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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Provincial Insolvency Act, 1920 have been repealed, winding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
Customer
No. 91-11- and partnership firms. The Author
Authority Care
for individuals

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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
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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;
Customer
Carenot
No.own
91-11(e) he does
a dwelling unit, irrespective of whether it is encumberedwww.taxmann.com
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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