Introduction to Code

An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation 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. The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha in December 2015. It was passed by Lok Sabha on 5 May 2016 and by Rajya Sabha on 11 May 2016. The Code received the assent of the President of India on 28 May 2016. The bankruptcy code is a one stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement. The code aims to protect the interests of small investors and make the process of doing business less cumbersome. The Code offers a uniform, comprehensive insolvency legislation encompassing all companies, partnerships and individuals. One of the fundamental features of the Code is that it allows creditors to assess the viability of a debtor as a business decision, and agree upon a plan for its revival or a speedy liquidation. The Code creates a new institutional framework, consisting of a regulator, insolvency professionals, information utilities and adjudicatory mechanisms, that will facilitate a formal and time bound insolvency resolution process and liquidation.

The Code provides similar insolvency resolution processes for companies and individuals. The steps are as follows:

  1. Initiation: When a default occurs, the creditors or debtor may apply to the tribunal (NCLT or DRT) for initiating the resolution process. Once the application is approved, the resolution process will have to be completed within 180 days. This time limit may be extended by up to 90 days. During this period, the debtor will be immune towards creditors’ claims and lawsuits.
  2. Appointment of interim IP: When the resolution process begins, an interim IP will be appointed by the creditors or tribunal. The IP will take control of the debtor’s assets and company’s operations, collect financial information of the debtor from information utilities and constitute the creditors committee.
  3. Creditors committee: A committee consisting of financial creditors will be constituted for taking decisions regarding insolvency resolution. Financial creditors may either be secured creditors, whose loans are backed by collateral (security), or unsecured creditors whose loans are not backed by any collateral. The creditors committee will take decisions by a 75% majority. It will oversee management of the debtor’s assets and appoint a permanent IP to conduct the resolution process.
  4. Resolution: The creditors committee will decide to restructure the debtor’s debt by preparing a resolution plan (such as revising the repayment plan), or liquidate (sell) the debtor’s assets to repay loans. If no decision is made during the resolution process, the debtor’s assets will be liquidated to repay the debt.
  5. Approval of plan: On the approval of a resolution plan by the creditors committee, the IP will submit it to the tribunal for final approval. The tribunal will approve the plan based on criteria which includes ensuring that operational creditors have received as much as they would have received during liquidation. The resolution plan will then be implemented.
  6. Liquidation: In case of liquidation, proceeds from the sale of the debtor’s assets will be used to repay outstanding dues. A secured creditor may choose to not participate in the process, and enforce his security under any other law (such as the SARFAESI Act). The financial obligations of the debtor will be repaid starting with fees of the IP and other costs related to the resolution process, secured creditors (if he chooses not to enforce his security) and worker dues (up to 12 months), employee wages (up to 12 months), unsecured creditors, dues to government and remaining debt owed to secured creditors (residual amount if the creditor enforces his security), any remaining debt, and shareholders.

Objective & Purpose of the Code

  1. To consolidate and amend the laws relating to re-organization and insolvency resolution of corporate persons, partnership firms, and individuals.
  2. To fix time periods for execution of the law in a time-bound settlement of insolvency (i.e. 180 days).
  3. To maximize the value of assets of interested persons.
  4. To promote entrepreneurship
  5. To increase the availability of credit.
  6. To balance all stakeholder’s interest (including alteration). Balance to be done in the order of priority of payment of Government dues.
  7. To establish an Insolvency and Bankruptcy Board of India as a regulatory body for insolvency and bankruptcy law.
  8. To establish higher levels of debt financing across a wide variety of debt instruments.
  9. To provide painless revival mechanism for entities.
  10. To deal with cross-border insolvency.
  11. To resolve India’s bad debt problem by creating a database of defaulters.


Insolvency and Bankruptcy Code (Amendment) Act, 2017

The Insolvency and Bankruptcy Code (Amendment) Bill, 2017 was introduced in Lok Sabha on December 28, 2017.  It amends the Insolvency and Bankruptcy Code, 2016, and replaces an Ordinance promulgated in November 2017. The amendment was brought forth to exclude certain persons from taking part in the resolution plan and reviving the Company. The object of the Code is to avoid court interference and have a speedy adjudication of the dispute.

The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018

The Insolvency and Bankruptcy Code, 2016 provides a time-bound process to resolve insolvency among companies and individuals.  In November 2017, the Insolvency Law Committee was set up to review the Code, identify issues in its implementation, and suggest changes.  The Committee submitted its report in March 2018. Committee made several recommendations such as exempting micro, small and medium enterprises from certain provisions of the code, treating allottees under a real estate project as financial creditors, reducing voting thresholds of the committee of creditors, among others.  Subsequently, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, was promulgated on June 6, 2018.

The amendment aims at streamlining issues of troubled companies, protect corporate debtors and prevent unnecessary revocation of insolvency proceedings under the IBC. The amendment also intends to provide protection to a corporation from criminal proceedings against offences committed by previous management or promoters. Additionally, it also provides a faster revival process for stressed companies.

The Bill amends the Insolvency and Bankruptcy Code, 2016 to clarify that allottees under a real estate project should be treated as financial creditors. The voting threshold for routine decisions taken by the committee of creditors has been reduced from 75% to 51%.  For certain key decisions, this threshold has been reduced to 66%. The Bill allows the withdrawal of a resolution application submitted to the NCLT under the Code.  This decision can be taken with the approval of 90% of the committee of creditors.

The Insolvency and Bankruptcy Code (Amendment) Act, 2019

The Bill addresses three issues:

  1. It strengthens provisions related to time-limits. 
  2. It specifies the minimum pay-outs to operational creditors in any resolution plan. 
  3. It specifies the manner in which the representative of a group of financial creditors should vote.

The Code provides that the resolution plan must ensure that the operational creditors receive an amount which should not be lesser than the amount they would receive in case of liquidation.  The Bill amends this to provide that the amounts to be paid to the operational creditor should be the higher of amounts receivable under liquidation, and the amount receivable under a resolution plan, if such amounts were distributed under the same order of priority (as for liquidation). 

For example, if the default were for Rs 1,000 crore and the resolution professional recovered Rs 800 crore, the operational creditor must at least get an amount which they would have received if Rs 800 crore have been obtained through liquidation proceeds.
Further, the Bill states that this provision would also apply to insolvency processes that have not been approved or rejected by the National Company Law Tribunal (NCLT), that have been appealed to the National Company Appellate Tribunal or Supreme Court, and where legal proceedings have been initiated in any court against the decision of the NCLT. 

As per the Code, the NCLT must determine the existence of default within 14 days of receiving a resolution application.  Based on its finding, NCLT may accept or reject the application.  The Bill states that in case the NCLT does not find the existence of default and has not passed an order within 14 days, it must record its reasons in writing.

The Code states that the insolvency resolution process must be completed within 180 days, extendable by a period of up to 90 days.  The Bill adds that the resolution process must be completed within 330 days.  This includes time for any extension granted and the time taken in legal proceedings in relation to the process.  On the enactment of the Bill, if any case is pending for over 330 days, the Bill states it must be resolved within 90 days.

The Code specifies that, in certain cases, such as when the debt is owed to a class of creditors beyond a specified number, the financial creditors will be represented on the committee of creditors by an authorised representative.  These representatives will vote on behalf of the financial creditors as per instructions received from them.  The Bill states that such representative will vote on the basis of the decision taken by a majority of the voting share of the creditors that they represent. 

Scope of Improvement in Code

  1. The Bankruptcy Board (regulator) will regulate insolvency professional agencies (IPAs), which will further regulate insolvency professionals (IPs).  The rationale behind multiple IPAs overseeing the functioning of their member IPs, instead of a single regulator is unclear. The presence of multiple IPAs operating simultaneously could enable competition in the sector. However, this may also lead to a conflict of interest between the regulatory and competitive goals of the IPAs.  This structure of regulation varies from the current practice where the regulator directly regulates its registered professionals.  For example, the Institute of Chartered Accountants of India is directly responsible for regulating its registered members.
  2. The Code provides an order of priority to distribute assets during liquidation. It is unclear why: secured creditors will receive their entire outstanding amount, rather than up to their collateral value, unsecured creditors have priority over trade creditors, and government dues will be repaid after unsecured creditors.
  3. The smooth functioning of the Code depends on the functioning of new entities such as insolvency professionals, insolvency professional agencies and information utilities.  These entities will have to evolve over time for the proper functioning of the system.  In addition, the NCLT, which will adjudicate corporate insolvency has not been constituted as yet, and the DRTs are overloaded with pending cases.


Insolvency and Bankruptcy Code. (2016).

PRS India. Retrieved from Insolvency And Bankruptcy Code Amendment Bill 2017:

PRS India. Retrieved from Insolvency And Bankruptcy Code Amendment Bill 2018:

PRS India. Retrieved from Insolvency and Bankruptcy Code (Amendment) Bill, 2019:

The Insolvency And Bankruptcy Code, 2016. (n.d.). Retrieved from

Constitution of Insolvency Law Committee, Order Number 35/14/2017, Ministry of Corporate Affairs, November 16, 2017. Retrieved from

Report of the Insolvency Law Committee, March 2018. Retrieved from

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