The Insolvency and Bankruptcy Code, 2016 (IBC) is an Act of the Indian Parliament that creates a consolidated framework for governing insolvency and bankruptcy proceedings for companies, partnership firms, and individuals. The IBC was enacted to consolidate and amend fragmented laws like the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and parts of the Companies Act, 2013, which led to delays and low recovery rates for creditors. The Code was introduced by Arun Jaitley on December 21, 2015, passed by the Lok Sabha on May 5, 2016, and received Presidential assent on May 28, 2016. Its primary objective is to ensure a time-bound resolution process for maximizing the value of assets, promoting entrepreneurship, and balancing the interests of all stakeholders.
The core mechanism for corporate debtors is the Corporate Insolvency Resolution Process (CIRP), which can be initiated by a financial creditor, operational creditor, or the corporate debtor itself upon a payment default. Once admitted, a moratorium is declared, and an Interim Resolution Professional (IRP) is appointed to manage the company. The process is designed to be time-bound, originally set at 180 days, extendable by 90 days. A Committee of Creditors (CoC), primarily comprising financial creditors, is formed and must approve a resolution plan with a 66% voting share. The adjudicating authority for corporate persons is the National Company Law Tribunal (NCLT), with appeals heard by the National Company Law Appellate Tribunal (NCLAT).
The IBC established the Insolvency and Bankruptcy Board of India (IBBI) as the regulatory authority to oversee the process and regulate Insolvency Professionals. The Code connects to and amends several existing laws, including the Companies Act, 2013, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). A significant amendment, the Insolvency and Bankruptcy Code (Amendment) Act, 2021, introduced the Pre-packaged Insolvency Resolution Process (P-PIRP) for Micro, Small, and Medium-sized Enterprises (MSMEs), allowing for a shorter resolution timeline of 120 days. The Code's application to individuals, including personal guarantors of corporate debtors, has also been clarified through judicial decisions and notifications.