Introduction
Insolvency law in India traces its roots to English law. The need for a formal legal framework to address insolvency first emerged in the British trading centers of Bombay, Calcutta, and Madras. Early insolvency provisions appeared in Sections 23 and 24 of the Government of India Act, 1800, followed by Statute 9 enacted in 1828, the Indian Insolvency Act of 1848, and later, the Presidency-towns Insolvency Act of 1909.[1]
The Presidency-towns Insolvency Act, 1909— is not in force in Bombay, Calcutta, and Madras—applies to the insolvency of individuals, partnerships, and associations of individuals. For regions outside these Presidency towns, there was no insolvency legislation until the Provincial Insolvency Act of 1907, which was later replaced by the Provincial Insolvency Act of 1920. This Act continues to govern individual insolvency, including that of sole proprietors, in non-Presidency town areas.
In 1964, the Law Commission of India recommended unifying both Acts to establish a single insolvency law applicable across the country. However, this recommendation was never implemented. As a result, the Presidency-towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920, remain the governing laws for insolvency proceedings involving individuals and associations of individuals in their respective jurisdictions. The Code was enacted in response to recommendations made by the Bankruptcy code Reforms Committee (BLRC), which sought to create a unified, thorough, and internally consistent code.
An Official Liquidator (OL) was established by the CA, 1956. The Regional Director of the Ministry of Corporate Affairs is administratively responsible for the OL, who was appointed by the Central Government under section 448. The OL is functionally attached to the jurisdictional High Court. Companies that were placed into liquidation had their affairs handled by the OL. No new matters have been assigned to 2013 OLs since December 31, 2016, due to the Code and revisions to the Companies Act. The 4,865 companies in liquidation as of October 31, 2018, 92% were ‘winding up by the Courts’ cases, meaning the Central Government appointed OLs to aid the courts. A person designated by the Tribunal to serve as a temporary or corporate liquidator must be an Insolvency Professional who is registered with the IBBI (Board), according to the Companies (Winding up) Rules, 2020.
In order to facilitate industrial and financial reconstruction, the SICA set up an institutional framework inside the BIFR and the BIFR Appellate Authority. The Board of experts known as BIFR was tasked with overseeing the process of quickly identifying ill or possibly sick enterprises, deciding on suitable remedies, and swiftly enforcing them. Sengupta et al. (2016) found that 5,800 instances were reported to the BIFR between 1987 and 2014. As many as 53% of these cases were dropped or stayed, 22% were sent into liquidation, and 9% were given a rehabilitation plan. Cases in the BIFR typically took about 5.8 years to close.[2] The National Company Law Tribunal (NCLT) took over BIFR cases that were pending when the Code was passed. The BLRC’s recommendation was to establish “an industry of regulated professionals who will be delegated the task of monitoring and managing matters of business by the Adjudicator, so that both creditors and the debtor can take comfort that economic value is not eroded by actions taken by the other.” This would allow the parties involved to learn from previous mistakes and adhere to standard international practices. Professionalism was considered by BLRC to be “critical to ensure a robust separation of the Adjudicator’s role into ensuring adherence to the process of the law rather than on matters of business, while strengthening the efficiency of the process” and was thus included as one of the four pillars of the Code.
According to the Code, an IP can be defined as an individual who has registered with the (IBBI) as an IP and who has enrolled with an Insolvency Professional Agency (IPA) as a member under section 206. These experts are currently involved in the insolvency and bankruptcy procedures for corporations. According to the procedure they are involved in, IPs can operate as either a Resolution Professional (RP), an Interim Resolution Professional (IRP), or a Liquidator.
[1] Shraddha Khandhadia, Amin Kumar Singh &Mrityunjai Pandey, “The Evolution of Insolvency Laws in India” 8(11) Journal of Emerging Technologies and Innovative Research (JETIR) (2021), available at https://www.jetir.org/papers/JETIR2111169.pdf.
[2] Rajeswari Sengupta, Anjali Sharma & Susan Thomas, Evolution of the Insolvency Framework for Non-Financial Firms in India (Indira Gandhi Institute of Development Research, 2016), available at http://www.igidr.ac.in/pdf/publication/WP-2016-018.pdf.