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What is the IBC process?

Posted Date: 28-10-2022 Posted By: user

In the year 2016, the Indian parliament implemented the Insolvency and Bankruptcy Code (IBC) 2016 through an act, which got Presidential assent in May 2016. The fundamental purpose of introducing it by the central government was to resolve claims pertaining to insolvent companies.

According to experts, this code was a one-stop solution and a single answer to all the problems related to insolvencies in India. Earlier, it was a long process. Neither it was an economically viable arrangement, nor it was effectively dealing with the problem of NPA in India.

This code is intended to protect the interests of small investors and make the process of running a business less troublesome and problematic. All the 11 schedules and 255 sections of IBC are capable enough to tackle the bad loan problem, which is a pain in the neck for the banking system.

IBC has changed the relationship between creditors and debtors

The IBC process has successfully altered the basic debtor-creditor relationship, other than managing NPA in India. In the past few years, numerous cases have been resolved. And there are many that have arrived at the advanced stage of resolution. Since it offers a time-bound process for resolving the insolvency and default in repayment occurs, creditors gain control over the debtor’s assets.

Salient point of IBC

First thing is that companies are required to finish the entire insolvency exercise within 180 days. In IBC, the deadline can be extended only if the creditors do not raise objections against the extension. The annual turnover capping for small companies and startups is 1 Crore. The entire exercise has to be finished within 90 days and it cannot be extended beyond 45 days. Aliquidation process can be initiated if the debt resolution doesn’t happen.

The intention of launching IBC was to tackle the problem of bad loans and NPA in India that was affecting the banking system. Numerous cases have been resolved in the past few years, while some others are in the advanced stages of resolution.

IBC offers a time-bound process to resolve the problem of insolvency. In the default process of repayment, creditors have better control over the debtor’s assets. They need to make decisions to resolve insolvency. Under the IBC process, creditors, and debtors both can kick off the recovery proceedings against each other.

Under IBC, companies are supposed to complete the entire insolvency exercise within 180 days. The deadline can be extended if there is no objection raised by creditors for the extension.