CS Professional · Insolvency and Bankruptcy - Law and Practice

Introduction to the Insolvency and Bankruptcy Code, 2016

The Insolvency and Bankruptcy Code, 2016 is the single law that governs how insolvency, liquidation and bankruptcy of companies, firms and individuals are handled in India. This chapter covers its objectives, key definitions, the regulator and professional bodies, the Fund, and an overview of the processes. Learn the sections, then apply them to facts.

What this chapter covers

This is the foundation chapter of Paper 7 (Elective 2), option 7.5, Insolvency and Bankruptcy - Law and Practice. It explains why India moved to one consolidated Code, what it is trying to achieve, and who runs the system. You meet the key terms, the regulator (the Board), insolvency professional agencies, insolvency professionals, the Insolvency and Bankruptcy Fund, and a first look at the main processes.

The chapter is mostly institutional. The Code gives the Board its functions in section 196, sets registration rules for agencies in sections 199 and 200, lists agency functions in section 204, and sets out the duties and code of conduct of insolvency professionals in section 208. Section 224 creates the Fund. Section 244 deals with transitional powers of the Central Government.

Later chapters on the corporate insolvency resolution process, liquidation, pre-packaged resolution, and individual and firm insolvency all assume you know who does what. If you are clear on the roles here, those chapters become easier to follow. The paper is open book, so you can carry the text in, but you still need to know where to look and how to apply it to the facts.

Questions from this chapter are usually short, direct and scoring: functions of the Board, what an agency must do, the code of conduct of an insolvency professional, or how the Fund works. In an open book paper, students who know the structure of the Code find the right provision quickly and write a clean answer of provision, analysis and conclusion. The chapter also supports every case-based question later in the paper, because each one asks who is acting, under which authority, and within what limits.

Introduction to Insolvency and Bankruptcy Code: topics in the order to study them

1Background and Objectives of the IBC, 2016Start with why the Code exists, so every later provision has a purpose you can link it to.
2Key Definitions and Applicability of the CodeYou need the vocabulary and the persons covered before reading about institutions and processes.
3Institutional Framework under the IBCThis shows the Board and the other authorities, and its powers in section 196 are the base for the next two topics.
4Insolvency Professional Agencies and Insolvency ProfessionalsBuilds on the Board's role: registration (sections 199, 200), agency functions (section 204), bye-laws (section 205) and conduct (section 208).
5Insolvency and Bankruptcy FundA small, self-contained section 224 topic that is easy once the institutions are clear.
6Overview of Insolvency Resolution and Liquidation ProcessesFinish with the big picture of the processes, which previews the chapters that follow.

How to prepare Introduction to Insolvency and Bankruptcy Code

This chapter rewards structured reading of the bare Act and clear lists. Aim to know each section's content and be able to apply it to a short fact situation.

Read the objectives and background once, then write two or three lines in your own words on what the Code tries to achieve.
Make a one-page list of key definitions and who the Code applies to, and revise it before moving on.
Read sections 196, 199, 200, 203, 204, 205, 208, 224 and 244 in the Act itself. For each, note the section number, who acts, and what they must or may do.
Make lists you can reproduce: the Board's functions, the agency's functions in section 204, and the code of conduct in section 208(2).
Practise short case questions: state the provision, apply it to the facts, and conclude. For example, ask whether a body can enrol insolvency professionals without a certificate of registration (section 199).
Draw a simple flow of the processes and which professional acts in each, so you can link this chapter to later ones.
In the final week, tab your open book copy by section so you can find provisions quickly.

Common mistakes in Introduction to Insolvency and Bankruptcy Code

Mixing up the roles of the Board and the insolvency professional agencies.
Fix: Remember that the Board registers and regulates agencies and professionals (section 196), while agencies enrol professionals as members and monitor them under their bye-laws (section 204).
Writing general theory when the question asks for a specific section.
Fix: Name the section, state the rule in plain words, then apply it to the facts and conclude.
Missing items in lists such as agency functions or the code of conduct.
Fix: Write the lists from memory, then check them against sections 204 and 208(2).
Saying that anyone who contributes to the Fund can withdraw any amount.
Fix: State that the person must have contributed, that proceedings must have been initiated against that person before an Adjudicating Authority, and that the withdrawal cannot exceed the amount contributed.
Overlooking the transitional position in section 244.
Fix: Note that until the Board is constituted or a financial sector regulator is designated, the Central Government exercises the Board's powers, including regulation-making.

Last-day revision: Introduction to Insolvency and Bankruptcy Code

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.

Introduction to Insolvency and Bankruptcy Code practice questions

Introduction to Insolvency and Bankruptcy Code in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Introduction to Insolvency and Bankruptcy Code: frequently asked questions

Is this chapter important if it has no calculations?

Yes. It is the base for the rest of the paper and it supports direct, scoring questions on the Board, agencies, professionals and the Fund. Case questions later also rely on knowing who has authority to act.

Do I need to memorise section numbers for an open book exam?

You can refer to the Act, but time is limited. Know the key sections well enough to find them fast, and cite them in your answer.

What is the difference between the Board and an insolvency professional agency?

The Board is the regulator that registers and oversees agencies, professionals and information utilities. An agency is a registered body that enrols insolvency professionals as members, sets conduct standards and monitors them under its bye-laws.

How should I answer a case question from this chapter?

State the relevant provision, apply it to the facts given, and end with a clear conclusion. Add practical points on compliance or drafting where the facts call for them.