The Insolvency and Bankruptcy Code, 2016 (“Code”), ever since its introduction, has replaced India’s archaic bankruptcy laws and has paved way for a much speedier resolution of insolvency proceedings and debt restructuring, benefiting operational and financial creditors, both onshore and offshore in India. The code is still in its initial years and dynamic in nature, as the Government of India keeps introducing new amendments as per the evolving and challenging circumstances of the nation.

The key objective of the Code has been to consolidate and amend the existing laws relating to insolvency of companies, limited liability entities, partnerships and individuals which were until recently scattered in number of legislations in to a single legislation. The other objective of the Code amongst various other things is to provide for a time-bound process to resolve insolvency in order to maximize the value of the assets of corporate persons; and provide flexibility to the parties to arrive at the most efficient solution to reduce problems of common property during negotiations. The Code provides a platform for negotiation between creditors and external financiers which can create the possibility of such rearrangements.

The Code provides for a market mechanism to rescue the firms in financial distress and to facilitate closure of firms in times of economic distress, in accordance with the processes under the Code and rules and regulations made thereunder.

The Code provides for designating the National Company Law Tribunal (“NCLT”) and the Debts Recovery Tribunal (“DRT”) as the adjudicating authority for corporate persons, firms and individuals for resolution of insolvency, liquidation and bankruptcy.

In the guise of the financial stress caused due to COVIV-19 pandemic, the Government of India announced an amendment on 24.03.2020, by virtue of which the minimum threshold for initiating a Corporate Insolvency Resolution Process (“CIRP”) against a corporate debtor, has been increased to INR 1,00,00,000/- from the previous threshold of INR 1,00,000/-. It is pertinent to note that this increase in threshold has been brought into effect to prevent triggering of defaults against the Micro, Small and Medium Enterprises (“MSMEs”). However, the notification through which such amendment was brought into effect does not specifically state that the increased threshold will only apply to MSMEs. Hence, it may be interpreted that the threshold applies to all corporate debtors and not just MSMEs.


Section 6 of the Code states that where any corporate debtor commits a default, a financial creditor, an operational creditor, or the corporate debtor itself may initiate the corporate insolvency resolution process in respect of such corporate debtor in the manner provided in the Code. In furtherance to the same, initiation date of CIRP shall mean the date on which the application to the Adjudicating Authority for initiating CIRP by the financial creditor, corporate applicant or operational creditor, as the case may be, is admitted.

The Code describes two types of creditors –

  • the entities who provide loans or funds to the corporate i.e. Financial Creditors. The financial creditor in simple terms is the institution that provided money to the corporate entity in the form of loans, bonds etc. The Financial Creditors are further divided into “secured” and “unsecured”; and
  • the entities from whom the corporate bought inputs and other services i.e. Operational Creditors.

The Supreme Court of Indian in a landmark judgement “Pioneer Urban Land and Infrastructure Limited vs. Union of India” (2019) 8 SCC 416, clarified that in the case of housing projects, the homebuyers should be treated as financial creditors.

The Adjudicating Authority shall, within a period of 14 days of the receipt of the application, by an order either admit the application if the application made is complete in all respects or reject the application in case the same is incomplete. The National Company Law Appellate Tribunal in re “Vyomit Shares Stock & Investments Pvt. Ltd. Vs. SEBI” held that application under section 10 for initiation of CIRP can be rejected on the ground that the Corporate Debtor is earning sufficient income.


The process to initiate the CIRP is to primarily file an application under CIRP with the Adjudicating Authority along with the evidence of default. The Financial Creditor, Operational Creditor or Corporate Debtor can initiate a CIRP before the NCLT in case a default is committed by the corporate debtor. A demand notice of 10 (ten) days has to be given by the operational creditor to the corporate debtor before approaching the NCLT. If the corporate debtor fails to repay dues or show any existing dispute or arbitration, then the operational creditor can approach NCLT.  If the Adjudicating Authority is satisfied that the default exists, it admits the application and appoints Interim insolvency professional (IRP).

From Interim Resolution Professional (IRP) To Resolution Professional (RP)

Once the IRP is appointed, the IRP runs the operation of corporate as a going concern up to 30 (thirty) days during which the IRP collects the claims from the creditors and based on the same forms a committee of creditors (“CoC”), which then decides what is to be done with the corporate debtor. The CoC in its first meeting, by majority vote of not less than sixty-six percent of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional.

If the insolvency is resolved, it approves a resolution plan with sixty-six percent of votes. As one of the main objective of the Code was to provide speedier resolution, the Code broadly specifies : a) 24 days for the Adjudicating Authority to admit or reject an application for initiation of CIRP; b) seven days for an applicant to rectify defects in the application for CIRP; c) 30 days for the IRP to discharge his duties; and e) 180 days for creditors to complete a CIRP (extendable to a maximum of 270 days from the insolvency commencement date). This mandates that the CIRP shall be completed within a period of 330 days from the insolvency commencement date, including any extension of the period of CIRP and the time taken in legal proceedings in relation to such CIRP.

Moratorium Period

The period of 180 days for to complete CIRP is called as moratorium period. When the moratorium period comes into place during this time all pending actions against the debtor are stayed and no new actions is initiated. During the moratorium period, the debtor will also be prevented from disposing of its assets out of the ordinary course. The idea behind this moratorium is to provide a calm period for the debtor and creditors to discuss their future course of action, without having to deal with individual enforcement actions by creditors, which could lead to asset stripping and chaos. The IRP have control of the business of the debtor, which shifts to the committee of creditors once the IRP receives the claims from the creditors.


The Code does not differentiate between a foreign and Indian creditor. The terms ‘operational creditor’ and ‘financial creditor’ have been defined as ‘persons’ to whom financial or operational debt is owed. Consequently, the definition of ‘persons’ includes ‘persons resident outside India’.

The Supreme Court of India in 2018 in  “Macquarie Bank v Shilpi Cable Technologies” held that a foreign operational creditor cannot be excluded from the purview of the Code merely because it is unable by virtue of its foreign residency to follow a procedural aspect in relation to filing of application. Remarking that article 14 of the Constitution applies to foreigners as well, the Court allowed the creditor’s application. It becomes obvious that the Code permits foreign creditors to initiate CIRP against financial creditors which include corporate guarantors. Further, in one such instance, the National Company Law Tribunal, Chennai in “Stanbic Bank Ghana v. Rajkumar Impex Private Limited” allowed initiation of CIRP by a Ghana-based bank against an Indian company in respect of a guarantee extended by it in favor of its subsidiary based in Ghana.


To combat the spread of the Covid-19 pandemic, which has gravely impacted the business, financial markets and economy of India, the Government of India has taken following steps in favor of the debtors to rehabilitate their business:

  • Increase of minimum threshold to initiate CIRP

To insulate enterprises, particularly Micro Small Medium Enterprises (MSMEs), the minimum threshold for initiating insolvency proceedings, which was previously INR 1 Lakh, has been increased to INR 1 crore. Special insolvency resolution framework for MSMEs under section 240A of IBC is expected to be notified soon by the concerned authorities.

  • Debts related to the coronavirus pandemic is not a “DEFAULT”

This means that all debt incurred by companies during the Covid-19 will not be considered as default and hence, no insolvency proceedings shall lie against such companies. MCA will be issuing a special circular to define the timeline within which such “Covid-19 related debt” is to be excluded from the default.

  • Suspension of fresh IBC proceedings

Suspension of CIRP against the corporate debtor for any default arising on or after 25th March 2020 for a period of six months or such further period, not exceeding one year.

Further, the Resolution professional is also prohibited to file any application under section 66(2) fraudulent trading or wrongful trading i.e. transactions which were committed to defraud the operational creditors or the corporate debtor, and to identify and hold liable such persons who were responsible for such fraudulent transactions, in respect of such default arising on or after 25th March, 2020 for a period of six months.


The introduction of the Code in our country has been extremely satisfactory. It has changed the debtor – creditor relationship. The creditor no longer chases the debtor. In fact, it is otherwise. Upon constitution of the Adjudicating Authority and the implementation of IBC its functionality had revealed the need for improvements in the law and accordingly changes are made as per the need. As the process matures in the days to come, the insolvency regime is expected to impact not only easy of doing business, but also overall economic growth. As per the data provided by the Adjudicating Authority, out of 18,782 cases filed under IBC, 2016 at the end of June 2019, 2173 cases were admitted under the code. Out of these 2173 admitted cases, 1274 cases were ongoing under different stages of the resolution process, 129 cases have resulted in resolution, 491 cases have been approved for commencement of liquidation process and 279 cases have been closed.

The Indian judiciary is infamous for the pending cases piled up in its closet, which, according to a 2018 report, are estimated to be around 30 million, the Insolvency and Bankruptcy Code, 2016 has thrived on proving this wrong. The specific timelines in the Code has helped the distressed corporate seeking rehabilitation in a time bound manner and made it convenient for the creditors to recover debts easily.