Introduction to Insolvency and Bankruptcy Code: formula sheet

Key formulas

Nature of the Code

IBC = consolidating and amending law on reorganisation and insolvency resolution of corporate persons, firms and individuals, in a time-bound manner

Use this as your opening line for any question on why the Code was enacted.

Core objectives

Maximise asset value + promote entrepreneurship + increase availability of credit + balance stakeholder interests

Present these as the objectives drawn from the preamble. Add the setting up of the Board.

Overriding effect (Section 238)

Code prevails over any inconsistent law for the time being in force

The section also covers any instrument having effect by virtue of such a law.

Corporate resolution time limit (Section 12)

180 days; one extension up to 90 days; mandatory outer limit 330 days from insolvency commencement date, including legal proceedings

Extension needs a CoC resolution by 66% of voting shares and the Adjudicating Authority's order.

Pre-packaged process time limit (Section 54D)

120 days from pre-packaged insolvency commencement date; plan to be submitted to the Adjudicating Authority within 90 days

Shows the Code's time-bound design extends to newer processes.

Extent (Section 1)

Extends to the whole of India

Commencement was by notification, with different dates for different provisions.

Claim (s 3(6))

Claim = right to payment (any kind) + right to remedy for breach of contract that gives a right to payment

Wide meaning. It does not matter whether the right is disputed, unmatured or unsecured.

Debt (s 3(11))

Debt = liability or obligation in respect of a claim that is due; includes financial debt and operational debt

No claim, no debt. No due liability, no debt.

Default (s 3(12))

Default = non-payment of debt when the whole or any part or instalment has become due and payable and is not paid

Part non-payment is enough. The word is 'paid', substituted for 'repaid' in 2018, so it covers operational debt too.

Corporate person (s 3(7))

Company (s 2(20), Companies Act, 2013) + LLP + any other person incorporated with limited liability, excluding financial service providers

Financial service providers are carved out from this definition.

Corporate debtor (s 3(8))

Corporate debtor = corporate person who owes a debt to any person

Both elements are needed: corporate person and a debt owed.

Creditor (s 3(10))

Creditor = any person to whom a debt is owed, including financial, operational, secured, unsecured creditors and decree-holders

A decree-holder is expressly included.

Adjudicating Authority split

Corporate persons: NCLT | Individuals and firms: DRT having territorial jurisdiction (s 179(1))

DRT jurisdiction depends on where the individual debtor actually and voluntarily resides, carries on business or personally works for gain.

Adjudicating Authority split

Corporate persons → NCLT; individuals and partnership firms → DRT

Use this as the first line of any answer on who decides.

Board's registration function (s 196(1)(a))

Board registers IPAs, IPs and information utilities; can renew, withdraw, suspend or cancel

Registration is the Board's core power over service providers.

Board's regulatory functions (s 196(1)(b), (d), (e))

Specify eligibility, standards for functioning, and minimum curriculum for IP examination

Standards and eligibility are set by regulations.

Board's supervisory functions (s 196(1)(f), (g), (h))

Inspect, investigate, monitor, issue directions, call for information and records

Pair these with sections 217 to 219 on complaints and investigation.

Civil court powers (s 196(3))

Discovery and production of documents; summoning and examining on oath; inspection of books; commissions

Same powers as a civil court trying a suit under the Code of Civil Procedure, 1908.

Complaint to investigation to show cause

Complaint (s 217) → investigation order (s 218) → show cause notice (s 219)

Board may also act on reasonable grounds to believe there is a contravention.

Model bye-laws (s 196(2))

Board may make model bye-laws for IPAs covering competence, ethics, enrolment, grievances, discipline

Enrolment requirements must be non-discriminatory.

Section 199 - registration bar

No Board certificate of registration = no business as an IPA and no enrolling of insolvency professionals

An agency must hold a certificate of registration issued by the Board.

Section 200 - principles for registering IPAs

Professional development and regulation; competent services; good professional and ethical conduct; protect debtors, creditors and other specified persons; growth of IPAs for effective processes

Five principles, clauses (a) to (e). These guide the Board when registering agencies.

Section 204 - IPA functions

Grant membership; set conduct standards; monitor; safeguard members' interests; suspend or cancel membership; redress grievances; publish information

Seven functions, clauses (a) to (g).

Section 207 - route to becoming an IP

Membership of an IPA → registration with the Board

Registration is within the time, manner and fee specified by regulations.

Section 208(2) - code of conduct (statutory)

Reasonable care and diligence; comply with IPA bye-laws; allow IPA to inspect records; submit copy of records of every Adjudicating Authority proceeding to the Board and the IPA; perform functions as specified

Five items, clauses (a) to (e).

Section 125 - timelines for bankruptcy trustee

Adjudicating Authority directs the Board within 7 days of the application; Board confirms or nominates within 10 days

If an IP is proposed, the Board confirms no disciplinary proceedings are pending, then confirms or rejects and nominates another. If none is proposed, the Board nominates. The Adjudicating Authority appoints in the bankruptcy order under section 126.

Purpose of the Fund (Section 224(1))

Fund = for insolvency resolution, liquidation and bankruptcy of persons under the Code

Formed under the Code itself. Do not confuse it with the Board's Fund under Section 222.

Credits to the Fund (Section 224(2))

(a) Central Government grants + (b) contributions deposited by persons + (c) receipts from any other source + (d) interest or income from investment of the Fund

Four heads. Write all four in a list answer.

Withdrawal limit (Section 224(3))

Withdrawal ≤ amount contributed by the applicant

Applies only when proceedings under the Code are initiated against the contributor, and the application goes to the Adjudicating Authority.

Permitted uses of withdrawn funds (Section 224(3))

Payments to workmen + protecting assets + incidental costs during proceedings + other prescribed purposes

The Central Government prescribes other purposes by rules (Section 239(2)(zi)).

Administration (Section 224(4))

Administrator appointed by Central Government by notification; administers the Fund in the prescribed manner

Manner is set by rules under Section 239(2)(zj).

Board's Fund (Section 222) for contrast

Credits: grants, fees and charges received by the Board + sums from other sources decided by the Central Government + other funds specified by the Board or prescribed

Applied to Board salaries, expenses under Section 196 functions, expenses authorised by the Code and other prescribed purposes.

Fast track CIRP period (s. 56(1))

Completion within 90 days from the insolvency commencement date

Extension is possible only once.

Fast track extension (s. 56(2) and (3))

CoC resolution with 75% of voting share → RP applies → Adjudicating Authority may extend by a period not exceeding 45 days

The extension cannot be granted more than once.

Fast track eligibility (s. 55(2))

Notified: (a) assets and income below a level; or (b) class of creditors or amount of debt; or (c) other category of corporate persons

Eligibility depends on Central Government notification.

Fast track application (s. 57)

Creditor or corporate debtor files with proof of default from an information utility or other specified means, plus other specified information

The information must show the debtor is eligible.

Pre-pack eligibility (s. 54A(1))

Corporate debtor classified as micro, small or medium enterprise under section 7(1) of the MSMED Act, 2006

Other corporate debtors may apply under s. 54A(2) if they meet its conditions.

Pre-pack conditions (s. 54A(2))

No pre-pack or completed CIRP in the previous 3 years; not in CIRP; no liquidation order under s. 33; eligible under s. 29A

Unrelated financial creditors holding at least 66% by value approve the proposed IP and the filing; the debtor's members pass a special resolution; the declaration gives a filing time of at most 90 days.

Pre-pack termination by CoC (s. 54N(2))

CoC decision approved by not less than 66% of voting shares

RP intimates the Adjudicating Authority, which then passes a termination order under s. 54N(1).

Pre-pack termination order timing (s. 54N(1))

Adjudicating Authority passes the order within 30 days of the RP's application

The corporate debtor bears the pre-pack process costs under s. 54N(3).

Fraud penalty in pre-pack (s. 67A)

Penalty not less than ₹1,00,000 and up to ₹1,00,00,000

Imposed on an officer on the RP's application, after the pre-packaged insolvency commencement date.

Quick revision

• The Code is one consolidated law for insolvency, liquidation and bankruptcy of companies, firms and individuals.
• Section 196 lists the Board's powers and functions, subject to the general direction of the Central Government.
• The Board registers agencies, professionals and information utilities, and can renew, withdraw, suspend or cancel registrations.
• The Board has civil court powers under the Code of Civil Procedure, 1908 for discovery, summoning, inspection and commissions.
• Section 199: no one may act as an insolvency professional agency or enrol professionals without a certificate of registration from the Board.
• Section 200 sets principles for registering agencies, such as promoting professional development, ethical conduct and protecting debtors and creditors.
• Section 203: the Board may make regulations on an agency's governing board, including independent members.
• Section 204 lists agency functions: grant membership, set conduct standards, monitor, safeguard members, suspend or cancel membership, redress grievances, publish information.
• Section 205: agencies make bye-laws with the Board's approval, consistent with the Board's model bye-laws.
• Section 208(2) code of conduct: reasonable care and diligence, comply with bye-laws, allow inspection of records, submit records of proceedings to the Board and the agency.
• Section 224: the Fund is credited with grants, contributions, other receipts and investment income, and is run by an administrator appointed by the Central Government.
• A contributor can apply to the Adjudicating Authority to withdraw up to the amount it contributed, for purposes such as paying workmen or protecting assets.

Common mistakes

• Writing that the Code only deals with companies. Fix: State that the Code covers corporate persons, partnership firms and individuals, each under its own Part.
• Treating recovery of debt as the only objective. Fix: List all objectives: value maximisation, entrepreneurship, credit availability and balancing interests of stakeholders.
• Treating every company-like entity as a corporate person, including banks and NBFCs. Fix: Always check if the entity is a financial service provider authorised or registered by a financial sector regulator. If yes, it is outside section 3(7).
• Saying default needs the whole debt to be unpaid. Fix: Section 3(12) says whole or any part or instalment. Non-payment of part is default.
• Saying the Board is an adjudicating body that decides insolvency applications. Fix: The Board regulates and supervises. Admission, moratorium and plan approval are done by the Adjudicating Authority.
• Sending an individual debtor's matter to the NCLT. Fix: Individuals and partnership firms go to the DRT. Corporate persons go to the NCLT.
• Saying the Adjudicating Authority registers insolvency professional agencies. Fix: Agencies and professionals are registered by the Board. The Adjudicating Authority only appoints the bankruptcy trustee in the bankruptcy order.
• Treating agency membership as enough to act as an insolvency professional. Fix: Write both: obtain membership of an agency, then register with the Board.
• Mixing the Fund under Section 224 with the Board's Fund under Section 222. Fix: Section 224 supports insolvency processes of persons. Section 222 meets the Board's own salaries and expenses.
• Saying any debtor can withdraw from the Fund. Fix: Only a person who has contributed can apply, and only when proceedings under the Code are initiated against that person.

Exam tips

• Open every answer on this topic with the Code's nature and purpose in one line, then build on it.
• Learn the time limits as a small table in your head: 180 plus 90 (Section 12), 330 outer limit, and 120 for the pre-packaged process (Section 54D).
• Quote Section 238 by number when asked about conflict with other laws, and state it in plain words.
• Link each feature to an objective. Examiners reward analysis over a bare list.
• In case-based questions, do the date arithmetic first, then state the rule and your conclusion.
• Write the definition in near-exact words. Examiners reward the phrase 'whole or any part or instalment' and the exclusion of financial service providers.
• Apply the definition to the facts in a separate step. Do not just recite the section.
• For a distinction question, use a short two-column list in bullets: nature of debt, who the creditor is, and the consequence. Keep section 3 terms exact.