Challenges Of Interpreting The IBC, 2016

Author: LawSphereX

Category: Corporate & Insolvency

Published: 2026-08-23T18:46:16.882Z

Updated: 2026-08-30T07:06:34.533Z

CHALLENGES

OF INTERPRETING THE IBC, 2016 Jiya Bilthare, Kirit P. Mehta School of Law, NMIMS University, Mumbai

ABSTRACT

Preceding the adoption of the Insolvency and Bankruptcy adoption, corporate insolvency was governed by a complicated web of laws in India. The Companies Act of 1956, the Sick Industrial Companies Act of 1985, the Recovery of Debts Due to Banks and Financial Institutions Act of 1993, the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and numerous other laws govern corporate insolvency. The IBC of 2016 unifies the regulations about corporate insolvency due to the inefficiencies of the previous system. This article aims to establish the challenges that take place while interpreting the IBC,

2016 INTRODUCTION

The laws and guidelines that govern the IBC have undergone periodic revisions. In major decisions, the Supreme Court and the lower courts have interpreted the provisions, called into question its constitutionality, and resolved any confusion. The Insolvency and Bankruptcy Code is difficult to apply correctly. The regulatory structure has undergone numerous modifications. The purpose of passing these laws and modifications is to make sure that the processes run smoothly. The most recent and revised versions of the Act, orders, circulars, related rules, and regulations may all be found on the website of the Insolvency and Bankruptcy Board of India (IBBI) and can be studied to fully comprehend the Insolvency and Bankruptcy Code, in addition to the way, the code has been interpreted by judges. It can be said that India's bankruptcy law is evolving and undeveloped.

The ever-evolving law is challenging to read and comprehend due to its continual alterations.

OBJECTIVES

OF THE ACT The Code attempted to prevent the companies from going bankrupt by setting up time-bound procedures and looking for a solution. The backlog of cases and the duration of time it took to settle debts made the unification of insolvency rules necessary. The Insolvency and Bankruptcy Code's simple, rapid, and deadline-driven resolution process is supposed to make conducting business in India easier. Under the Code, both individuals and organizations may file for insolvency. When referring to an organization, it is called corporate insolvency, and when referring to an individual, it is called bankruptcy. Furthermore, under the Act, both the debtor and the creditors may start legal action to recoup their losses from one another. IBC aims to protect the interests of the parties that are involved in the business and assist in its timely revival.

LIMITATIONS OF IBC IBC gives creditors a deadline-driven method to get their money back. The Corporate Insolvency Resolution Process (CIRP) is the name given to it. A creditor may apply with CIRP to start a recovery action when a corporation fails to pay its debts. As per the Code, the process of Corporate Insolvency Resolution has a deadline. Section 12 of the Code states that the procedure must be completed within one hundred and eighty days of the admission date of the application. The adjudicating body may only extend the deadline for finishing this process if a resolution is approved by sixty-six percent of the voting share during the creditors' meeting. The deadline for the process of Corporate Insolvency Resolution cannot be extended past 90 days, despite the resolution. Nevertheless, the process must be finished in 330 days, which may include approved extensions.

For the proceedings that go more than 330 days because of unavoidable impediments, a 90-day extension for such proceedings is allowed. The ratio of benches of the NCLT to the large number of cases is unbalanced, and it is becoming increasingly impossible to finish CRIP within the allotted 330 days. The efficient operation of the creditor's committee will be hampered for businesses with a high number of creditors.

JUDICIAL INTERPRETATION OF IBC, 2016

Understanding the judicial interpretations is essential, particularly about the changing laws about insolvency and bankruptcy. Numerous procedural and conceptual issues are clarified by NCLT’s interpretation, the SC’s interpretation, and the HC' interpretation of the code. We will now attempt to comprehend insolvency and bankruptcy with the aid of numerous court rulings and significant decisions. To get rid of the problems and difficulties, we will examine how the courts have construed the IBC's provisions. Section 4 of the Insolvency and Bankruptcy Amendment Act of 2019 stated that the CRIP had to be finished "mandatorily" within three hundred and thirty days of the resolution process starting. This 330-day period included both the duration of the judicial procedures and any authorised extensions of time.

The corporate debtor will be submitted for liquidation if the procedure is not finished within the allotted period. In the case of Committee of Creditors of Essar Steel India Limited through Authorised Signatory vs. Satish Kumar Gupta & Ors, the Supreme Court rendered a decision to strike down the word "mandatorily," holding that the litigant's interest should not be affected by the length of time the legal proceeding takes. The court further stated that although the process of resolution should be finished in 330 days, an additional extension (in extreme situations) based on the specific facts of the case and the time spent in the legal process may be given by NCLAT or NCLT.

The Supreme Court of India reinforced the function of the Committee of Creditors in the historic case of Committee of Creditors of Essar Steel India Limited through Authorised The Supreme Court, in the case of Arcelormittal India Private Limited Vs. Satish Kumar Gupta & Others examined the function of a resolution professional and determined that resolution professional's job is to review each and every resolution plan that various applicants have submitted to him before sending the plans to the CoC. He is not to make any decisions, and he is to present his thoughts on legal violations to the creditors' committee. Determining whether a resolution plan violates any provision is beyond the authority of a resolution expert.

Therefore, regardless of whether the resolution plan is in violation or not, the responsibility of a resolution expert are to review the plan, carry out required due diligence, ensure that plan is comprehensive and submit the report to the Committee of Creditors (‘CoC’). In the case of Swiss Ribbons Pvt. Ltd. & Another Vs. Union of India & Others, it was stated that Article 14 of the Constitution was violated by the distinction drawn between the financial creditors and operational creditors. Additionally, the Hon'ble Supreme Court heard arguments against the operational creditors' exclusion from the committee of creditors. The Insolvency Law Committee (ILC) and the BLRC Report assisted the supreme court in drawing a distinct line between operational and financial creditors. The court determined that there is a discernible distinction between them.

The involvement of financial creditors in determining the corporate debtor's viability is the main distinction between them. Regarding the matter of the committee of creditors treating operational creditors unfairly, the court ruled that the committee of creditors' main duty is to assess the viability and practicability of any proposed resolution. Banks and other financial institutions are examples of financial creditors; they are well-suited to carry out the necessary in-depth analysis of the market to assess the resolution plan is viable and accessible. Operational creditors, on the other hand, are solely interested in getting paid for the goods and services that were delivered. As a result, they might not be qualified to evaluate the resolution plan's viability and feasibility.

Accordingly, the Supreme Court decided that there was no discrimination against operating creditors on the committee of creditors, neither was there a violation of Article 14. According to Section 29 A of the IBC, filing a resolution plan while working cooperatively or in concert with another individual carries a number of sanctions.

In the case of Arcelormittal India Private Limited Vs. Satish Kumar Gupta & Others, the esteemed Supreme Court addressed the matters concerning the interpretation of the resolution applicants' ineligibility to provide resolution plans. In this particular case, the Supreme Court held the following: A person's eligibility for submitting a resolution plan under Section 29A(c) is revoked upon submission of the plan, not before it. However, if the individual submitting the plan pays all outstanding debts, interest, and fees associated with the non-performing asset before submitting the plan, it may be eliminated under Section 29A(c).

CONCLUSION

An important piece of overarching legislation in India, for the advancement of laws of insolvency is the Insolvency and Bankruptcy Code. It offers effective and time-bound debt recovery procedures. A creditor-controlled approach to insolvency resolution is the Corporate Insolvency Resolution Process. The ability to make significant choices about the settlement process has been granted to the creditors. To improve the effectiveness and efficiency of the Insolvency and Bankruptcy Code, significant judicial rulings and revisions have been made.