Corporate Restructuring, Valuation and Insolvency · Insolvency

Overview of the Insolvency and Bankruptcy Code, 2016

Updated 11 October 2026 · Fact-checked

The Insolvency and Bankruptcy Code, 2016 is one consolidated law for time-bound insolvency resolution, liquidation and bankruptcy of companies, LLPs, partnership firms and individuals. It works through the Adjudicating Authority, the Insolvency and Bankruptcy Board of India, insolvency professionals and information utilities. In answers, state the objective, then the institution, then its role.

Understand Overview of the Insolvency and Bankruptcy Code, 2016

Before the Code, insolvency law was scattered across several statutes and forums. Recovery was slow and value of the failing business often eroded. The Code replaces this with a single framework that aims at time-bound resolution, maximisation of the value of assets, promotion of entrepreneurship, availability of credit and balancing the interests of all stakeholders. Learn these objectives as a list. Examiners often ask you to state them or to link a feature of the Code to one of them.

The Code covers corporate persons, partnership firms and individuals. For companies and LLPs, the main route is the corporate insolvency resolution process (CIRP). The aim is to revive the business. If revival fails, the company goes into liquidation. Individuals and firms have their own processes under the Code. Keep this scope in mind when a question asks who can use the Code.

The Code classifies creditors by the nature of the debt. A financial creditor is owed a financial debt, which is a debt connected with the time value of money, such as a loan. An operational creditor is owed an operational debt, which arises from goods or services, including employment dues and government dues. This split matters because the way each creditor starts the process is different. An operational creditor must first deliver a demand notice or invoice and wait for the debtor's reply or dispute. Section 9 sets this out. A corporate debtor is the company that owes the debt. A default is non-payment of a debt that has become due.

Four institutions run the system. The Adjudicating Authority admits or rejects applications and passes orders. For companies and LLPs this is the National Company Law Tribunal. The Insolvency and Bankruptcy Board of India is the regulator. Insolvency professionals conduct the processes, and insolvency professional agencies enrol and regulate them. Information utilities store financial information about debts so that default and dispute can be verified.

The official text gives you the regulator's powers in section 196 and a governance control over information utilities in section 212. Section 196 lets the Board register insolvency professional agencies, professionals and information utilities, and renew, suspend, withdraw or cancel those registrations. It can also set standards, inspect, investigate, monitor, call for records and redress grievances. Section 212 says the Board may require every information utility to set up a governing board with the number of independent members specified by regulations. Together they show that the Board both licenses and supervises these institutions.

Key rules to remember

Objectives of the Code: Time-bound resolution + value maximisation + entrepreneurship + credit availability + balance of stakeholder interests; Write these as separate points. Add that the Code consolidates earlier laws on insolvency.
Financial creditor vs operational creditor: Financial debt = money lent for time value of money; Operational debt = goods, services, employment or government dues; The type of debt decides the creditor's category and the route for starting CIRP.
Section 9: when an operational creditor may apply: Apply after 10 days from delivery of the demand notice or invoice if no payment and no notice of dispute is received; The creditor files before the Adjudicating Authority and may propose a resolution professional as interim resolution professional.
Section 9(5): time for decision: Adjudicating Authority must admit or reject within 14 days of receipt of the application; CIRP commences from the date of admission under section 9(6).
Section 9(5)(ii) proviso: defect in application: Notice to rectify an incomplete application within 7 days of receiving the notice, before rejection for incompleteness; This applies only to rejection for incompleteness, not to other grounds.
Section 196(1)(a): Board's registration power: Board registers insolvency professional agencies, insolvency professionals and information utilities; it can renew, withdraw, suspend or cancel; The Board also frames standards, inspects and monitors under the other clauses of section 196(1).
Section 212: governing board of information utility: Board may require every information utility to set up a governing board with specified number of independent members; The number of independent members is fixed by regulations. Say 'may require', not 'must'.

How to solve Overview of the Insolvency and Bankruptcy Code, 2016 questions

Use this method for any overview question on the Code, whether it asks for objectives, definitions, institutions or a short case.

1Identify what the question tests: objectives, scope, a definition, or an institution and its role.
2State the governing provision first. Name the section only if you are sure of it, or if the text is given in the question.
3Define the key term in plain words. For creditors, say which type of debt is involved.
4If facts are given, match each fact to a condition of the provision. Take the notice, the time limit, the dispute and the payment, one at a time.
5Name the institution that acts: the Adjudicating Authority, the Board, an insolvency professional or an information utility.
6Write a clear conclusion that answers the question asked, such as admit, reject, or the Board may do this.
7Close with one line on the objective served, such as time-bound resolution or value maximisation.

Quickest way: Provision, Facts, Conclusion in three lines

When to use it: Use this when you have limited time for a short-note or a short case question.

Line 1: state the rule or definition in one sentence.
Line 2: apply it to the facts by listing the conditions met or not met.
Line 3: give the conclusion and name the institution that acts.

Common mistakes in Overview of the Insolvency and Bankruptcy Code, 2016

Treating every unpaid creditor as a financial creditor.
Students think any money owed is a loan.
Fix: Ask what the debt is for. If it arises from goods, services, employment or government dues, it is an operational debt. A loan or similar financing is a financial debt.
Saying the Board decides whether a company enters CIRP.
Students confuse the regulator with the Tribunal.
Fix: The Adjudicating Authority admits or rejects applications. The Board registers and regulates insolvency professionals, their agencies and information utilities.
Writing that an operational creditor can file immediately after default.
Students skip the demand notice step.
Fix: Under section 9(1), the creditor can file only after ten days from delivery of the notice or invoice, and only if it receives neither payment nor a notice of dispute.
Saying section 212 compels every information utility to have a governing board with a fixed number of independent members.
Students overstate the rule.
Fix: The section says the Board may require it, and the number of independent members is as specified by regulations.
Rejecting a section 9 application at once for being incomplete.
Students forget the proviso.
Fix: Before rejecting for incompleteness, the Adjudicating Authority gives notice to rectify the defect within seven days of receipt of that notice.
Listing only 'recovery of dues' as the objective of the Code.
Students see insolvency as a recovery tool only.
Fix: Include revival, value maximisation, entrepreneurship, credit availability and balancing stakeholder interests.

Worked examples

Example 1

Sundaram Packaging Ltd supplied cartons worth ₹8,00,000 to Kaveri Foods Ltd. After delivery of a demand notice, Kaveri Foods neither paid nor sent any notice of dispute. Twelve days have passed since delivery. Advise whether Sundaram Packaging can approach the Adjudicating Authority and state how the application will be decided.

Show the solution

Classify the creditor. The debt arises from supply of goods, so it is an operational debt and Sundaram Packaging is an operational creditor.
Check the waiting period. Section 9(1) permits an application after ten days from delivery of the notice or invoice. Twelve days have passed.
Check the other condition. No payment and no notice of dispute has been received, so the condition is met.
Note the documents. Sundaram must furnish a copy of the invoice or demand notice and an affidavit that no notice of dispute has been received. It must also furnish bank certificate or information utility record, if available, and other proof as prescribed.
Apply the decision rule. The Adjudicating Authority must decide within fourteen days of receiving the application. It admits if the application is complete, no payment is made, the notice was delivered, there is no dispute and no disciplinary proceeding is pending against the proposed resolution professional.
If the application is incomplete, it must first give notice to rectify the defect within seven days of receipt of the notice.

Answer: Yes. Sundaram Packaging, as an operational creditor, can file under section 9. The Adjudicating Authority will admit it within fourteen days if the conditions are met, and CIRP then commences from the date of admission.

Example 2

Explain the role of the Insolvency and Bankruptcy Board of India in relation to information utilities, with reference to the powers in the text of the Code.

Show the solution

Introduce the Board as the regulator under the Code. It acts subject to the general direction of the Central Government.
State registration power. Under section 196(1)(a), it registers information utilities and can renew, withdraw, suspend or cancel the registration.
State standard-setting. It specifies minimum eligibility requirements for registration and specifies standards for functioning of information utilities.
State supervision. It can carry out inspections and investigations, monitor performance, call for information and records, and issue guidelines.
State data and grievance powers. It specifies the manner of collecting and storing data and of providing access to it. It also specifies a mechanism for redressing grievances against information utilities.
State the governance power. Under section 212, it may require every information utility to set up a governing board with independent members, as specified by regulations.
Conclude that these powers ensure information utilities support the objectives of the Code.

Answer: The Board registers, regulates, inspects and monitors information utilities, specifies their standards and data practices, handles complaints, and under section 212 may require a governing board with independent members as specified by regulations.

Exam tips

Learn the objectives as five short points. They fit into almost any theory answer on the Code.
Keep a one-line definition ready for financial creditor, operational creditor, corporate debtor and default. Add one example of each debt type.
When a case question names a creditor, classify the debt first. Everything else follows from that.
For institution questions, write who does what: the Adjudicating Authority decides, the Board regulates, the insolvency professional conducts, the information utility records.
Quote time limits exactly: ten days, fourteen days and seven days in section 9. Wrong numbers cost marks.

Practice questions from Insolvency

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Overview of the Insolvency and Bankruptcy Code, 2016: frequently asked questions

What are the main objectives of the Insolvency and Bankruptcy Code, 2016?

The Code aims at time-bound resolution of insolvency and maximisation of asset value. It also promotes entrepreneurship, increases availability of credit and balances the interests of all stakeholders. It consolidates earlier insolvency laws into one framework.

What is the difference between a financial creditor and an operational creditor?

A financial creditor is owed a financial debt, such as a loan. An operational creditor is owed an operational debt for goods, services, employment or government dues. The distinction affects how each starts the insolvency process.

Who is the Adjudicating Authority under the Code?

For companies and LLPs, it is the National Company Law Tribunal. It admits or rejects applications to start CIRP and passes orders in the process. Under section 9, it decides an operational creditor's application within fourteen days of receiving it.

What does section 212 of the Code provide?

It says the Board may require every information utility to set up a governing board. The number of independent members on that board is specified by regulations. Its purpose is to make information utilities consider the objectives of the Code.