NCLT, while hearing a case, has given the powers related to resolution or liquidation to the CoC under the Insolvency and Bankruptcy Code, 2016 (IBC).
• National Company Law Tribunal (NCLT) was hearing a case related to Ashok Magnetics, which was brought under insolvency proceedings last year.
• The company owed almost Rs 13 crore to the Central Bank of India and about Rs 27.5 crore to the State Bank of India.
• The Insolvency and Bankruptcy Code (IBC) provides for a time-bound (180 days) process to resolve insolvency of companies and individuals.
• Since the maximum period of 270 days under the insolvency process was over, NCLT ordered the liquidation of Ashok Magnetics.
• NCLT vested the powers to take all decisions related to resolution or liquidation of an insolvent firm the committee of creditors (CoC).
- Committee of Creditors: It is a group of people who represent a company’s creditors in a bankruptcy proceeding.
- As such, a creditors’ committee has broad rights and responsibilities, including devising a reorganization plan for bankrupt companies or deciding whether they should be liquidated.
- It is this Committee that approves/ rejects the Resolution Plan, extension of CIRP, decides upon liquidation of the Corporate Debtor, ratifies expenses borne by the RP etc.
- In short, all decisions having an impact on the Corporate Debtor shall first be approved by the Committee.
Insolvency and Bankruptcy Code, 2016 (IBC)
• It is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
• The code will be able to protect the interests of small investors and make the process of doing business a less cumbersome process.
• Insolvency Resolution: The Code proposes two separate tribunals to oversee the process of insolvency resolution, for individuals and companies: (i) the National Company Law Tribunal for Companies and Limited Liability Partnership firms; and (ii) the Debt Recovery Tribunal for individuals and partnerships.
• The process of resolution may be initiated by either the debtor or the creditors.
• Maximum time limit, for completion of the insolvency resolution process, has been set for corporates and individuals. For companies, the process will have to be completed in 180 days, which may be extended by 90 days.
• For startups, small companies and other companies (with asset less than Rs. 1 crore), resolution process would be completed within 90 days of initiation of request which may be extended by 45 days.
• Insolvency Regulator:
- The Code establishes the Insolvency and Bankruptcy Board of India, to oversee the insolvency proceedings in the country and regulate the entities registered under it.
- Members: The Board will have 10 members, including representatives from the Ministries of Finance and Law, and the Reserve Bank of India.