Trending: Call for Papers Volume 4 | Issue 4: International Journal of Advanced Legal Research [ISSN: 2582-7340]



The Insolvency and Bankruptcy Code (IBC) of 2016 stands as a landmark legislation in India, aiming to streamline and expedite the resolution process for distressed entities while promoting a creditor-friendly insolvency regime. However, the efficacy and resilience of the IBC face multifaceted challenges stemming from legal, procedural, and institutional complexities. This abstract presents an analytical exploration of the challenges confronting the implementation of the IBC and conducts a comparative study with insolvency frameworks in the United States (US) and the United Kingdom (UK). The abstract begins by delineating the key provisions and objectives of the IBC, emphasizing its transformative potential in addressing India’s historically protracted and fragmented insolvency landscape. It scrutinizes the procedural mechanisms prescribed under the IBC, including the corporate insolvency resolution process (CIRP), liquidation proceedings, and the role of insolvency professionals, adjudicating authorities, and creditors’ committees. Subsequently, the abstract identifies and analyzes the challenges impeding the smooth functioning of the IBC, ranging from systemic inefficiencies and judicial backlog to regulatory ambiguities and creditor inertia. It critically evaluates the jurisprudential evolution of insolvency jurisprudence in India and its implications for the resolution ecosystem under the IBC.


Part III stipulates the procedure in relation to ―insolvency‖ of partnerships and individuals. Although the same have not been notified, as of now, except for provisions relating to individual ―guarantors‖ to debtor corporations, implications of

―insolvency and ―bankruptcy‖ relating to individuals are far-reaching and unless handled with care, may cause significant damage to the societal structure.

Insolvency and bankruptcy laws aim to provide recourse for a debtor who has become incapable to pay back their creditors due to various circumstances. Legislators consider both the creditors’ and the debtor’s perspectives while framing the insolvency and bankruptcy legislations and a balancing act is done to provide justice to all. Such legislations enable creditors to recover their debts; and allow debtors to make a clean start, without the economic baggage of past debts. While personal bankruptcy may primarily deal with the economic status of an individual, there are significant societal factors that influence an individual’s decision to apply for bankruptcy.

Earlier, multiple acts such as ―the Presidency Towns Insolvency Act, 1909‖, as well as ―the Provisional Insolvency Act, 1920, dealt with individual insolvency but these Acts were found to be ineffective and furthermore, it was felt that there was no requirement for two separate legislation to deal with the procedure for insolvency.

It was proposed that a uniform insolvency law be introduced in the country; although such a law was not introduced at that time. The ―26th Law Commission Report on Insolvency Laws‖, proposed for a uniform law on personal insolvency for the whole country[1].

Later, in 2014, the Bankruptcy Law Reform Committee set up to study the legal framework of bankruptcy with regard to corporate entities. However, the said Committee expanded its scope and also analysed the legal framework with regard to individual insolvencies. Thereafter, the Code was enacted, wherein part III deals with individuals[2]. However, the Code with regard to individuals has not yet been notified[3]  except for the provisions with regard to specific individuals i.e., individual debtors who had guaranteed the debts of debtor corporations as previously stated. The individual insolvency legal framework is particularly important in the Indian scenario as proprietorships and partnerships contribute substantially towards income as well as employment and furthermore, the supply of credit also involves a number of informal financial creditors not having the resources available to bigger lenders in recovering debts[4].

Under the Code, individual debtors undergo a two-stage process for dealing with their debts. As a start, an effort is made to resolve the debtor’s obligations. However, if creditors reject the repayment plan or the debtor fails to execute it, the AA may declare bankruptcy on such person’s petition or on that of such person’s creditors themselves. A suggested repayment plan must have been approved by creditors in order for bankruptcy to be launched. This implies that a proposed resolution must have failed in order for bankruptcy to be initiated. The Code also provides for a ‗fresh start process ‘which is available for individual debtors and partnerships. The present chapter discusses the process under Part III for individuals and partnerships starting from the meaning of a bankrupt as prescribed under the Code, then going on to the fresh start process, the insolvency and bankruptcy procedure and finally dealing with the specific regulations which have been notified with regard to corporate guarantors.


Under ―Part III, the AA, with regard to individuals and partnerships, has been specified to be the ―Debt Recovery Tribunal. Any appeal from the decision of a ―Debt Recovery Tribunal can be preferred before the Debt Recovery Appellant Tribunal within 30 days; provided, a further period of 15 days may be extended by the Debt Recovery Appellate Tribunal if for ―sufficient cause‖, the appellant was unable to file the appeal within 30 days. An appeal from an order of the Debt Recovery Appellate Tribunal on a question of law‖ must be preferred within forty-five days before the Supreme Court‖ but the ―Supreme Court may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal within forty-five days, allow the appeal to be filed within a further period not exceeding fifteen days. However, with regard to corporate guarantors, the NCLT would be the AA just like in the case of CIRP.

The Code defines a bankrupt as including a debtor who has been adjudged as bankrupt by a bankruptcy order‖, each of the partners of a firm, where a bankruptcy order‖ relates to a firm as well as any person adjudged as an undischarged insolvent‖. Bankruptcy‖ has been defined as the state of being bankrupt and bankruptcy debt has been defined to mean any debt owed‖ by such bankrupt person as on the bankruptcy commencement date‖ as well as debts due post the bankruptcy commencement date‖ but prior to their discharge by reason of any transaction entered into before the bankruptcy commencement date‖ along with interest‖ on such debts. Bankruptcy order has been defined to mean the ―order passed by an Adjudicating Authority declaring such person as a bankrupt and date of such a declaration is known as the ―bankruptcy commencement date.

The Bankruptcy trustee is the insolvency professional who is assigned to take charge as the bankruptcy trustee for the bankrupt‘s estate. Partnership debt is a debt which is due and payable by all the partners in the firm. Immediate family has been defined to mean the spouse of the debtor as well as the parents and children of the debtor who are dependent on the debtor. A debtor has been defined to include a judgment debtor. A firm is a body of individuals carrying on business in partnership whether or not registered in terms of the Partnership Act, 1932. An undischarged bankrupt is a bankrupt who has not received a discharge order. Excluded assets include ―unencumbered tools, books, vehicles and other equipment as are necessary to the debtor or bankrupt for his personal use or for the purpose of his employment, business or vocation‖, ―unencumbered furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his immediate family, ―any unencumbered personal ornaments of such value, as may be prescribed, of the debtor or his immediate family which cannot be parted with, in accordance with religious usage,

―any unencumbered life insurance policy or pension plan taken in the name of debtor or his immediate family‖ as well as ―an unencumbered single dwelling unit owned by the debtor of such value as may be prescribed‖. Excluded debt‖ is a liability to pay fine imposed by a court or tribunal, liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal obligation‖, liability to pay maintenance to any person under any law for the time being in force‖, liability in relation to a student loan‖ as well as ―any other debt as may be prescribed.


Under the Code, a ―fresh start process‖ is envisaged with regard to debtors who are falling within the lower-income brackets. A debtor, who is incapable of paying back their debts and whose gross annual income does not exceed ₹ 60,000/-, whose assets are not cumulatively worth more than ₹ 20,000/-, whose qualifying debts are not more than ₹ 35,000/- and who is not an ―undischarged bankrupt‖, against whom, ―a fresh start process, insolvency resolution process or bankruptcy process is not subsisting‖ nor has a ―fresh start‖ order been passed against such debtor ―in the preceding twelve months of the date of the application for fresh start‖ and where the person does not own a dwelling unit, may apply by themselves or through a RP for making ―an application for a fresh start for discharge of his qualifying debt. A ―qualifying debt‖ has been explained to mean the ―amount due, which includes interest or any other sum due in respect of the amounts owed under any contract, by the debtor for a liquidated sum either immediately or at certain future time and does not include – an excluded debt; a debt to the extent it is secured; and any debt which has been incurred three months prior to the date of the application for fresh start process.

An application by the debtor seeking fresh start must provide information as stipulated including a list of all debts owed by the debtor as on the date of the said application along with details relating to the amount of each debt, interest payable thereon and the names of the creditors to whom each debt is owed‖, list of securities etc. From filing of such petition, an ―interim moratorium‖ applies to all debts owed by the debtor and continues till such application has been allowed or rejected and while such interim moratorium continues, no legal proceedings with regard to the debts owed by the debtor shall continue nor shall any fresh legal proceedings be initiated with regard to such debts.

On an application being filed seeking fresh start, the AA appoints a RP recommended by the Board and in case it is filed by means of a RP, the AA shall appoint such RP as the RP to oversee the fresh start process; provided that the Board confirms that the absence of punitive actions against such person.

A RP who is appointed, shall examine the application made‖ and ―submit a report to the Adjudicating Authority, either recommending acceptance or rejection of the application. The RP, in such a report, must specify which debts mentioned in the application seeking fresh start or qualifying debts are eligible for discharge. The RP, in order to make such a report, is empowered to require further information from the debtor or any other person in connection with such an application. The RP has to ―presume that the debtor is unable to pay his debts at the date of the application if‖ from the information contained in the ―application‖, it appears ―that the debtor is unable to pay his debts‖ and further, the RP has no reason to disbelieve the same, and the RP trusts that the financial conditions of the debtor have not changed in such a manner since the making of the application that the debtor is now capable of paying back their debts.

On the other hand, the RP has to recommend rejection if it is found that the debtor‖ does not fulfil the preconditions required to initiate the fresh start process as stipulated aforesaid, or ―the debts disclosed in the application by the debtor are not qualifying debts or ―the debtor has committed or made false statements with regard to the application seeking fresh start or with regard to any documentation or information furnished in connection with such application‖.

On such a report recommending rejection / approval of the application seeking fresh start, being furnished by the ―RP, an AA may, allow or dismiss such application by stating amounts which have been demarcated by the RP as

qualifying debts or other amounts which are qualified for ―discharge‖ and a copy of such order along with the application seeking fresh start is to be served to the debt holders specified in such application.

A 180-day moratorium on all obligations of the debtor begins from when the application for ―fresh start‖ is allowed, unless the direction of admission is cancelled prior to the expiration of 180 days. During the moratorium‘s pendency, all subsisting legal actions with regard to the debts of the debtor are stayed and no fresh legal actions may be commenced by any creditor. The debtor also suffers from certain disqualifications during ―moratorium‖ such as the ―debtor shall ―not act as a director of any company, or directly or indirectly take part in or be concerned in the promotion, formation or management of a company, ―not dispose of or alienate any of his assets, ―inform his business partners that he is undergoing a fresh start process‖, ―be required to inform prior to entering into any financial or commercial transaction of such value as may be notified by the Central Government, either individually or jointly, that he is undergoing a fresh start process, ―disclose the name under which he enters into business transactions, if it is different from the name in the application admitted‖, and ―not travel outside India except with the permission of the Adjudicating Authority.

The creditors who are owed qualifying debts and are mentioned in the order of the AA admitting the application seeking fresh start process, ―may, within a period of ten days from the date of receipt of the order, file an objection with the RP on the ground of ―inclusion of a debt as a qualifying debt or ―incorrectness of the details of the qualifying debt‖ and the RP must ―within ten days of the date of the application‖, ―either accept or reject the objections‖, and thereafter ―prepare an amended list of qualifying debts‖, if so required.

Any creditor or the debtor themselves may appeal against the order of the RP with regard to the objections of the creditors if they are aggrieved by such decision on the ground that the creditor or the debtor was not provided with an opportunity

―to make a representation‖ or on a ground that the RP had ―colluded with the other party‖ or that such RP had not followed the mandatory procedure as prescribed aforesaid and if such an application is allowed, the AA shall forward such order to the Board to take action against the RP, if required.

During the fresh start process, the debtor has ―make available to the resolution professional all information relating to his affairs, attend meetings and comply with the requests of the resolution professional in relation to the fresh start process‖.

A debtor or a creditor may seek for replacement of the RP who was appointed and the AA, on making a replacement appointment on the recommendation of the Board, ―may give directions to the resolution professional replaced‖ to ―to share all information‖ and ―to co-operate with the new resolution professional.

The RP is entitled to ―apply to the Adjudicating Authority‖ regarding any matter relating to the process, including any ―non-compliance by the debtor‖ of their legal duties.

At any point of time, the RP may approach the AA seeking for setting aside the order admitting the ―fresh start process, if, ―due to any change in the financial circumstances of the debtor, the debtor is ineligible for a fresh start process‖ or ―if the debtor has acted in a mala fide manner and has wilfully failed to comply with the provisions of Chapter 2 which deals with fresh start process or has acted in contravention to the restrictions and duties imposed upon the debtor as a result of admission of the application seeking fresh start process; and if the AA sets aside the order admitting the application seeking ―fresh start process‖, the ―moratorium‖ and such ―fresh start process‖ shall come to an end.

At the end of the fresh start process, the RP prepares a final list of the qualifying debts‖ and files it with the AA at least seven days before the moratorium period comes to an end. The AA shall pass a discharge order at the end of the moratorium period for discharge of the debtor from the qualifying debts.


The debtor may apply for bankruptcy on his or her own or via a representative, and in the event of a partnership business, a majority of its partners must submit the application together in order for insolvency proceedings to begin. Only non-excluded debts may be the subject of such an application, and only if the debtor is not an undischarged bankrupt, is not experiencing a fresh start process‖, is not experiencing an insolvency resolution process‖, or is not experiencing a bankruptcy process‖, or if an application‖ seeking the initiation of insolvency proceedings of debtor has not been allowed ―during the period of twelve months preceding the date of submission of the application.

Even a creditor, individually or jointly, may file an application by themselves or through RP, ―for initiating an insolvency resolution process and for a

―partnership debt, such an application may be made against ―any one or more partners of the firm‖ or against ―the firm. The filing by the creditor must include various documents and details including information with regard to ―the debts owed by the debtor to the creditor or creditors submitting the application for insolvency resolution process as on the date of application, ―the failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand and

―relevant evidence of such default or non-repayment of debt‖ and ―the creditor shall also provide a copy of the application‖ to such debtor.

An interim moratorium begins the moment the ―application is filed, and lasts until the application is accepted or rejected. Lawsuits against the debtor are put on hold and creditors are barred from taking legal action against the debtor’s creditors while the interim moratorium is still in effect. In the event that a partnership firm files for insolvency resolution, the interim moratorium applies to all of the partnership’s participants.

The AA will appoint the RP who submitted the application for insolvency resolution if the Board has established that the RP has no disciplinary procedures outstanding against the RP. Replacement of the RP can be done either by the debtor or one or more creditors; where it has been decided by creditors to do so, and where the Board confirms that there are no ongoing proceedings against the new RP, and where the Board directs that the replaced RP share information and cooperate with the new RP, and the Board may direct the replaced RP to assist the new RP in his or her duties.


Both in case of individual debtors and debtor corporations, an attempt is made for the resolution of the debt with consent of ―creditors‖ and only in the failure of such an endeavour, is liquidation or bankruptcy initiated against the debtor. The analysis of the provisions of the Code has revealed that while it is a groundbreaking statute which has already caused a sea change in the relationship between debtors and creditors, certain defects still exist which need to be rectified. It has been found that the distinction created under the Code for various types of ―creditors‖ and the overwhelming preference shown to financial creditors in the case of CIRP, has resulted in the erosion of rights of other creditors such as operational creditors. Thereby, there is an urgent need to introduce safeguards for ―creditors‖ apart from financial creditors as discussed in the previous chapters. In the case of liquidation of debtor corporations as well as insolvency and bankruptcy of individuals, the treatment meted out to various categories of creditors is more balanced. With regard to the fast track process as envisaged under the Code, it has been found that the fast track process is not streamlined and does not show sufficient variation from the normal CIRP so as to increase the possibility of achieving the goal of quick resolution of debt and therefore, the fast track process needs to be further streamlined. Timelines under ―the Code‖ are not being met. The same is a result of a variety of factors including lack of judicial infrastructure, frivolous litigation etc.


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[1]LAWCOMMISSION,26thLawCommissionReportOnInsolvencyLaws (1964).


[3] CAKamalGarg,ConciseCommentaryonInsolvencyandBankruptcyCode,2016(2018).

[4]M.S.Sahoo, ―IndividualInsolvency:TheNextBigThing,10TheQuarterlyNewsletterofIBBI, 2019‖.