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THE INSOLVENCY & BANKRUPTCY CODE, 2016
NO. 31 OF 2016
[28th May, 2016.]
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.
BE it enacted by Parliament in the Sixty-seventh Year of the Republic of India as follows:—
PART I
PRELIMINARY
Short title, extent and commencement.
1. (1) This Code may be called the Insolvency and Bankruptcy Code, 2016.
(2) It extends to the whole of India:
Provided that Part III of this Code shall not extend to the State of Jammu and Kashmir.
(3) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint:
Provided that different dates may be appointed for different provisions of this Code and any reference in any such provision to the commencement of this Code shall be construed as a reference to the commencement of that provision.
Application.
2. The provisions of this Code shall apply to—
18 of 2013.
(a) any company incorporated under the Companies Act, 2013 or under any previous company law;
(b) any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act;
6 of 2009.
(c) any Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008;
(d) such other body incorporated under any law for the time being in force, as the Central Government may, by notification, specify in this behalf; and
(e) partnership firms and individuals, in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the case may be.
Definitions.
3. In this Code, unless the context otherwise requires,—
(1) "Board" means the Insolvency and Bankruptcy Board of India established under sub-section (1) of section 188;
(2) "bench" means a bench of the Adjudicating Authority;
(3) "bye-laws" mean the bye-laws made by the insolvency professional agency under section 205;
(4) "charge" means an interest or lien created on the property or assets of anyperson or any of its undertakings or both, as the case may be, as security and includes a mortgage;
(5) "Chairperson" means the Chairperson of the Board;
(6) "claim" means—
(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured;
(b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;
18 of 2013.
6 of 2009.
(7) "corporate person" means a company as defined in clause (20) of section 2 of the Companies Act, 2013, a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008, or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider;
(8) "corporate debtor" means a corporate person who owes a debt to any person;
(9) "core services" means services rendered by an information utility for—
(a) accepting electronic submission of financial information in such form and manner as may be specified;
(b) safe and accurate recording of financial information;
(c) authenticating and verifying the financial information submitted by a person; and
(d) providing access to information stored with the information utility to persons as may be specified;
(10) "creditor" means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decreeholder;
(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;
(12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be;
(13) "financial information", in relation to a person, means one or more of the following categories of information, namely:—
(a) records of the debt of the person;
(b) records of liabilities when the person is solvent;
(c) records of assets of person over which security interest has been created;
(d) records, if any, of instances of default by the person against any debt;
(e) records of the balance sheet and cash-flow statements of the person; and
(f) such other information as may be specified.
(14) "financial institution" means—
(a) a scheduled bank;
2 of 1934.
(b) financial institution as defined in section 45-I of the Reserve Bank of India Act, 1934;
18 of 2013.
(c) public financial institution as defined in clause (72) of section 2 of the Companies Act, 2013; and
(d) such other institution as the Central Government may by notification specify as a financial institution;
(15) "financial product" means securities, contracts of insurance, deposits, credit arrangements including loans and advances by banks and financial institutions, retirement benefit plans, small savings instruments, foreign currency contracts other than contracts to exchange one currency (whether Indian or not) for another which are to be settled immediately, or any other instrument as may be prescribed;
(16) "financial service" includes any of the following services, namely:—
(a) accepting of deposits;
(b) safeguarding and administering assets consisting of financial products, belonging to another person, or agreeing to do so;
(c) effecting contracts of insurance;
(d) offering, managing or agreeing to manage assets consisting of financial products belonging to another person;
(e) rendering or agreeing, for consideration, to render advice on or soliciting for the purposes of—
(i) buying, selling, or subscribing to, a financial product;
(ii) availing a financial service; or
(iii) exercising any right associated with a financial product or financial service;
(f) establishing or operating an investment scheme;
(g) maintaining or transferring records of ownership of a financial product;
(h) underwriting the issuance or subscription of a financial product; or
(i) selling, providing, or issuing stored value or payment instruments or providing payment services;
(17) "financial service provider" means a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator;
(18) "financial sector regulator" means an authority or body constituted under any law for the time being in force to regulate services or transactions of financial sector and includes the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory Authority and such other regulatory authorities as may be notified by the Central Government;
(19) "insolvency professional" means a person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207;
(20) "insolvency professional agency" means any person registered with the Board under section 201 as an insolvency professional agency;
(21) "information utility" means a person who is registered with the Board as an information utility under section 210;
(22) "notification" means a notification published in the Official Gazette, and the terms "notified" and "notify" shall be construed accordingly;
(23) "person" includes—
(a) an individual;
(b) a Hindu Undivided Family;
(c) a company;
(d) a trust;
(e) a partnership;
(f) a limited liability partnership; and
(g) any other entity established under a statute,
and includes a person resident outside India;
42 of 1999.
(24) "person resident in India" shall have the meaning asassigned to such term
in clause (v) of section 2 of the Foreign Exchange Management Act, 1999;
(25) "person resident outside India" means a person other than a person resident
in India;
(26 ) "prescribed" means prescribed by rules made by the Central Government;
(27) "property" includes money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property;
(28) "regulations" means the regulations made by the Board under this Code;
(29) "Schedule" means the Schedule annexed to this Code;
(30) "secured creditor" means a creditor in favour of whom security interest is created;
(31) "security interest" means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person:
Provided that security interest shall not include a performance guarantee;
(32) "specified" means specified by regulations made by the Board under this Code and the term "specify" shall be construed accordingly;
(33) "transaction" includes a agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor;
(34) "transfer" includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien;
(35) "transfer of property" means transfer of any property and includes a transfer of any interest in the property and creation of any charge upon such property;
14 of 1947.
(36) "workman" shall have the same meaning as assigned to it in clause (s) of section 2 of the Industrial Disputes Act, 1947;
9 of 1872.
9 of 1932.
42 of 1956.
15 of 1992.
51 of 1993.
6 of 2009.
18 of 2013.
(37) words and expressions used but not defined in this Code but defined in the Indian Contract Act, 1872, the Indian Partnership Act, 1932, the Securities Contact (Regulation) Act, 1956, the Securities Exchange Board of India Act, 1992, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Limited Liability Partnership Act, 2008 and the Companies Act, 2013, shall have the meanings respectively assigned to them in those Acts.
PART II
INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATE PERSONS
CHAPTER I
PRELIMINARY
Application of this Part.
4. (1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees:
Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees.
5. In this Part, unless the context otherwise requires,—
Definitions.
18 of 2013.
(1) "Adjudicating Authority", for the purposes of this Part, means National Company Law Tribunal constituted under section 408 of the Companies Act, 2013;
(2) "auditor" means a chartered accountant certified to practice as such by the Institute of Chartered Accountants of India under section 6 of the Chartered Accountants Act, 1949;
XXXVIII of 1949.
(3) "Chapter" means a Chapter under this Part;
(4) "constitutional document", in relation to a corporate person, includes articles of association, memorandum of association of a company and incorporation document of a Limited Liability Partnership;
(5) "corporate applicant" means—
(a) corporate debtor; or
(b) a member or partner of the corporate debtor who is authorised to make an application for the corporate insolvency resolution process under the constitutional document of the corporate debtor; or
(c) an individual who is in charge of managing the operations and resources of the corporate debtor; or
(d) a person who has the control and supervision over the financial affairs of the corporate debtor;
(6) "dispute" includes a suit or arbitration proceedings relating to—
(a) the existence of the amount of debt;
(b) the quality of goods or service; or
(c) the breach of a representation or warranty;
(7) "financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to;
(8) "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes—
(a) money borrowed against the payment of interest;
(b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent;
(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;
(e) receivables sold or discounted other than any receivables sold on nonrecourse basis;
(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;
(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;
(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;
(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;
(9) "financial position", in relation to any person, means the financial information of a person as on a certain date;
(10) "information memorandum" means a memorandum prepared by resolution professional under sub-section (1) of section 29;
(11) "initiation date" means the date on which a financial creditor, corporate applicant or operational creditor, as the case may be, makes an application to the Adjudicating Authority for initiating corporate insolvency resolution process;
(12) "insolvency commencement date" means the date of admission of an application for initiating corporate insolvency resolution process by the Adjudicating Authority under sections 7, 9 or section 10, as the case may be;
(13) "insolvency resolution process costs" means—
(a) the amount of any interim finance and thecosts incurred in raising such finance;
(b) the fees payable to any person acting as a resolution professional;
(c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern;
(d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and
(e) any other costs as may be specified by the Board;
(14) "insolvency resolution process period" means the period of one hundred and eighty days beginning from the insolvency commencement date and ending on one hundred and eightieth day;
(15) "interim finance" means any financial debt raised by the resolution professional during the insolvency resolution process period;
(16) "liquidation cost" means any cost incurred by the liquidator during the period of liquidation subject to such regulations, as may be specified by the Board;
(17) "liquidation commencement date" means the date on which proceedings for liquidation commence in accordance with section 33 or section 59, as the case may be;
(18) "liquidator" means an insolvency professional appointed as a liquidator in accordance with the provisions of Chapter III or Chapter V of this Part, as the case may be;
18 of 2013.
6 of 2009.
(19) "officer" for the purposes of Chapter VII of this Part, means an officer who is in default, as defined in clause (60) of section 2 of the Companies Act, 2013 or a designated partner as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008, as the case may be;
(20) "operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;
(21) "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;
(22) "personal guarantor" means an individual who is the surety in a contract of guarantee to a corporate debtor;
(23) "personnel" includes the directors, managers, key managerial personnel, designated partners and employees, if any, of the corporate debtor;
(24) "related party", in relation to a corporate debtor, means—
(a) a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor;
(b) a key managerial personnel of the corporate debtor or a relative of a key managerial personnel of the corporate debtor;
(c) a limited liability partnership or a partnership firm in which a director, partner, or manager of the corporate debtor or his relative is a partner;
(d) a private company in which a director, partner or manager of the corporate debtor is a director and holds along with his relatives, more than two per cent. of its share capital;
(e) a public company in which a director, partner or manager of the corporate debtor is a director and holds along with relatives, more than two per cent. of its paid-up share capital;
(f) anybody corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor;
(g) any limited liability partnership or a partnership firm whose partners or employees in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor;
(h) any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act;
(i) a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary;
(j) any person who controls more than twenty per cent. of voting rights in the corporate debtor on account of ownership or a voting agreement;
(k) any person in whom the corporate debtor controls more than twenty per cent. of voting rights on account of ownership or a voting agreement;
(l) any person who can control the composition of the board of directors or corresponding governing body of the corporate debtor;
(m) any person who is associated with the corporate debtor on account of—
(i) participation in policy making processes of the corporate debtor; or
(ii) having more than two directors in common between the corporate debtor and such person; or
(iii) interchange of managerial personnel between the corporate debtor and such person; or
(iv) provision of essential technical information to, or from, the corporate debtor;
(25) "resolution applicant" means any person who submits a resolution plan to the resolution professional;
(26) "resolution plan" means a plan proposed by any person for insolvency resolution of the corporate debtor as a going concern in accordance with Part II;
(27) "resolution professional", for the purposes of this Part, means an insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional; and
(28) "voting share" means the share of the voting rights of a single financial creditor in the committee of creditors which is based on the proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate debtor.
CHAPTER II
CORPORATE INSOLVENCY RESOLUTION PROCESS
Persons who may initiate corporate insolvency resolution process.
6. Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter.
Initiation of corporate insolvency resolution process by financial creditor.
7. (1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.
Explanation.—For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.
(2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed.
(3) The financial creditor shall, along with the application furnish—
(a) record of the default recorded with the information utility or such other record or evidence of default as may be specified;
(b) the name of the resolution professional proposed to act as an interim resolution professional; and
(c) any other information as may be specified by the Board.
(4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3).
(5) Where the Adjudicating Authority is satisfied that—
(a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or
(b) default has not occurred or the application under sub
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