BY- Ms. Sakshi Garge, N.B.T. Law College
The IBC, 2016 which is Insolvency and Bankruptcy Code is the law applicable to India and an Act to consolidate and amend the laws regarding re-organization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner for maximization of import of entrepreneurship, availability of credit and stakeholders together with alteration within the order of priority of payment of theGovernment dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected with that or incidental to that. This code was 1st introduced by the former minister of finance, late Mr. Arun Jaitley in 2015, which was passed in 2016 and came into force on 28thMay 2016.
NEED OF IBC, 2016
As previously, there have been a bunch of laws addressing insolvency and bankruptcy, whereby there was a need of the hour to have a consistent single code. SICA (Sick Industries corporations Act) did not prove that fruitful in speedy cases and resolution. The core aim of this Code was to form one unified framework that deals with the bankruptcy and insolvency of persons apart from monetary companies. Thus, this code is in effect from Dec 2016 and repealing SICA.
SITUATION BEFORE IBC
As there was a reservoir of laws to manage the insolvency and bankruptcy, governance before the enactment of the IBC was dealt with: –
- SICA (special provisions), 1985,
- The businesses Act (second amendment), 2002,
- SICA repeal Act (special provisions), 2003,
- The Recovery of Debts because of Banks and Financial Institutions Act (RDDBFI), 1993,
- the Securitization and Reconstruction of Financial Assets and Enforcement of the Security Interest (SARFAESI), 2002,
- CDR and SDR mechanisms, etc.
There was a provision to enter the market, take loans and debts, however not provision to liquidate the corporate company. Thus, it was complicated and required a unified law for speedy resolution covering under one single umbrella.
SITUATION AFTER IBC
The status of laws on Insolvency and Bankruptcy once the enactment of IBC 2016 was as under: –
- The IBC, no doubt has acted as a uniform law related to the enforcement of creditors rights.
- This act has consolidated all the previous laws, all in one IBC.
- There shall not be any civil court Jurisdiction.
- It is a Way to Liquidate company.
So now, the businesses have a full method from the commencement of business to liquidating company lined underneath IBC,2016.
AN AMENDMENT OF 2019: PERSONAL GUARANTORS ARE SUBJECT TO IBC
For understanding Insolvency and Bankruptcy, it’s a pre-requisite to know the term of the guarantee. The Indian Contract Act, 1872 defines section 126as, a contract of guarantee is an agreement whereby there are 3 parties that inter alia include debtor, creditor, and guarantor’. Just in case of failure on a part of the debtor to repay the debt, the amount owed to the creditor, the guarantor shall repay the debt amount to the creditor on behalf of the debtor and just in case of failure to repay such debt amount, the creditor reserves the proper right to initiate insolvency proceedings against the public guarantor.
WHO CAN BE A PERSONAL GUARANTOR?
Personal sponsor is outlined underneath section 5 (22) of the IBC“as anindividual who is the surety in a very contract of guarantee to the corporate debtor. Whereas, a guarantor means“a personal guarantor to a corporate debtor in respect of whom the guarantee has been invoked by the creditor and remains unpaid fully or partially.”
The Central Government in its notification dated 15thNov 2019, has brought into result Chapter III (part 3) of the Insolvency and Bankruptcy Code, 2016 coping with the financial stability and bankruptcy from Individualsto Partnership Firms, into this point because it is now applicable to “Personal Guarantors of Corporate Debtors” from1stDec 2019.
In pursuance of the same notification, the Government in the center has additionally enacted numerous Rules and laws with the result from first Dec. 2019 viz.
- TheIB Rules, 2019 – “insolvency rules” (Applies to Adjudicating Authority for insolvency Resolution method for Personal Guarantors ofCorporate Debtors)
- The IB Rules,2019 – “bankruptcy rules” (Applies to Adjudicating Authority for Bankruptcy method for Personal Guarantors of Corporate Debtors)
- According to the IBBof India, 2019 – “insolvency regulations” (Insolvency Resolution method for Personal Guarantors to Corporate Debtors)
- The insolvency and Bankruptcy Board of Republic of India laws, 2019 – “bankruptcy regulations” (Bankruptcy method for Personal Guarantors to CorporateDebtors)
The above-mentioned provision implies that the Personal Guarantors have currently been brought underneath the coverage of the IBC. Lenders henceforth would be able to take personal guarantors to tribunals with their companies. By these provisions, the creditors arenow allowed to proceed against the corporate body (principal borrower) together with the Personal Guarantor before National Company Law Tribunals (NCLT).
The following points refer AFTER the amendment’s scenario.
- INITIATION OF INSOLVENCY PROCEEDINGS:
The IBprocess is initiated against the Personal Guarantor, provided in section 60of the IBC, 2016 that theNCLT has the territorial jurisdiction to CorporateDebtors. Application can be filed under section 95 of Codebefore NCLT with these brief steps
- Serving demand Notice- under rule 7 (1) in ‘Form B’ inside the fourteen days from the receipt of demand notice.
- Filing of Application – application be filed in ‘Form C’ with the fee of 2000/- and needed documents.
- INTERIM MORATORIUM:
Section 96 provides that, an interim moratorium shall start from the date of the application filing about all the debts which might stop upon the admission of the application. Moratorium meaning the temporary suspension of any activity or law until the more notice lifting the suspension. throughout this era legal proceedings are stayed.
- APPLICATION BY RESOLUTION PROFESSIONAL:
When the applying is filed underneath section 95 of the IBC, within seven days the insolvency and Bankruptcy Board shall guarantee as no dependency of cases to NCLT.
- The resolution skilled is replaced if the person needs to.
- Within ten days, the resolution skilled (RP)shall submit or on the recommendation by RP, to NCLT regarding approval or rejection of the applying.
Section one zero one (101) applies upon the application being admitted. The amount of moratorium here is (180) one hundred eighty days that commences from the admission date or once CLAIMS FROM CREDITORS by NCLT movesan order repayment plan.
Creditors Claims; the NCLT shall then issue a public notice in seven days claiming from creditors. The notice shall be in English or in the vernacular/local/official language that shall be published online & offline. Accordingly, the creditors’ list is to be made by Resolution Professional in(30) thirty days.
- REPAYMENT PLAN:
A ‘repayment/compensation set up’ is that the re-organization of its debts/affairs. A compensation set up shall be written proposing the restructured set up for debts in consultation with RP by the debtor.
- It shall contain 1. Term 2. Its implementation 3. Funds Sources used forcompensation 4. The tentative budget forthe compensation period5. Finance in implementation 6. Terms and assets are excluded from the discharge.
- Within (21)twenty-one days from the submission date of claims to creditors, RP shall send the compensation set up stating it in compliance with the law. Optional, formal creditors meet is conducted between not but (14) fourteen days and less than (28) twenty-eight days with date and time.
- CREDITORS MEETING:
An official notice should be sent to creditors i.e. creditors list for the meeting by the RP (14) fourteen days before the formal meet. NCLT’s approval shall be mentioned. The creditors (those in the creditors’ list) ought to return on some extent of whether or not to just accept the compensation set up/ repayment plan or wants to be reformed by voting.
- According to section 11 of the IBB of India, “a meeting of the creditors shall be convened by the RP by creditors having thirty third of the selected share”, in (33%) proportion to the debt owed.
- Any decision to be made shall comply with 50% of the voting share of the creditors.
- Approval of Compensation Plan; such approved or changed compensation set up shall elapse 3/4th in creditors by Adjudicating Authority.
- Thecreditors’ meet report must be prepared by the RP as set by the creditors and inform NCLT.
- Filing of compensation plan as supported creditors report shall be binding on the creditors and debtors.
- According to section 110IBC, the secured person could forfeit his right to enforce his security.
- IMPLEMENTATION OF THE SET-UP:
Upon closing and completion of the compensation set up, inside fourteen days the RP shall forward to persons at risk of getting repaid by receipts. Time is extended less than seven days from NCLT. The unhappy creditors United Nations agency failed to received adequate funds have the proper to file for Bankruptcy. The Resolution skilled is liable for management of the method.
- DISCHARGE OF ORDER:
Lastly, the RP shall apply to Adjudicating Authority for discharging order in respect of compensation plan and therefore such order passed be forwarded to the Insolvency and Bankruptcy Board of India for the record. Under section 119 of Code, could offer early discharge or discharge upon completion of repayments.
- In the case of Essar Steel,an order of the NCLT, upholding the rights of lenders, the HonourableApex Court held that the discretion of distribution of claims lies with the Creditors.In different words, lenders may track the guarantors for unsettled debt.
- The Jet Airways, Amtek Auto’s Arvind Dham, and Bhushan Power & Steel’s chairman Sanjay Singal can be tried solely underneath the Debt Recovery court (DRT) underneath previous Presidency TownsInsolvency Act, 1902, however modification created that banks currently also will be in a position take action.
The new rules and laws can now enable the creditors to continue their unsettled recovery against the non-public guarantors. Hence, the recovery will expand aiding all the parties to contract.
By Admin, Indian kanoon, sec 126 of Indian Contract Act, 1872, contract of guarantee defined under Contract Act, 1872.https://indiankanoon.org/doc/53550/#:~:text=Section%20126%20in%20The%20Indian%20Contract%20Act%2C%201872&text=126.,in%20case%20of%20his%20default.&text=A%20guarantee%20may%20be%20either%20oral%20or%20written.
By IBC laws, section 5: definitions under Part II, July 1, 2018, https://ibclaw.in/section-5-definitions-under-part-ii-part-ii-insolvency-resolution-and-liquidation-for-corporate-persons-the-insolvency-and-bankruptcy-code-2016-ibc-sections/
Insolvency and Bankruptcy
Insolvency and Bankruptcy Board
By Admin, IBC laws, section 60: Adjudicating Authority for Corporate Persons, 1 July 2018 https://ibclaw.in/section-60-adjudicating-authority-for-corporate-persons/
 By IBC laws, section 95: Application by creditor to initiate resolution process, 1 July 2018
 Referred to as RP
By Admin IBC laws, section 110: Rights of Secured Creditors in Relation to Repayment, 1 July 2018,https://ibclaw.in/section-110-rights-of-secured-creditors-in-relation-to-repayment-plan/#:~:text=Section%20110%3A%20Rights%20of%20secured%20creditors%20in%20relation%20to%20repayment%20plan%3A&text=(1)%20Secured%20creditors%20shall%20be,the%20meetings%20of%20the%20creditors.
 Referred to as AA
 By Admin IBC laws, section 119: Discharge of Order,1 July, 2018https://ibclaw.in/section-119-discharge-order/#:~:text=119.,may%20pass%20such%20discharge%20order.