Insolvency and Bankruptcy Code 2016

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Customer Care No. 91-11-45562222
Insolvency and Bankruptcy Code 2016
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• Insolvency and Bankruptcy Code 2016 is welcome
  step and need of hour being part of ease of doing
  business in India. This Code has been passed by
  both Houses and got President assent on
  28-05-2016 whereby Sick Industries Companies Act,
  1985 (SICA), Presidency Towns Insolvency Act,
  1909 and Provincial Insolvency Act, 1920 have
  been repealed, winding up provisions of Companies
  Act, 2013 have been restructured and laws
  relating to winding up has been consolidated in
  single code. This Code offers a uniform,
  comprehensive insolvency legislation encompassing
  all Companies, LLPs, partnerships and
  individuals. This code will facilitate a formal
  and time bound insolvency resolution process and
  liquidation. This code is a special Act and its
  provisions have overriding effect over other
  laws. This Code has two parts i.e. Part II for
  Corporate Debtors (applicable for Companies and
  LLPs) and Part III, IV and V applicable to
  individuals and partnership firms. Company Law
  Tribunal is the Adjudicating Authority for
  Corporate debtors and whereas Debt Recovery
  Tribunal is the Authority for individuals and
  partnership firms. The Author would like to
  discuss provisions applicable to Individuals and
  partnership firms in this Article.

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• Bankruptcy Code 2016 is a big relief for
  creditors who have to recover their dues from
  individuals, proprietorship concerns or
  partnership firms. Presently there is no law
  which compels the debtors to pay the dues out of
  disposing off his properties and assets and to
  declare the debtor as bankrupt in case he is
  unable to pay his dues. The only remedy available
  with the creditor is to approach civil court and
  also to pay ad-valorem duty depending upon amount
  of recovery. Even after passing of
  orders/judgment, sometimes the creditor is unable
  to recover the money as no liquid money is
  available with the debtor or there are
  circumstances that the debtor has closed down his
  business activities and unable to pay. In such
  circumstances, it is very difficult for the
  creditor to recover the amount or to execute the
  decree. The introduction of this Code gives big
  relief to the creditors who wants to recover
  their dues even if the debtor has closed his
  proprietorship or partnership firm. In case
  liquidation process is initiated against the
  debtor, he is bound to disclose his assets and in
  case he is unable to pay of his liquid assets, he
  may be required to sell his assets and pay the
  same.
• Further, in case the debtor has no assets to pay
  the debts, he has also option to approach
  Adjudicating Authority to adjudge him as
  bankrupt. In United States this practice is
  prevalent and the individual prefers to invoke
  the provisions of Bankruptcy law for being
  adjudged as bankrupt so that he is discharged
  from all his liabilities. In US this practice
  also prevalent because in US there are heavy
  penalties and penal provisions in case of default
  including the provisions for imprisonment. In
  order to save himself from imprisonment and penal
  provisions, he prefers to become bankrupt.

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• Part III of the Code deals with fresh start,
  insolvency and bankruptcy of individuals and
  partnership firms where the amount of the default
  is not less than Rs.one thousand whereas it is
  Rs.one lac in case of Corporate debtor. In case
  the individual or partnership firms, is unable to
  pay its debts bankruptcy orders can be passed u/s
  126/138 of the Code whereas the corporate debtor
  cannot be adjudged bankrupt.
• The provisions of bankruptcy law can be invoked
  by a debtor himself or by the creditor. A debtor
  who is unable to pay his debt and fulfills the
  conditions specified in Section 80(2) entitles to
  make an application for a fresh start for
  discharge of his debt. The initiation of fresh
  start process can be done by debtor in individual
  capacity only. A person should fulfill the
  following criteria as specified in Section 80(2)
  of the Code, the extracts of which are as under
• 80(2) A debtor may apply, either personally or
  through a resolution professional, for a fresh
  start under this Chapter in respect of his
  qualifying debts to the Adjudicating Authority if
  
• (a) the gross annual income of the debtor does
  not exceed sixty thousand rupees
• (b) the aggregate value of the assets of the
  debtor does not exceed twenty thousand rupees
• (c) the aggregate value of the qualifying debts
  does not exceed thirty-five thousand rupees
• (d) he is not an undischarged bankrupt
• (e) he does not own a dwelling unit, irrespective
  of whether it is encumbered or not

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• (f) a fresh start process, insolvency resolution
  process or bankruptcy process is not subsisting
  against him and
• (g) no previous fresh start order under this
  Chapter has been made in relation to him in the
  preceding twelve months of the date of the
  application for fresh start.
• Earlier Presidency Towns Insolvency Act, 1909 and
  Provincial Insolvency Act, 1920 were applicable
  and by now the provisions of which have become
  obsolete, hence same is repealed by above Code
  2016. The author is of the view that the limits
  as specified in Section 80(2) mentioned
  hereinabove, looks to be on lower side and not
  according to the present scenario as the person
  who fulfills the criteria mentioned hereinabove
  has no need to go for insolvency as he is already
  living under poverty line and in the
  circumstances no creditor would like to pursue
  liquidation proceedings. The Government should
  review this limit or criteria of bankruptcy.

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