How the insolvency and bankruptcy code safeguard the cases of insolvent corporation?



    This paper is aimed at explaining the concept of “What is Corporate Insolvency”. Under this article the Powers, rights and duties of secured creditor during CIRP is also mentioned. Under this the Insolvency and Bankruptcy code,_2016deals with the corporation which became insolvent. It provides a framework for the processes of insolvency resolution. It is provided for companies, firms and individuals. It can be commenced by the creditor or debtor. During the process of insolvency these people will manage the assets of the debtor.

    law for insolvency and bankruptcy


    The IBC, 2016 i.e. Insolvency and Bankruptcy code was announced by the Indian Government on 28th May, 2016. This act amends the various laws which are related to the insolvency resolution of firms, individuals and corporate bodies in a time limit which is prescribed by the act. It is given to maximize the value of the assets, to enhance the business, accessibility of the credit and to maintain the balance of interest of all the stakeholders. It provides a system for the insolvency law and its purpose is to safeguard the arrangement of the cases of insolvency.


    it means corporate insolvency resolution process.

    CIRP which is known as “Corporate Insolvency Resolution Process” can be instituted by giving an application to NCLT (National Company Law Tribunal) by the creditors of finance. Under Section 7 of IBC, 2016 it is done by the creditors of operation. Under Section 9, 10 it is done by the debtor. The new rule added through this code says that if any company gets insolvent then at the initial stage it cannot start the process of liquidation unless it has done the process of insolvency through CIRP. After that if the process of resolution fails then it can proceed for liquidation.


    If the company is incompetent to pay its debts to the creditors then it will be proclaimed insolvent.  If the conditions of both the tests are satisfied then it will be declared insolvent. The ways to test for insolvency are as follows:-

    1. CASH-FLOW: In this test when the company is presently or in the future is incompetent to pay the debts and also the payment is due.
    2. BALANCE SHEET: In this test when the assets of the company are less than the number of liabilities.


    The following persons can file an application for liquidation or resolution of insolvency is as follows:-

    1. Creditors of the finance.
    2. Creditors of operation.
    3. Applicant of the corporate.


    It defines the process of corporate insolvency

    In the lucrative scenario, the repayment of debts has become a substantial concern. For this purpose this code works as an aid. It provides provision for companies, individuals, firms to give an application for start-ups of insolvency and bankruptcy. It also mentions the amount of default in different categories. The amount of default is not the minimum and maximum but it is considered as a range. The processes of liquidation are as follows:-

    1. APPLICATION TO THE NCLT – The application can be given by the creditor and company. For this purpose the company has to show the debt’s default payment which exceeds Rs. 1 Lakh. After receiving of application it has to give an order whether admit or deny the application within 14 days. If the application is given by the creditors of finance and operation then they have to fulfil various obligations. The creditor of finance needs to show the record of default. The IBC, 2016 makes a new category of keepers of record.
    2. APPOINTMENT OF INTERIM RESOLUTION PROFESSIONAL – When the process of resolution of insolvency starts then there is requirement of appointment of Interim resolution professional. After the appointment, the management has the right to manage the affairs of the company.
    3. VERIFICATION AND CLASSIFICATION OF CLAIMS – In this step, the professional will verify the claims which are made by the creditors and debtors.
    4. APPOINTMENT OF RESOLUTION PROFESSIONAL – In this, the committee appoints a person who is independent who will function as the ‘Resolution Professional’. He may be as the same person as the interim resolution professional. It totally depends on the choice of the committee.
    5. APPROVAL OF THE PLAN OF RESOLUTION – The plan is required to be approved within 180 days when the process of CIRP is done by the creditors. If a plan is approved then it will be mandatory on all the stakeholders but if a plan is not approved then NCLT orders the liquidation of the debtor. After that, the committee appoints a person as a liquidator and orders him to sell the assets of the debtor and divide them among the stakeholders. This is done according to the Section 53 of the IBC, 2016.


    These are the authorities who involved in the process of resolution are as follows:-

    1. Adjucating Authorities.
    2. Appellate Authorities.
    3. Appeal to the Supreme Court.


    The secured creditors have various powers to administer the securities without the involvement of the courts. In a renowned judgment, it was held by the Supreme Court that under the SARFAESI Act the secured creditors can use the rights of enforcement. The court of company or the liquidator has no right to involve in the proceedings. Therefore, under IBC, 2016 the rights of secured creditors are amended.


    1. He is allowed to administer the security on the verification of interest of security.
    2. He can be prevailed from the proceedings of the liquidation.
    3. He can claim priority over the dues of taxation.
    4. He needs to renounce the securities.

    The claims of the secured creditor are given prime concern in the IBC, 2016 only if the assets i.e. secured are conceded to the liquidator. This is because of the SARFAESI Act that is established to amend, enhance the rights of secured creditor and to expand the importance of them even outside the proceedings of the insolvency. 


    Through this article, the author wants to conclude that the powers of secured creditors are expanded through the act of SARFAESI. This act has become an effective mechanism for the secured creditors.  Under the Corporate Insolvency Resolution Process it provides a structure for the process of resolution of insolvency. Basically, the process on insolvency arises when the company is unable to pay it’s debts. An appeal of insolvency is filed to the NCLT.


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