AN ANALYSIS OF INDIA’S INSOLVENCY AND BANKRUPTCY LAWS Shatakshi Vyas Legal Article Mon, Jan 22, 2024, at ,09:46 PM ABSTRACTA single legislation for insolvency and bankruptcy was intended to be created by the Insolvency and Bankruptcy Code, which was passed in 2016 with the goal of consolidating the current system. The protection of creditors' interests is one of the Code's main goals, it should be underlined. By abandoning the debtor-in-possession model, which was common under the previous regime, and replacing it with one in which both creditors and debtors operate within a framework of equity and fairness to all stakeholders in order to preserve the value of the Company, the Code aimed to address the various "illnesses" that the insolvency laws under the previous regime suffered from. The Code was not flawless, though; it is still a work in progress. The government has also switched its emphasis to safeguarding the interests of the businesses in light of the Covid-19 epidemic. The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 appears to have been passed with the goal of shielding businesses and promoters from no-fault liabilities resulting from the Covid-19 outbreak, however the legislation's ambiguities appear to raise more concerns than they do answers.INTRODUCTIONThe inability to pay one's debts is referred to as insolvency in the Black's Law Dictionary. The usage of credit by businesses is crucial to the current business environment. The creditors are exposed to a lot of danger in this procedure, though. In fact, if this credit cycle is interrupted, the entire economy could halt. As a result, in the event that corporate debtors (referred to as "Company") default, insolvency law aims to defend the interests of creditors.Because coping with risks and crises are normal parts of the business world, only those who can successfully compete with one another can survive. Many unhealthy companies actually might. Market factors, inadequate management, and ineffective financial controls are a few causes of firm failure. In order to address those concerns, the corporate entity is restructured in accordance with the insolvency rules, which aim to correct a corporate failure.EVOLUTION OF THE CODESThe Insolvency and Bankruptcy Code (the "Code") was enacted in 2016 in order to codify and amend the laws governing the reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals in a timely manner in order to maximise the value of the assets of the business facing bankruptcy (the "Corporate Debtor"). Increasing the ease of conducting business in India was one of the main goals for the Code's adoption. The management of the Company is transferred to the resolution professional under the Code in an effort to address this problem. The Sick Industrial Companies Act, 1985 ("SICA"), the Recovery of Debt Due to Banks and Financial Institutions, 1993 ("RDDBFI"), the Companies Act, 2013, and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI"), when it went into effect, were among the laws that dealt with the insolvency process under the previous administration. Thus, in an effort to address the issue of the proliferation of laws on the subject, the Code sought to combine all of these various legislations into a single consolidated code.OBJECTIVES OF THE CODEIt is a commonly known fact that today's society makes it easier for businesses to use credit. In fact, many firms require debt to operate since it allows them to finance investments and expenses. As long as the loan can be serviced, returned, and is feasible for the corporate debtor to do so, taking on debt is acceptable. However, if the corporate debtor is unable to pay the obligation by the due date, there is a good likelihood that the creditors will suffer significantly. Additionally, the Code gives creditors the option to liquidate delinquent debtors or use the Corporate Insolvency Resolution Process ("CIRP") to recover unpaid debts. With a broader focus and the intention of resolving the problems with more practical provisions and implementation, the IBC was created. It is a statute that amends and combines those laws that deal with reorganisation and insolvency-related concerns. SPEEDY RESOLUTION PROCESSPrior to the 2019 amendment, the 180+90-day insolvency process time limit, while initially appearing to be a viable remedy, was not applicable in India due to the lengthy regulatory process followed by various government organisations, such as the approval needed by the Competition Commission of India (CCI).This resulted raised questions on the effectiveness of the IBC proceedings such as (1) whether the rescue operations envisioned under the IBC is used to avoid the CCI regulations and (2) whether the corporate debtor can use the loopholes in the law to prevent the CoC from taking the restructuring decisions.BETTER UNDERSTANDING OF CODE THROUGH THE BINANI CASEHowever, the Binani Cements case, which had undergone numerous twists and turns, ended up serving as a test case for the Code's application. UltraTech Cement, which had been vying for an acquisition, wrote Binani a letter of comfort promising to buy the assets for a much higher price after the IRP approved Dalmia Bharat's bid in this case. This prompted the promoters of Binani Cement to seek an out-of-court settlement from NCLT, which was not an option at the time. It is interesting to observe that the adjudicating authorities did not react negatively to this out-of-court settlement. In a landmark decision, the adjudicating body determined that the bankruptcy resolution process should try to extract the most value from the auction of stressed assets as it accepted UltraTech's offer to acquire Binani cements. By approving UltraTech's proposal and creating additional pathways for the defaulting corporations to discover new and better ways out of an otherwise strict process, this judgement opened the floodgates to litigation. Additionally, UltraTech gained a sizable market share and a competitive edge in western India with the acquisition of Binani cements, in addition to its earlier acquisitions. Pre-IBC, the Competition Commission of India would have taken note of this type of transaction by UltraTech. However, because of the 180+90-time limit, this transaction essentially got away with nothing.THE 2019 AMENDMENTSection 12(3) of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (Amendment Act) added two provisos to extend the resolution process deadline to 330 days. This 330-day period includes the following: (a) the standard CIRP period of 180 days; (b) any one-time extension of the CIRP period, if any, granted by the Adjudicating Authority; and (c) the time spent in legal procedures related to the CIRP of the Corporate Debtor. This 330-day timeframe would include all extensions granted by the adjudication authority as well as the time spent in court proceedings. Failure to finish the CIRP procedure by this deadline would result in liquidation, which would be an impractical choice for stakeholders involved. By establishing this non-derivable time limit, the government attempted to protect the value of assets, which would decrease if the CIRP process went on for a long time. However, it was obvious that they had ignored the fact that failure to meet this deadline would force the Corporate Debtor into liquidation, which could be equally harmful to his interests. In the case of Essar Steels, this problem was brought up. In this case, it was decided that the CIRP must be finished in 330 days, but the adjudicating authority may extend this deadline if the adjudicating authority is ineffective or the action before it is still pending at the time the CIRP is supposed to be finished.SUSPENSIONS OF THE IBC PROCEEDINGSNew problems and concerns regarding Indian insolvency rules have surfaced in the context of Covid-19, some of which are unlikely to be resolved by the courts. Through the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020, sections 10A and 66(3) were added to the Code in June 2020. It is more of a Covid-19 relief package with this 2020 ordinance. It aims to help corporate debtors who have been directly impacted by the Covid-19 outbreak, which has hampered company operations in many nations. In accordance with Section 10A, creditors are prohibited from bringing any corporation before a court or initiating insolvency proceedings, which will begin immediately and may last up to six months. The Code's Sections 7, 9, and 10 are superseded by this provision. Financial creditors may start insolvency proceedings under Section 7, whereas operational creditors may do so under Section 9. A failing firm may request that the National firm Law Tribunal (NCLT) declare it insolvent under Section 10. Resolution experts will not be permitted to file wrongful trading claims against directors of firms where the IBC process is suspended, in accordance with the revised section 66(3) of the Code.CONCLUSIONAt first look, it appears that the Code aims to address problems like the predominance of the debtor-in-possession model under the previous administration. The law appears to be returning to the previous model, nonetheless, based on current trends in the field. In an effort to "protect the interests of the company," the primary goal of the Code, which was to protect the interests of creditors, is currently being disregarded. Although it appears that the 2020 Ordinance was passed to shield businesses and promoters from no-fault liabilities resulting from the Covid-19 outbreak, the legislation's ambiguities tend to raise more problems than they do answers. The Ordinance must be careful to avoid becoming a double-edged sword that could harm or defraud small-scale vendors, MSMEs, and individual creditors who frequently fall under the category of operational creditors, especially those whose credit is worth less than one crore rupees. REFERENCES Bharat Chugh & Avaya Hari Singh, A to Z of the Insolvency and Bankruptcy Code https://www.livelaw.in/columns/a-to-z-of-the-insolvency-and-bankruptcy-code-a-beginners-guide-157569. Sameer Sharma, How Do We Ensure India’s Insolvency and Bankruptcy Code Keeps Working Well? https://thewire.in/banking/india-ibc-solvency-bankruptcy. Rao Pramod, Critique of the insolvency & Bankruptcy Code, 2016, http://www.insolindia.com/uploads_insol/resources/files/critique-of-ibc-by-pramod-rao-1040.pdf The report of the Bankruptcy Law Reforms Committee, 2015, https://ibbi.gov.in/BLRCReportVol1_04112015.pdf Binani Industries Ltd. v. Bank of Baroda (2018) SCC OnLine NCLAT 521 (India). Committee of Creditors of Essar Steel India Limited Through Authorized Signatory v. Satish Kumar Gupta (2019) SCC OnLine SC 1478 (India).