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Insolvency & Bankruptcy Code, 2016 (IBC)

The Insolvency and Bankruptcy Code, 2016 (IBC) was passed by the Parliament on 11 May 2016, received Presidential assent on 28 May 2016 and was notified in the official gazette on the same day.


An act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.”


Key aspects of the Insolvency and Bankruptcy Code

  • IBC proposes a paradigm shift from the existing ‘Debtor in possession’ to a ‘Creditor in control’ regime
  • IBC aims at consolidating all existing insolvency related laws as well as amending multiple legislation including the Companies Act.
  • The code would have an overriding effect on all other laws relating to Insolvency & Bankruptcy.
  • The code aims to resolve insolvencies in a strict time-bound manner - the evaluation and viability determination must be completed within 180 days.
  • Moratorium period of 180 days (extendable upto 270 days) for the Company. Insolvency professional to take over the management of the Company.
  • It imposes stay not just on debt recovery actions, but also any claims oe expected claims from suits, recovery from institute. The moratorium period will be active for the period over which the insolvency resolution process is active.
  • Clearly defined ‘order of priority’ or the waterfall mechanism.
  • The waterfall to render government dues junior to most others is significant.
  • Antecedent transactions can be investigated and in case of any illegal diversion of assets personal contribution can be ordered by court. Introduce a qualified insolvency professional (IP) as intermediaries to oversee the process
  • Establishment of Insolvency and Bankruptcy board as an independent body for the administration and governance of Insolvency & bankruptcy Law; and Information Utilities as a depository of financial information.



National Company Law Tribunal (NCLT)

The Central Government has constituted National Company Law Tribunal (NCLT) under section 408 of the Companies Act, 2013 (18 of 2013) w.e.f. 01st June 2016. With the constitution of NCLT, the Company Law Board constituted under the Companies Act, 1956 now stands dissolved.


In the first phase the Ministry of Corporate Affairs have set up eleven Benches, one Principal Bench at New Delhi and ten Benches at New Delhi, Ahmadabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guahati, Hyderabad, Kolkata and Mumbai. These Benches will be headed by the President and 16 Judicial Members and 09 Technical Members at different locations.


The National Company Law Tribunal (NCLT) is a quasi-judicial body in India that adjudicates issues relating to companies in India. The NCLT was established under the Companies Act 2013 and was constituted on 1 June 2016.


The NCLT has the power under the Companies Act to adjudicate proceedings:

1. Initiated before the Company Law Board under the previous act (the Companies Act 1956)

2. Pending before the Board for Industrial and Financial Reconstruction (BIFR), including those pending under the Sick Industrial Companies (Special Provisions) Act, 1985

3. Pending before the Appellate Authority for Industrial and Financial Reconstruction; and

4. Pertaining to claims of oppression and mismanagement of a company, winding up of companies and all other powers prescribed under the Companies Act.


Decisions of the NCLT may be appealed to the National Company Law Appellate Tribunal.

As per the Insolvency and Bankruptcy Code, 2016, once an application is allowed by the National Company Law Tribunal, moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 is declared and all pending proceedings are stayed.


The Insolvency and Bankruptcy Code, 2016 for the very first in India provides for a time bound manner for disposing of insolvency proceedings. The Code provides for a maximum period of 180 days to complete the proceedings which can be further extended by 90 days. The Insolvency and Bankruptcy Code, 2016 provides for formulation of a committee of creditors which carries out the insolvency proceedings on its formulation by the insolvency professional. Interestingly the code also provides opportunity to the operational creditors to initiate proceedings for the first time under the insolvency


In a nutshell all the insolvency proceedings under the newly notified Insolvency and Bankruptcy Code, 2016 will have to be completed within the stipulated time period or else the company will go into liquidation process. In case the step by step time bound procedure specified under the code is not followed then the insolvency proceedings will lapse and the moratorium granted under Section 14 of the Insolvency and Bankruptcy Code, 2016 shall stand vacated.

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