IBC

Group Members:
Nipun Nath IC(PGP/22/150)
Saswath KR(PGP/22/260)
Gowtham V Sha(PGP/22/350)

Introduced in the Lok Sabha in 2015 the bill aims to repeal the existing acts such as SICA, Presidency
Towns Insolvency Act etc. where most of which could be considered outdated in the present
economic conditions.

Process:

Process Management: As per the code the insolvency procedure must be performed by licensed
professionals.

Regulatory body: The code establishes Insolvency and Bankruptcy board of India, which would
oversee insolvency procedures. The board includes members from RBI, Ministry of Finance and
Ministry of Law.

Insolvency: In case of non-repayment by loans by any individual or company, insolvency process can
be initiated by the debtor or the creditors. Proposal for declaring bankruptcy of a company is issued
by NCLT and for individuals it is performed by Debt Recovery Tribunal. The plea submitted to these
tribunals must either be approved or rejected within 14 days. Once approved, the tribunal appoints
an Insolvency Resolution Personnel for drafting insolvency plans. Insolvency process is to be
completed within 180 days (for companies) and 90 days (for individuals). Provision is provided to
extend this period by 90 days if majority of creditors are in approval.

First Amendment to IBC, 2017 –

Changes:

1) Prevented defaulters from bidding for their own companies.

2) Persons who remained in control of an NPA for more than 12 months is barred from bidding.
3) Resolution plans need to be approved by more than 75% of creditors.

Second Amendment to IBC, 2018 –

Changes:

1) Defaulters can withdraw application within 30 days of filing to offer settlement to creditors
provided 90% of the creditors agree.
2) Promoters of MSMEs can bid for their own companies.
3) Home buyers also classified as financial creditors.
4) Resolution plans need to be approved by 66% of the creditors.
5) Financial entities with no ties to the defaulter but has equity stake in the company can bid.

Pros and Cons of IBC-

Pros:
 1) Bought about a single law in place of multiple other laws and hence reduced ambiguity.
2) Debtors can recover their capital sooner and easier than before.
3) Prevents the debtor from gaining control of asset by bidding at low prices.
4) Prevents evergreening of loans.
5) Recovery rate of banks improved up to 48% for first half of FY18-19 compared to <15%
during FY-14-15 to FY16-17.
6) Probably will improve India’s standing in the Ease of doing Business Index.
7) Provision is made for salary for labour for 24 months in bankrupted companies.

Cons:

1) Certain Industries such as Power, Sugar which would provide viable returns only after some
years of project execution were affected heavily by IBC.
2) Overseas issues cannot be addressed by IBC.
3) Operational creditors such as suppliers do not have voice in the resolution process.

Development of Insolvency/Recovery regulations:

1) Indian Insolvency Act, 1848

2) Provisional Act, 1907
3) Presidency Town Insolvency Act, 1909
4) Provisional Insolvency Act, 1920
5) Sick Industrial Companies Act, 2003