The article is written by Manpreet Singh. The article explains the journey from SICA to IBC and gives an overview of both the Acts.
HISTORICAL BACKGROUND – From SICA to IBC
In the wake of sickness in the country’s industrial climate prevailing in the eighties, the Provisions Act, 1985 commonly known as SICA.
The main objective of SICA is to determine sickness and expedite the revival of potentially viable units or closure of unviable units (Units herein refers to a Sick Industrial Company). The SICA, 1985 was enacted with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a body of experts of the preventive, remedial and another measure which need to be taken with respect to such companies.
The Board of experts named the Board for Industrial and Financial Reconstruction (BIFR) was set up in January 1987 and functional with effect from 15th May 1987. The Appellate Authority for Industrial and Financial Reconstruction (AAIRFR) was constituted in April 1987.
The major constraint of the SICA was that it was applicable only to sick industrial companies keeping away other companies which are in trading, service or other activities. However, the overall experience was not satisfactory because of various factors including non-applicability of SICA to non-industrial companies and small/ancillary companies.
In view of this, the Insolvency and Bankruptcy Code, 2016 was notified on May 28, 2016.
NOTIFICATION OF NATIONAL COMPANY LAW TRIBUNAL UNDER SICA (SPECIAL PROVISIONS) REPEAL ACT 2003
The Repeal Act provides for the repeal of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and related matters. Therefore, the SICA is repealed with effect from 1 December 2016.
Due to this amendment, the Government notified that all the proceedings pending before the BIFR and AAIFR shall stand abated and will come to an end. However, it shall be open to the company whose appeal, reference or inquiry has abated to initiate fresh proceedings before the National Company Law Tribunal (NCLT). In accordance with the provision of insolvency code, within 180 days of the commencement of the insolvency code and to get the protection under section 14 of IBC 2016.
THE INSOLVENCY AND BANKRUPTCY CODE 2016
The Insolvency and Bankruptcy code, 2016 is an act to consolidate and amend the laws relating to reorganization and insolvency resolution of:
- Corporate Persons
- Partnership Firms
- Limited Liability Partnership
In a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in order of priority of payment of Government dues and to establish an insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.
INSTITUTION UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016
INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (IBBI)
The board shall consist of following members who shall be appointed by the Central Government:
- A chairperson
- Three members not below the rank of joint secretary or equivalent, one of each to represent the Ministry Of Finance, Ministry of Corporate Affairs and Ministry of Law, ex-officio.
- One member to be nominated by the Reserve Bank of India, ex-officio.
- Five other members to be nominated by the central Government, of whom at least three shall be the whole time members.
INSOLVENCY PROFESSIONAL AGENCIES (IPAs)
These agencies are required to register with the Insolvency and Bankruptcy Board of India.
The IPA Regulations provides that only a company registered under Section 8 of Companies Act, 2013, with the sole object of functioning as an insolvency professional agency under the insolvency Code shall be entitled to be registered as an insolvency professional agency (“IPA”).
At present, the following few Insolvency Professional Agencies are registered under Section 8 of the Companies Act, 2013 and registered with Insolvency and Bankruptcy Board of India.
ICSI INSOLVENCY PROFESSIONAL AGENCY
- Insolvency Professional Agency of Institute of Cost Accountants Of India.
- Indian Institute Of Insolvency Professionals of ICAI.
No person shall render his services as insolvency professional under this Code without being enrolled as a member of an insolvency professional agency and registered with the Board.
Every insolvency professional shall, after obtaining the membership of any insolvency professional agency, register himself with the Board within such time, in such manner and on payment of such fees, as may be specified by regulations.
WHO CAN FILE AN APPLICATION BEFORE THE ADJUDICATING AUTHORITY?
- Financial Creditors
- Operational creditors
- Corporate Applicant
HOW THE FINANCIAL CREDITORS FILE APPLICATION TO ADJUDICATING AUTHORITY
Financial creditors either by itself or jointly with other financial creditors may file an application to Adjudicating Authority in FORM 1 OF IBC for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.
The Adjudicating Authority (NCLT) shall, within fourteen days of the receipt of the application, ascertain the existence of default from the records of an information utility or on the basis of other evidence furnished by the financial creditors.
HOW THE OPERATIONAL CREDITORS FILE APPLICATION TO ADJUDICATING AUTHORITY
Operational creditors may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in FORM 3 OF IBC.
The corporate debtor shall within a period of ten days of the receipt of the demand notice or copy of the invoice bring to the notice of the operational creditor.
The existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings.
THE REPAYMENT OF UNPAID OPERATIONAL DEBT
After expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment if the operational creditors do not receive payment from the corporate debtor or notice of dispute the operational creditor may file an application to Adjudicating Authority in FORM 5 OF IBC for initiating the corporate insolvency resolution process.
HOW THE CORPORATE APPLICANT FILE APPLICATION TO ADJUDICATING AUTHORITY
Where a corporate debtor has committed a default, a corporate applicant thereof may file an application to Adjudicating Authority in FORM 6 OF IBC for initiating corporate insolvency resolution process.
The corporate applicant shall, along with the application furnish the information relating to-
- Its books of account and such other document relating to such period as may be specified; and
- The resolution professional proposed to be appointed as an interim resolution professional.
PERSONS NOT ENTITLED TO MAKE APPLICATION
- Corporate debtor undergoing insolvency resolution process; or
- Corporate debtor having completed corporate insolvency process twelve months preceding the date of making application; or
- Corporate debtor or financial creditor who has violated any of the terms of plan which was approved twelve months before; or
- The corporate debtor in respect of whom a liquidation order has been made.
TIME LIMIT FOR COMPLETION OF INSOLVENCY RESOLUTION PROCESS
The process must be completed within 180 days of its commencement, one-time extension by a further period of 90 days may be allowed if Adjudicating Authority is satisfied.
DECLARATION BY THE ADJUDICATING AUTHORITY
- Declare a moratorium;
- Cause a public announcement;
- Appoint an interim resolution professional.
This was all on the transition from SICA to IBC. Comment below and let us know your views on the insolvency laws of India and the journey SICA to IBC.