The Insolvency and Bankruptcy Code (IBC), 2016 establishes a consolidated legal framework for the resolution of insolvency and bankruptcy in India. Enacted with the objective of ensuring a time-bound and structured resolution process, the Code applies to various categories of debtors, while expressly excluding certain regulated entities.
Applicability of the IBC
The Code is applicable to the following entities:
1. Companies
The IBC applies to companies incorporated under the Companies Act, 2013, as well as those incorporated under any previous company law or governed by any special enactment, subject to provisions specified therein.
2. Limited Liability Partnerships (LLPs)
LLPs registered under the Limited Liability Partnership Act, 2008, fall within the purview of the Code for insolvency and liquidation proceedings.
3. Partnership Firms and Individuals
The Code extends its applicability to partnership firms and individual debtors. However, certain jurisdictional exceptions, such as those previously applicable to the erstwhile state of Jammu and Kashmir, may apply based on statutory updates.
4. Other Corporate Persons
The IBC also encompasses other body corporates incorporated under any statute, as notified by the Central Government, from time to time.
Entities Excluded from the Scope of the IBC
The Code specifically excludes financial service providers, including but not limited to:
- Banks
- Non-Banking Financial Companies (NBFCs)
- Insurance companies
- Other financial institutions
These entities are regulated under separate legal frameworks overseen by sectoral regulators such as the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (IRDAI).
Key Features of the IBC
1. Time-Bound Resolution Mechanism
A defining characteristic of the IBC is its emphasis on resolving insolvency within a specified time frame, generally 180 days (extendable by 90 days), thereby preventing unnecessary value erosion of assets.
2. Stakeholder Balance
The Code seeks to equitably balance the rights and interests of all stakeholders—creditors, debtors, employees, and investors—ensuring fairness and transparency throughout the process.
3. Regulatory Oversight by IBBI
The Insolvency and Bankruptcy Board of India (IBBI), established under the Code, functions as the key regulatory authority overseeing:
- Insolvency professionals (IPs)
- Insolvency professional agencies (IPAs)
- Information utilities (IUs)
4. Distinct Resolution Processes
The Code delineates separate procedures for:
- Corporate Insolvency Resolution Process (CIRP)
- Liquidation of corporate entities
- Insolvency resolution and bankruptcy of individuals and partnership firms
Conclusion
The Insolvency and Bankruptcy Code, 2016, serves as a comprehensive mechanism for addressing financial distress among a wide range of entities. By setting clear eligibility criteria and processes, and excluding entities already governed by specialized regulatory frameworks, the Code reinforces legal certainty, credit discipline, and economic efficiency in insolvency proceedings across India.
Disclaimer
The information provided in this article is for general informational purposes only and should not be construed as financial, legal, or tax advice. While efforts have been made to ensure the accuracy of the content, it is subject to change based on subsequent amendments or judicial interpretations. Readers are advised to consult a qualified legal or financial professional before making any decisions based on the above information.
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