Ever since the coming of Insolvency & Bankruptcy Code, 2016 (in short “IBC”) its been a great law codified by the Government of India and has made sure that the Non Performing Assets are out from all the sectors. It is well known that in India a civil court of relevant jurisdiction is the usual forum for resolving not just disputes related to debt recovery, but also for resolving any contractual disputes between parties. The civil courts draw their powers from the Code of Civil Procedure, 1908 (“CPC”) to enforce contracts under the law and to resolve such disputes which takes several years to decide the case and eventually getting the debt realized.
In such a milieu, the National Company Law Tribunal has been introduced
under the Companies Act, 2013, and is now designated as the adjudicatory authority under IBC to sit in judgment over the reorganization and insolvency resolution of corporate persons for maximization of value of assets of such persons.
With its aim to ease the insolvency procedures of companies in India, it was never an easy process if you come to look at its history. But the main question that was in everyone’s mind was this, what role would the CPC i.e the civil procedure code, 1908 play with the coming and introduction of National Company law tribunals in the country, would civil courts override jurisdiction of the NCLT or which would be a better way to go in terms of doing Debt recovery your debt, civil courts or NCLT’s?
EFFECTIVENESS OF BOTH THE LAWS
Civil Procedural Code has been very important in the legal framework owing to its various procedural aspects as well as its objective of pursuing of an efficient justice system through fair trial, free provision of legal aid and speedy justice among other ideals.
Whereas The Insolvency and the Bankruptcy Code enacted in May, 2016 and got effective from December 1st, 2016 is a more holistic approach to dealing with the stressed assets. The code is a unified force that clubs the relevant provisions on all the laws that deal with the bankruptcy. The code is more creditor friendly, while it seeks to promote the interests of all the stakeholders of the corporate debtor. It has been designed in such a way that it unites the provisions of the SARFAESI, The RDDBFI, the Code of the Civil Procedure etc.
The Way Forward.
The IBC has reinvigorated the stressed asset space with both strategic as well as financial investors being bullish about the prospects of investment. In order to ensure continued momentum, it is important to constantly invest in capacity building. We need to have more officers assigned to NCLT as well as more benches of the NCLT and NCLAT. The IBC should not be used as a method to recover outstanding dues, however, with the low threshold for filing cases and the limited scope of review, it has become the favorite method for small operational creditors to recover their dues, thereby clogging the system.
The Insolvency and Bankruptcy Code 2016 has been a blessing to financial as well as operational creditors who earlier had no proper process of recovering their debt with all the major laws overlapping each other. With the coming of IBC, the system has eased with no other Court having jurisdiction over matters involving Insolvency proceedings to be initiated against a company.
Important ingredients, process and timeline under IBC
A operational creditor is a one who has supplied material/ goods or has rendered services in India to a Company (Corporate Sole)
The vendor (applicant) can be any one, may be an Individual (Sole Proprietorship), Partnership Firm or a Company.
The debt fell due must be within the limitation law (i.e. within 3 years from the date of invoice or the last payment received)
There should not be whisper of dispute prior to initiating the process of IBC. It is important to understand what dispute is and a material subject before starting. Vague defences after the initiation under IBC by the Company (Corporate Debtor) will not stick to its ground.
The process is similar to initiating S. 138 Criminal Complaint, wherein a statutory demand notice is to be sent seeking the amount of debt and giving 10 mandatory days for payment of debt.
In case no payment is made, the Applicant/ Operational Creditor must file the Application for initiation of Corporate Insolvency Resolution Process (CIRP). The jurisdiction for filing application under IBC is the place where registered office of the Corporate Debtor is situated only.
It is important that many of the times, before the process gets initiated, the Corporate Debtor settles the debt. The ratio of settling has been seen is on a higher side as no sane company would like to put the company under insolvency.
The best part is while settling, generally interest component also gets fitted in the debt which is a positive factor for the Applicant/ Operational Creditor.
In case the matter does not gets settled, the CIRP will be initiated and the Board of Directors will be suspended and in place a Insolvency (Interim) Resolution Professional [IRP] (who is generally a CS, CA, CWA or an Advocate) will be appointed by the NCLT.
The affairs of the Corporate Debtor are under the hand of the IRP and he is responsible for all the functioning of the Corporate Debtor.
IBC is so effective that the application for initiation of CIRP generally gets decided within 3-4 months. The intent of the law maker is to give an effective tool for realising your money from the clutches of the debtor who have mala fide intent.
While the code is a new law in making, the same holds to be a fast stride in helping creditors get their claims against insolvent companies processes in an speedy, efficient and quick manner. IBC is a booming law and Government is doing all way possible by getting more judges in NCLT so that as many as early disposals of the cases under IBC can be done. It is high time that all the business sector must take benefit of the process and can recover their bad debts in the most effective manner as comparison to any other law subsisting in India.