The Insolvency and Bankruptcy Code (IBC) was enacted in 2016 to facilitate a time-bound resolution for ailing and sick firms. It could either be through closure or revival, while protecting the interests of creditors. Under IBC, either the creditor (banks) or the loaner (defaulter) can initiate insolvency proceedings. It is done by submitting a plea to the adjudicating authority, in this case, the National Companies Law Tribunal (NCLT). The resolution process was expected to aid in reducing the rising bad loans in the banking system.
Features of the Bill:
- When a firm defaults on its debt, its control will shift to a committee of creditors.
- The committee will have 180 days to evaluate proposals from various interested parties on how to either resuscitate the company or enable liquidation.
- The code has provisions for the creation of ‘insolvency professionals’ who would handle the commercial aspects of the resolution process.
- Insolvency professional agencies will train and regulate these professionals.
- The Debt Recovery Tribunal act as adjudicating authorities for individuals and unlimited partnership firms and National Company Law Tribunal for companies and limited liability entities.
- Insolvency and Bankruptcy Board of India will be the overall regulator.