OBJECTIVES OF INSOLVENCY AND BANKRUPTCY CODE, 2016

The primary objectives of the Insolvency and Bankruptcy Code, 2016, (‘Code’ for short) are to consolidate and amend existing laws related to-

• insolvency and bankruptcy,
• facilitate time-bound resolution of insolvency cases,
• maximize asset value,
• promote entrepreneurship, and
• improve the ease of doing business in India. 

It also aims to balance the interests of all stakeholders, including creditors and debtors, and establish an Insolvency and Bankruptcy Board of India (IBBI) to regulate the process. 

Various judgments of Supreme Court, High Courts, NCLAT and NCLTs made their observations as to the objectives of the Code as discussed below-

Beneficial legislation

The Code is a beneficial legislation.  In Swiss Ribbons Pvt. Ltd. And Anr. Versus Union of India And Ors. - 2019 (1) TMI 1508 - Supreme Court,  the Supreme Court held that the Code is a beneficial legislation which puts the corporate debtor back on its feet and is not a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. The defaulter’s paradise is lost. In its place, the economy’s rightful position has been regained.

Single Unified Umbrella

In M/s. Innoventive Industries Ltd. Versus ICICI Bank & Anr. - 2017 (9) TMI 58 - Supreme Court, the Supreme Court held that one of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the objective of speeding up the insolvency process.

Not a forum for recovery of the debt

In Prowess International Pvt. Ltd. Versus Parker Hannifin India Pvt. Ltd. - 2017 (9) TMI 1447 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI, the NCLAT held that corporate insolvency resolution process is not a recovery proceeding to recover the dues of the creditors. The Code is an Act 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 and to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including the Government dues.

In M/s. Invent Asset Securitisation And Reconstruction Pvt. Ltd. Versus M/s. Girnar Fibres Ltd. - 2022 (5) TMI 391 - SC Order the Supreme Court held that the provisions of the Code are essentially intended to bring the CD to its feet and are not of money recovery proceedings as such.

Revival of the Corporate Debtor

The object of the Code, as already seen, is not a way to recovery of the debt.  It is for the revival of the corporate debtor.  In Shri Bharatbhai Vrajalbhai Selani Director of M/s. Dev Cotex Pvt. Ltd. Versus State Bank of India SME Branch - 2017 (8) TMI 1476 - NATIONAL COMPANY LAW TRIBUNAL AHMEDABAD, the NCLT held that the object of the Code is no doubt to protect the genuine corporate debtor with a view to maximise its value of assets and find out a resolution plan to revive the corporate debtor.

In Action Ispat & Power Pvt. Ltd. Versus Shyam Metalics & Energy Limited & Ors. - 2019 (10) TMI 378 - DELHI HIGH COURT, the High Court held that the proceedings under Code are independent and have an object different from the one envisaged under the scheme of liquidation provided in the company law. The former aims for resolution by way of revival in a manner that benefits all stakeholders, the creditors as well as the corporate debtor.

The Supreme Court held that since the object of the Code is for the revival of the Corporate Debtor and to make it as a going concern in K.N. RAJAKUMAR Versus V. NAGARAJAN & ORS. - 2021 (9) TMI 733 - Supreme Court, held that every attempt has to be first made to revive the concern and make it a going concern, liquidation being the last resort.

In Asset Reconstruction Company (India) Limited Versus Tulip Star Hotels Limited & Ors.- 2022 (8) TMI 70 - Supreme Court, the Supreme Court held that the provisions of the Code and the rules and regulations framed thereunder be construed liberally, in a purposive manner to further the objects of enactment of the statute. The Code is essentially a statute which works towards the revival of a corporate body, unable to pay its debts, by appointment.

Time bound process

A key objective is to resolve insolvency cases within a specific timeframe (initially 180 days, with extensions possible) to prevent value erosion and ensure a more efficient process. 

In Kridhan Infrastructure Pvt Ltd (Now known as Krish Steel and Trading Pvt Ltd) Versus Venkatesan Sankaranarayan & Ors - 2021 (3) TMI 281 - Supreme Court, the Supreme Court held that time is a crucial facet of the scheme under the Code and to allow such proceedings to lapse into an indefinite delay will plainly defeat the object of the Code.

In ‘Ram Ratan Modi v. ICICI Bank’ - IA No. 1477/KB/2020 in CP (IB) No. 184/KB/2018, decided on 19.05.2021, the NCLT, Kolkata held that one of the objects of the Code is to conduct the corporate insolvency resolution process in a time bound manner, therefore, to save the time, upon coming to knowledge of the order of admission of the corporate debtor into Corporate Insolvency Resolution Process, the statutory authorities should withdraw their direction of attachment of the assets of the corporate debtor.