for compliance of the provisions of this Code and the regulations issued hereunder.

(r) Conduct periodic study, research and audit the functioning and performance of to the insolvency professional agencies, insolvency professionals and information utilities at such intervals as may be specified by the Board.

(s) Specify mechanisms for issuing regulations, including the conduct of public consultation processes before notification of any regulations.

(t) Make regulations and guidelines on matters relating to insolvency and bankruptcy as may be required under this Code, including mechanism for time bound disposal of the assets of the corporate debtor or debtor.

(u) Perform such other functions as may be prescribed.

The Board have the same powers which a civil court has under the CPC while trying a suit :

(a) The discovery and production of books of account and other documents, at such place and such time as may be specified by the Board.

(b) Summoning and enforcing the attendance of persons and examining them on oath.

(c) Inspection of any books, registers and other documents of any person at any place.

(d) Issuing of commissions for the examination of witnesses or documents.

ORGANISATION STRUCTURE OF IBBI

The RBI (Reserve Bank of India) has nominated one member to the IBBI, and the remaining five members are nominated by the Central Government, three of whom should be full-time members. The IBBI is composed of ten members, including a chairman and three members who cannot be below the rank of Joint Secretary or equivalent.

Legal Framework: Explain the relevant laws and legal principles.

It established the Insolvency and Bankruptcy Board of India (IBBI) as the regulator, which can proactively respond to the changing reality through its regulatory powers, in addition to prescribing a legislative framework for insolvency resolution and bankruptcy. It has been successful for the IBC to build unique jurisprudence for the resolution of insolvencies. Through the execution of the legislation, the government and the IBBI have also been proactive in addressing and clarifying concerns as they arise. This explains the constant changes made to the IBC and the several laws issued under it, but also raises some concerns that the IBC is still not fully operational over six years after it was enacted. With the IBC going into effect, the NCLT has established itself as the premier venue for insolvency resolution and liquidation, with the majority of the cases it handles being related to insolvency. A total of 9,653 new cases were filed at various benches of the NCLT in 2021–2022, of which 4,640 were submitted under the IBC, according to the Ministry of Corporate Affairs annual report for 2021–2022 . Similarly, 4,142 of the 9,362 cases that were resolved by different NCLT benches were under the IBC.

Enforcing judicial discipline in insolvency resolution was one of the principal objectives of the IBC. The IBC imposed a strict timeline of 180 days for the corporate insolvency resolution process (CIRP), which is extendable by another 90 days, at the discretion of the AA. This was further extended to 330 days through an amendment to the IBC in 2019.

According to the data released by the IBBI, the average time taken for CIRPs that resulted in resolution plans is 581 days (after excluding time permitted by AAs). Further, the CIRPs that ended up in liquidation took an average of 654 days for conclusion.

The 2021 Amendment

On 12 August 2021, the government enacted the Insolvency and Bankruptcy Code (Amendment) Act 2021, after it had promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance 2021 in April 2021 for introducing the pre-packaged insolvency resolution process (PPIRP) for MSMEs. This amendment was felt to be necessary to help MSMEs tide over widespread distress induced or exacerbated by the pandemic.

IBBI (Voluntary Liquidation Process) Amendment Regulations 2022

There have been multiple instances of substantial delay in the completion of the voluntary liquidation process. To avoid such delays, the government shortened the timelines for various steps in a voluntary liquidation process in the IBBI (Voluntary Liquidation Process) Amendment Regulations 2022 as amended on 5 April 2022. The time period for distribution of the proceeds from realisation has been reduced from 180 days to 30 days. Further, the time period for submission of the final report has been reduced from 365 days to 270 days from the date of the initiation of the process in cases where claims have been received from creditors and 90 days from the date of the initiation of the process in cases where no claims have been received from any creditor.

Some landmark judgements related to ibc -

Supreme Court clarified position on limitation period barring operational claims arising out of multiple invoices

In March 2023, the Supreme Court (SC) division bench in M/s. Next Education India Pvt. Ltd. Vs. M/s. K12 Techno Services Pvt. Ltd''. held that when a petition is filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 based on several invoices wherein some of the invoices are time-barred, the Adjudicating Authority must consider invoices raised at least three years preceding the date of filing of Section 9 petition to determine limitation.

2. Signatories/directors of Corporate Debtor cannot escape liability under Section 138 of NI Act

In March 2023, the SC in Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation India Ltd. dealt with the effect of the pendency of proceedings under the Insolvency and Bankruptcy Code 2016 on the proceedings initiated under Section 138 of the Negotiable Instruments Act, 1881.

The two legislation' procedures are distinct from one another and do not conflict with one another. Criminal proceedings are not included in the category of processes that are maintained in abeyance under Section 14 of the IBC Code. The NI Act Section 138 criminal proceedings, which are classified as "penal" rather than "recovery" actions because they carry the possibility of jail time, a fine, or both, are brought about by financial debt default.

The termination of the criminal case would not automatically follow from Section 31 or Sections 38 to 41 of the I&B Code, which provide for the extinguishment of debt. If the firm dissolves within the period that the proceedings under Section 138 of the NI Act have already begun, and during the pendency of proceedings , signatories/ directors would face a penal liability.

3. Supreme Court said that decision in Vidharbha Industries is an exception and not a rule

In May 2023, the division bench of the Supreme Court (SC), in M. Suresh Kumar Reddy vs. Canara Bank & Ors. held that once the NCLT is satisfied that the default has occurred, there is hardly any discretion left with it to refuse admission of the application under Section 7 of the I&B Code.

4. Supreme Court clarified that Secured Creditors Are Entitled to Retention of Sale Proceeds of Shares Pledged by Corporate Debtor

In May 2023, the division bench of the Supreme Court (SC) in M/S. Vistra ITCL (India) & Ors. v. Mr. Dinkar Venkatasubramanian & Anr. held that the Secured Creditor would be entitled to retain the sale proceeds i.e. shares pledged by Amtek Auto Limited (corporate debtor) under the Insolvency and Bankruptcy code 2016

5. Supreme Court Clarified that Limitation Period for initiating CIRP and Lodging Claims during CIRP Based on Debt Recovery Certificate as Financial Debt

In October 2023, the Supreme Court (SC) in Tottempudi Salalith v. State Bank of India & Ors''. has affirmed its previous judgments and held that a DRT Recovery Certificate holder shall have, from the date of the Recovery Certificate, three years to initiate CIRP proceedings and twelve years to lodge a claim in CIRP, if pursued as a deemed decree.

CONCLUSION

The Insolvency and Bankruptcy Code, 2016 introduced by the IBBI has fundamentally altered India's insolvency laws. It has improved creditor trust and made doing business easier in India by guaranteeing a time-bound, structured process for insolvency resolution. Sufficient capacity-building and ongoing reforms are necessary to tackle current issues and guarantee the insolvency framework's long-term viability in India.

CITATIONS / REFERENCES

• “Top 5 I&B Code Supreme Court Landmark Judgments, 2023.” IndiaLaw LLP, 3 Jan. 2024,
• “Overview of India’s Insolvency and Bankruptcy Code.” Global Restructuring Review, globalrestructuringreview.com/review/asia-pacific-restructuring-review/2023/article/overview-of-indias-insolvency-and-bankruptcy-code