Why was the Insolvency and Bankruptcy Code (IBC) Introduced?

Why was the Insolvency and Bankruptcy Code (IBC) Introduced?


The Government of India has made several reforms for doing business in India. It is one of the landmark developments for a dynamic change in the history of the business is Insolvency Bankruptcy Code 2016. Before  the enactment of the code the process was puzzling, time -consuming and various Statues overshadowing each other made the process sluggish. The Statuesalso includes Sick Industrial Companies Act 1985,Companies Act 2013, Recovery of Debt due to Bank and Financial Institution Act 1993 ,Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI)1.The legislation indicates that the existing framework was inadequate and ineffectively and leads to simplifyingthe process by making one single code for the resolution process. After the enactment of the code its various provisions havebeen challenged before the High Court and Supreme Court. Despite various challenges there also arisesan opportunity introduced by the law and mechanisms in the Insolvency and Bankruptcy Code framework in India.

Evolution of Insolvency and Bankruptcy Code

The Insolvency and Bankruptcy Code 2016 was introduced in Lok Sabha in  December 2015 and passed by the Lok Sabha on 5 May 2016  and Rajya  Sabha by1 May 2016 and come into the assent of the President of India  on 28th May 2016.On June 2016 the Centre Government had constituted 11 Bench of National Company Law Tribunal (NCLT) in different States, Chapter VI of the Code of National Law Company Tribunal would be adjudicating Authority for Insolvency Resolution And Liquation of Company, Limited liability Partnership( LLP). It also exercises the powers under sub-section 1 and 3 of section 188 of the code. TheCentreGovernment established the Insolvency Bankruptcy Board of India on 1 October 2016 which regularly had oversight of the insolvency professional agencies and Information Utilities needed for the operation of code 2.


The provisions of this code apply to;-

1 Any Company incorporated under the Company Act 2013 or under any previous Company Law.

2 Limited liability Partnership Incorporated under the limited liability partnership act 2008.

3 The Partnership, firm and proprietorship firms.

4 Any other company governed by any Special Act for the time being in force.

5 Personal Guarantors to corporate debtors.

Aim of Insolvency and Bankruptcy Code

It comprises of Partnership, Individual and company. It provides for a time consuming process to resolve resolution. When a default repayment occurs the creditor gain control over a debtor and it resolves within 180 days and forthe small investor within 90 days. Under Insolvency Bankruptcy Code both can start recovery against each other.

Case Law

JM Financial Asset Reconstruction Company Ltd V. Samay Electronic Private Ltd

In this case two members comprise of the bench of Adjudicating Authority (National Company Law Tribunal) Ahmedabad Bench Court-1. The Appellant (JM Financial Asset Reconstruction Company) filed under Section 7 of Insolvency and Bankruptcy Code and expressed by the member Judicial found the application under Section7 filed by the appellant by limitation Entailing its rejection. Mr. Sonal Jain Learned Counsel represents the appellant and submit under section 419(5) of the company act as two members of the Bench has conflicting issues regarding the disposal application on the different ways one was allowing admission of the application under section 7 and  the other rejecting it. He isbeseeching the appellant tribunal to directauthority to follow under Section 419(5) of the Companies Act. After hearing the learned counselof the appellant it appropriate disposal the appeal to the same bench adjudicating authority which passed two conflicts orders to make Hon’ble President of National Company Law Tribunal in section 419(5) of Company Act 2013 issue and points on two members of the bench had split verdictand matter is placed before the third member of hearing and company petition is decided with the opinion of the majority of member case including the members before the case is sent to the bench of adjudicating authority (NCLT)Ahmedabad Bench Court. It also Hon’ble President National Company Law Tribunal, New Delhi for information and Compliance.

Innoventic Industries Ltd v. ICICI Bank AIR 1939 SC 2017

Innoventic Industry Ltd is a Corporate Debtor and ICICI isa financial Creditor. ICICI givesaloan to  Innoventic Industry Ltd. Corporate Debtor in payment of debts availed from ICIC. Financial Creditor filed the Corporate Insolvency Resolution Process petition and National Company Law Tribunal admitted the Corporate Insolvency Resolution Process Petition Under Section-7 appellant claimed that there was no debt legally due in as much as per two notification dated 22ndJuly 2015 and 18th July 2016 under the Maharashtra Relief Undertaking Special Provisions Act 1958 all Liabilities of the Appellant and remedies for enforcementwas temporarily suspended for a period of one year in the first instance under the first notification of 22ndJuly 2015another period of one year under the second notification of 18thJuly2016 but National Company Law Tribunal admitted the petitionand corporate debtor filed in National Company Law Tribunal and the corporate debtor filed in SupremeCourt 3.


State law is repugnant to the later parliamentary enactment. Then it will not be effective Maharashtra Act cannot stand in the way of the corporate Insolvency Resolution process under the code the moratorium imposed under Section4 of the Maharashtra act would directly Clash issued section 13 and14 of the insolvency Bankruptcy Code Section 238 of code override other all laws so that any right of the corporate debtor under any other lawcannot come in the way of the code.


In Conclusion Insolvency Bankruptcy Code in India is legislation that tends to improve Insolvency Bankruptcy Code proceedings in India. It provides for the distress and time -bound process for resolution. Insolvency Bankruptcy Code needs to work on the regulations and its success depends on the Insolvency Professional how it willemerge.


1. Mr. Saksham Grover,Redefining Insolvency Law in India and COVID-19 Ramifications, B&B Associate, 2016, 2020.

2. Pradeep Kumar Ghosh , Evolution of Insolvency and Bankruptcy Code, 2016 based on Judicial Interpretation and Pronouncement,Insolvency,31,2018,

3. Admin , Landmark Judement of Hon’ble NCLT 1 TO 15 Januray 2021, AAA Insolvency,2021



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