With the change in Economy, the needs of the Economy do change 

By:- Aditi Singh (LLB from Galgotias University)

After the multiple formulations of law which were ineffective to deal with the financial system and failed to control over the insolvency of companies, partnership, other corporate bodies, individuals and any other entities in the country. The main cause of strain on the credit system in India was the inefficient legal and institutional system which neither support the creditors productively nor in time to retrieve the defaulted assets. The existing code of laws for Insolvency and Bankruptcy was replaced by the law passed by the parliament, INSOLVENCY AND BANKRUPTCY CODE, 2016 with the aim to provide an efficient legal system to monitor the credit system of the country.


In simple layman terms, insolvency is that state where the debtor, who borrows money from the creditors, i.e. the lender, fails to repay the amount owed, by a person or company, on time due to lack of funds. All those debtors who are in the state of insolvency are known as INSOLVENT. Similarly, BANKRUPTCY is also the same state where the debtor is unable to repay the amount owed to the creditors. The key difference between the two concepts is, bankruptcy is imposed by the court order, commenced by the Debtor. In bankruptcy, the court lays down the outlines that how the insolvent borrower will manage his responsibilities to look for the sources in order to settle his creditors.


The act passed by the parliament is formulated with the aim to provide a better legal ambit in accordance to monitor the financial matters of the insolvent person or any other entity and also to safeguard the interest of the stakeholders and creditors in the market.

It was acknowledged that some of the important reformations are needed to be done in the field of insolvency and bankruptcy in order to distress the credit system of the country. With the objective to provide better business market, a bill was passed in the month of November 2015 which was later introduced and implemented by the Indian government, as INSOLVENCY AND BANKRUPTCY ACT, 2016. The bill was passed by both the houses of the parliament after the general discussion and recommendations obtained for the same, from the joint committee of the parliament.

The INSOLVENCY AND BANKRUPTCY ACT, 2016 provides the most effective streamline for the proper functioning of the financial market. The interest of the creditors should be protected in order to maintain the flow of debit and credit in the economy. Henceforth, the Act provides an efficient legal framework for the same. The insolvency legislation is bound on every company, partnership, individuals or any other entities. Any corporate body falling under the ambit of the Act is bound to follow the process accordingly. The act provides uniformity in the legislation. The Act aims to fulfill the following important purposes for its formulation-

  • To establish effective Insolvency and Bankruptcy Board in India.

  • Easy Procurement of credit.

  • To uplift entrepreneurship.

  • Accommodate and modify the laws dealing with reconstructing and insolvency resolution.

  • Emphasizes on the interest of the stakeholders.

  • Provides efficient revival and quick liquidation.


The purpose of the establishment of the Board is to deal with all the aspects of insolvency and bankruptcy of corporate bodies, individuals, firms and any other entities. The board has the power to regulate and monitor the profession of insolvency professionals along with the transactions held between the debtors and the creditors. The Insolvency & bankruptcy board has been formulated with the aim to maximize the net worth of the assets of the insolvent party, make availability of credit in the economy, safeguard the interest of the stakeholders, to lay down the by-laws for the cases related to insolvency and bankruptcy.  The Act formulated would eventually help to improve the debt recovering rate in India. The main features of IBBI are as follows-

  • To monitor the functioning of the insolvency professionals, insolvency agencies and information utilities.

  • To regulate the process of insolvency in a proper and systematic manner.


The provision of insolvency resolution process in the act provides a legal framework to the money lenders to deal with the certain corporate debtors. This is the basic change introduced in the existing legal structure dealing in insolvency and bankruptcy. The provision enables the lenders to opt to persuade various actions in order to recover the amount of debt from the debtor

The Insolvency and Bankruptcy Code streamlined the following steps to execute IRP-


A creditor may initiate the process against the debtor at the National Company Law Tribunal, the employees and the shareholders may also initiate for the voluntary insolvency proceedings against the debtor who’s at the defaulted position.


It refers to the time period given by the NCLT to the debtor accused of insolvency. During this time period, there will be no judicial proceedings for recovery, sale or transfer of assets of the debtor and enforcement of security interest.


The insolvency professionals are being appointed by the NCLT, to administer the whole process of the resolution. The duty of the professional is to take over the power to handle the debtor and his business as a going concern under the guidelines of the committee of creditors. The code allows the transfer of management of the business of debtor to its creditor and the resolution professional act as their agents.


The purpose of the creditor committee is to rescue and revival of the defaulting debtors. The committee has an option to choose between the revival or the liquidation of the entity within the time period of 180 days.

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eStartIndia Team

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