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INSOLVENCY AND BANKRUPTCY CODE, 2016
SERIES 1 of 6
INTRODUCTION TO THE CODE
NEW DELHI
March 9, 2017
1
ABBREVIATIONS
 AA – Adjudicating Authority
 Act – Companies Act, 2013
 CIRP – Corporate Insolvency Resolution Process
 Code – Insolvency and Bankruptcy Code, 2016
2
QUESTION 1
What is the scope of the provisions of the Code?
ANSWER
a) The Code covers the insolvency, liquidation, voluntary liquidation or
bankruptcy of ‘specified persons’. [Ref. Section 2 of the Code]
b) The procedure for Insolvency Resolution and Liquidation for corporate
persons is covered under Part II of the Code.
c) The procedure for Insolvency Resolution and Bankruptcy for
individuals and partnership firms is covered under Part III of the Code.
The Code comprises 255 sections divided into the following 5 parts;
 Part I : Preliminary
 Part II : Insolvency Resolution and Liquidation for Corporate Persons
[Matters relating to insolvency and liquidation of corporate persons
where the minimum amount of default is 1 lakh or such other amount
as specified by the Central Government which shall not be more than 1
crore rupees.]
 Part III: Insolvency Resolution and Bankruptcy for Individuals and
Partnership Firms
 Part IV: Regulation of Insolvency Professionals, Agencies and
Information Utilities
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 Part V : Miscellaneous
QUESTION 2
Which persons are governed by the Code?
ANSWER
The Code applies to the following:
a) companies incorporated under the Act or the previous company law;
b) companies governed by any special Act, except to the extent the
provisions of the Code are inconsistent with such special Act (such as
Banking Regulation Act, 1949);
c) Limited Liability Partnership [Ref. Section 2(n) of the Limited Liability
Partnership Act, 2008];
d) Any body incorporated as the Central Government may specify; and
e) Partnerships and individuals.
Note:
The definition of a corporate person specifically excludes Financial Service
Providers.
‘Financial Service Providers’ means a person engaged in the business of
providing financial services in terms of authorization issued or
registration granted by a financial sector regulator.
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QUESTION 3
What is the territorial jurisdiction of the Code?
ANSWER
The Code extends to the whole of India except Part III [Insolvency
Resolution and Bankruptcy for individuals and partnership firms] which
does not apply to the State of Jammu and Kashmir.
5
QUESTION 4
What are the different modes of Winding Up/Dissolution?
ANSWER
The expression ‘winding up’ and ‘dissolution’ carry different meanings.
There are provisions for winding up/dissolution under the Companies
Act, the Insolvency and Bankruptcy Code and other specific statutes such
as the Banking Regulation Act, 1949 (which apply to banking companies
and co-operative banks as specified in Part V of the Banking Regulation
Act, 1949).
The following are the different modes of winding up/dissolution:
a) In case of a default by corporate debtor
b) Winding up by Tribunal
c) Summary procedure for liquidation
d) Winding up of unregistered companies and power to wind up foreign
companies
e) Dissolution of any transferor company
f) Dissolution of the Company by the Registrar
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QUESTION 4
a) In case of a default by corporate debtor,
- the financial creditor,
- the operational creditor, or
- the corporate applicant
may initiate CIRP under chapter II of The Insolvency and Bankruptcy
Code, 2016.
If the resolution plan is not in compliance with the Code, or
Where the AA does not receive the resolution plan within the prescribed
time, or
Where the resolution plan is approved by AA and thereafter corporate
debtor fails to comply with the resolution plan,
the Adjudicating Authority may pass an order for liquidation under
chapter III of the Code.
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QUESTION 4
b) Circumstances in which company may be wound up by Tribunal (Section
271 of the Act as amended by Code) following petition by specified
category of persons.
 Special resolution by the Company resolving that Company may be
wound up by the Tribunal;
 Company has acted against the interests of the sovereignty and
integrity of India, the security of the State, friendly relations with
foreign States, public order, decency or morality;
 Tribunal, based on application filed by Registrar or any other person
authorized by Central Government, is of the opinion that the affairs
of the company have been conducted in a fraudulent manner or the
Company was formed for fraudulent and unlawful purpose or the
persons concerned in the formation or management of its affairs
have been guilty of fraud, misfeasance or misconduct in connection
therewith and that it is proper that the Company be wound up;
 Default by the Company in filing its financial statements or annual
returns for immediately preceding five consecutive financial years;
 Tribunal is of the opinion that it is just and equitable that the
company should be wound up.
Note:
Tribunal reserves power to dismiss a Winding up petition made under
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relevant Section.
QUESTION 4
c) Summary procedure for liquidation [Section 361-365 of the Act]
 Central Government may order the Company to be wound up
where the Company belongs to such class as may be prescribed
and the book value of the assets do not exceed 1 crore rupees.
d) Winding up of unregistered companies and power to wind up foreign
companies [Sections 375 and 376 of the Act] which are owned
directly or indirectly to the extent of at least 50% by citizen(s) of India
[Ref. Section 379].
 Provisions applicable to unregistered companies shall also apply
to foreign companies.
 Such unregistered company shall not be wound up voluntarily.
 May be wound up if (i) unregistered company is dissolved, or has
ceased to carry on business, or is carrying on business only for
the purpose of winding up its affairs; (ii) is unable to pay its
debts; (iii) if the Tribunal is of opinion that it is just and equitable
that the unregistered company should be wound up.
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QUESTION 4
e) Dissolution, without winding up, of any transferor company in the
event of reconstruction of the company or companies involving
merger or the amalgamation of any two or more companies – Section
232(3)(d) of the Act.
f) Dissolution of the Company by the Registrar where the Registrar
believes that the Company has failed to commence business within 1
year of its incorporation, or the Company has not carried out any
business and/or operation for a period of two immediately preceding
financial years and has not applied within this period for the status of
a dormant company – Section 248 of the Act.
Note:
Financial Service Providers shall not be governed by the Code. The Act
and /or relevant special laws shall govern the Financial Service Providers,
until precise provisions are in place.
The definition of a ‘corporate person’ under the Code specifically
excludes Financial Service Providers.
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QUESTION 5
When can CIRP be initiated?
ANSWER
A CIRP may be initiated by a financial creditor (itself or jointly and in
respect of a financial debt owed to any financial creditor), operational
creditor, or corporate applicant, in the event of a default committed by a
corporate debtor.
Note:
Default means non-payment of debt when whole or any part or
installment of the amount of debt has become due and payable and is
not repaid by the debtor or the corporate debtor, as the case may be.
For the purposes of the Code and for application of CIPR, minimum
amount of default is one lakh rupees. The Central Government may by
notification specify the minimum amount of default of a higher value
which shall not be more than one crore rupees.
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QUESTION 6
Who may initiate CIRP?
ANSWER
a) A financial creditor (itself or jointly and in respect of a financial debt
owed to any financial creditor);
b) an operational creditor (after delivery of demand notice); or
c) the corporate applicant itself
may initiate a CIRP.
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QUESTION 7
Which persons are not entitled to make application for initiation of CIRP?
ANSWER
a) A corporate debtor undergoing a CIRP;
b) A corporate debtor who has completed CIRP 12 months preceding the
date of making the application;
c) A corporate debtor or financial creditor who has violated any of the
terms of the approved resolution plan 12 months before the date of
making the application;
d) A corporate debtor in respect of whom a liquidation order has been
made.
The Code does not prescribe a timeline for making an application for
initiation of CIRP.
Note:
A question may arise whether a corporate debtor undergoing a CIRP is
restricted from making an application for initiation of CIRP against another
corporate debtor. Please note that the explanation to Section 11 which
states that for the purposes of this section a corporate debtor includes a
corporate applicant in respect of such corporate debtor. In light of the
definition of corporate applicant under Section 5 (5) of the Code, it would
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seem that there is no restriction.
QUESTION 8
Who is the AA for Part II Insolvency Resolution and Liquidation for
corporate persons of the Code?
ANSWER
The National Company Law Tribunal constituted under the Companies
Act, 2013.
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Thank You
(voice over by)
Alak Desai,
Associate
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