Insolvency and Bankruptcy Code Overview
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t7u7s7h7a7r7Insolvency and Bankruptcy Code Overview
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Powered by AIThe IBC offers protections for actions taken in good faith by the government, IBBI, or insolvency professionals from legal proceedings. This provision aims to ensure that individuals executing their duties under the IBC are safeguarded from potential litigation that could arise from their bona fide actions within the scope of their roles . For example, Interim Resolution Professionals (IRPs) acting in good faith were protected in the Jaypee Kensington vs. NBCC case .
Under the IBC, the government, in coordination with regulators such as the RBI, can notify specific financial service providers, including non-banking financial companies (NBFCs) with assets of ₹500 crore or more, for insolvency proceedings. Special rules, which were notified on November 18, 2019, govern these processes, addressing elements like handling third-party assets and receivables . An example of applying these regulations is the RBI-initiated insolvency proceedings for Dewan Housing Finance Corporation Ltd (DHFL), which were upheld by judiciary in the Vinay Kumar Mittal case .
Civil courts are barred from handling matters assigned to the Adjudicating Authority or the Insolvency and Bankruptcy Board of India (IBBI), and no injunctions can block their orders. This jurisdictional limitation ensures that only designated authorities handle insolvency-related cases, thereby centralizing and streamlining the insolvency process under the IBC framework . This restriction underscores the specialized and exclusive nature of the IBC process and affirms that only bodies designated under the Code have jurisdiction over relevant matters .
Appeals of decisions made by Special Courts under the IBC framework are handled by High Courts according to the Code of Criminal Procedure. High Courts treat Special Courts proceedings as equivalent to those of Courts of Session when handling appeals and revisions. This appellate mechanism ensures a structured and formal route for reviewing cases initially adjudicated by Special Courts, providing a framework for legal scrutiny and potential revision of judgments .
Cross-border insolvency provisions within the IBC framework enable the Central Government to enter into agreements with foreign governments for enforcing IBC directives on an international scale. Resolution professionals or liquidators can request Adjudicating Authorities to issue letters to foreign courts seeking assistance in dealing with assets located outside India. These provisions are significant as they extend the jurisdictional reach and effectiveness of the IBC, ensuring that insolvency processes can be executed comprehensively in a global context, facilitating asset recovery and creditor claims across borders .
For Micro, Small, and Medium Enterprises (MSMEs), the Central Government can exempt them from certain restrictions under Section 29A for insolvency processes. Additionally, it holds the authority to modify or exempt MSME-related IBC provisions through notifications, which must subsequently receive Parliamentary approval. These provisions are specifically designed to facilitate the insolvency processes for MSMEs by recognizing their unique circumstances and challenges .
The IBC incorporates the Limitation Act, 1963, which stipulates that applications under Sections 7 or 9 of the IBC must be filed within three years from the date of default. Exceptions that might extend this period include the acknowledgment of debt, such as entries in balance sheets, which can act as an acknowledgment and extend the limitation period. Cases might also experience the condonation of delay under Section 5 of the Limitation Act if justified, as exemplified in the Babulal Vardharji Gurjar and Syndicate Bank cases .
The 'overriding effect' in the IBC indicates that the Code prevails over any conflicting laws or instruments. This principle ensures that IBC provisions take precedence in cases of conflicts with other legislative frameworks, thus streamlining insolvency proceedings. Judicial precedence further affirms this principle, with cases such as Rajendra K. Bhutta overriding the Maharashtra Housing Act, Duncans Industries superseding the Tea Act, Pioneer Urban over RERA, Monnet Ispat over the Income-tax Act, and K. Kishan overriding the Arbitration Act . Such cases demonstrate the IBC's comprehensive authority in insolvency matters, prioritizing its implementation above other potentially conflicting statutes.
The Central Government exercises authority over the Insolvency and Bankruptcy Board of India (IBBI) in several ways. It issues written policy directions to IBBI, and while IBBI can share its views, the government's decision on policy matters is final . Additionally, the government can supersede IBBI for up to 6 months during emergencies, failure to comply with directions, or when public interest needs arise. During the supersession, IBBI members vacate their posts, the government assigns duties to others, and IBBI’s property vests with the government. The IBBI is reconstituted after this period .
The Insolvency and Bankruptcy Fund is designed to support insolvency resolution, liquidation, and bankruptcy processes under the Insolvency and Bankruptcy Code (IBC). It receives funds from Central Government grants, voluntary contributions, and other sources, including investment income. Contributors to this fund can request to withdraw their contributions during insolvency proceedings to pay workers, protect assets, or cover costs, contingent on the approval of the Adjudicating Authority .