CORPORATE DEBTOR'S RIGHT TO FILE A CIRP AND ITS IMPLICATIONS

Abstract

India is a developing country dealing with an escalation of entrepreneurs and businesses’.  With the increase in their support towards boosting economic growth comes the liability to pay off debts. It is not reasonable to assume that all businesses will flourish, it is normal for some to fail and this creates a demand for an effective corrective action. There are various laws like Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets, Enforcement of Security Interest Act, 2002 and the Companies Act, 2013 which deal with insolvency and bankruptcy procedures. The law relating to corporate insolvency is concerned not with the factual state of the company’s finances but with the technical legal state of the company as a legal entity. Each of these legislations extends remedies to resolve the issue of insolvency and bankruptcy in various entities. These provisions over-lapped with each other and often lead to the delaying of insolvency procedure. This delay brought to light the issue of over-riding effect that it creates. With the presence of various overlapping laws dealing with financial failures and insolvency, The Bankruptcy and Insolvency Code, 2016 (herein referred to as IBC) has proven to be a much-needed refurbishment of the existing framework dealing with the insolvency of corporations, partnerships, individuals and various other entities. The Code aims to reorganize and resolve any issues pertaining to insolvency in a time-bound manner and emphasizes on the maximization of the value of the assets of entities concerned. As per data available with the World Bank in 2016, insolvency resolution in India took 4.3 years on an average which was significantly inefficient. IBC has been defined by the act as an “Act to consolidate and amend the laws relating to reorganisation and Insolvency Resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.” The Code’s main objective lies in bringing all the insolvency procedures under one umbrella which would result in speeding up the process.