Insolvency and Bankruptcy Code, 2016 — Comprehensive Blog

By
Jayprakash B. Somani
Advocate, Supreme Court of India & Insolvency Professional
Cell: PA 9322188701
www.jayprakashsomani.com

What Is the Insolvency and Bankruptcy Code, 2016?

The Insolvency and Bankruptcy Code, 2016 (Act No. 31 of 2016) is a comprehensive law enacted by the Indian Parliament to provide a consolidated and modern framework for resolving insolvency and bankruptcy for:

Corporate persons
Partnership firms
Individuals

Before the enactment of the IBC, insolvency laws in India were fragmented and scattered across multiple statutes such as the Companies Act, 2013; Sick Industrial Companies (Special Provisions) Act, 1985 (SICA); RDDBFI Act, 1993; and SARFAESI Act, 2002. This fragmentation resulted in prolonged litigation, procedural inefficiencies, and low recovery rates for creditors.

The IBC integrates all aspects of insolvency law into a single code, introduces strict timelines, and aims to maximize asset value, promote entrepreneurship, and balance the interests of all stakeholders.

Structure of the Code — Parts, Chapters and Sections

The Insolvency and Bankruptcy Code, 2016 is divided into five Parts, comprising 255 Sections and 12 Schedules, covering insolvency resolution, bankruptcy, regulation of insolvency professionals, and ancillary matters.

Overview

Part	Subject Matter	Sections
Part I	Preliminary	1–3
Part II	Insolvency Resolution and Liquidation for Corporate Persons	4–77
Part III	Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms	78–187
Part IV	Regulation of Insolvency Professionals, Agencies and Information Utilities	188–223
Part V	Miscellaneous	224–255

Core Objectives of the IBC

The IBC was enacted with the following objectives:

To consolidate fragmented insolvency laws into a single, unified framework
To ensure time-bound insolvency resolution and reduce delays
To improve creditor recovery rates
To facilitate efficient restructuring of viable businesses and orderly liquidation of non-viable entities
To promote entrepreneurship and ease of doing business
To balance the interests of creditors, debtors, employees, and other stakeholders

Part-by-Part Highlights

Part I — Preliminary (Sections 1–3)

Defines key terms such as default, corporate person, corporate debtor, financial creditor, operational creditor, moratorium, and insolvency
Establishes the scope and applicability of the Code across India

Part II — Corporate Insolvency and Liquidation (Sections 4–77)

This is the most widely used part of the Code and applies to corporate entities including companies and LLPs.

Key Concepts

Corporate Insolvency Resolution Process (CIRP): A formal resolution mechanism for corporate debtors
Committee of Creditors (CoC): A body of financial creditors that drives the resolution process
Resolution Professional: Appointed to manage the affairs of the corporate debtor during CIRP
Moratorium: Temporary suspension of legal proceedings against the corporate debtor
Liquidation: Sale of assets and distribution of proceeds when resolution fails

Part III — Individual and Partnership Insolvency (Sections 78–187)

Provides a separate insolvency framework for individuals and partnership firms
Includes processes such as fresh start, insolvency resolution, and bankruptcy for natural persons
Applicability to individuals has been expanded gradually through government notifications

Part IV — Regulation of Professionals and Information Utilities (Sections 188–223)

Establishes the Insolvency and Bankruptcy Board of India (IBBI) as the regulator
Insolvency professionals conduct resolution processes
Information utilities store and verify financial information relating to debtors and creditors

Part V — Miscellaneous (Sections 224–255)

Covers matters such as the Insolvency and Bankruptcy Fund
Government rule-making powers
Bar of jurisdiction
Appeals and limitation
Overriding effect of the Code under Section 238
Transitional and miscellaneous provisions

Section 238 is a crucial provision which states that the IBC overrides all other inconsistent laws, ensuring its supremacy in insolvency matters.

Important Sections Every Practitioner Should Know

Corporate Insolvency Resolution Process (CIRP)

Section 6 — Meaning of default
Section 7 — Application by financial creditor
Section 9 — Application by operational creditor
Section 10 — Application by corporate debtor
Section 12 — Time limits for completion of CIRP (180 / 330 days)
Section 14 — Moratorium
Section 21 — Constitution of Committee of Creditors
Section 30 — Submission and approval of resolution plan
Section 31 — Approval of resolution plan by adjudicating authority
Section 33 — Commencement of liquidation

Regulatory and Procedural Provisions

Section 60 — Adjudicating Authority (NCLT for corporate debtors)
Section 61 — Appeals to NCLAT
Section 62 — Appeal to Supreme Court
Sections 188–223 — Regulation of insolvency professionals and information utilities

Leading Supreme Court Case Law under IBC

1. Mohammed Enterprises (Tanzania) Ltd. v. Farooq Ali Khan & Ors. (2025)

The Supreme Court reaffirmed that the IBC is a complete and self-contained code
High Courts should exercise restraint under Article 226 when statutory remedies under the IBC are available

2. Essar Steel India Ltd. v. Satish Kumar Gupta & Ors. (2019)

Landmark ruling on the powers of the Committee of Creditors
Commercial wisdom of the CoC is paramount
Adjudicating authorities can examine compliance with law and public policy

3. Constitutional Validity of Personal Guarantor Provisions (2023)

Supreme Court upheld the validity of Sections 95–100 of the IBC
Natural justice principles are satisfied, provided fair hearing is observed

4. Rakesh Bhanot v. Gurdas Agro Pvt. Ltd. (2025)

The moratorium under Section 96 applies only to civil debt recovery proceedings
Criminal proceedings, including Section 138 NI Act cases, are not stayed

5. Supremacy of IBC over Other Laws

In cases such as Sundaresh Bhatt v. CBIC, the Supreme Court held that IBC provisions override inconsistent recovery mechanisms under other statutes once CIRP is initiated

Why the IBC Matters in India

Time-bound insolvency resolution improves recovery and reduces litigation delays
A unified legal framework replaces fragmented legacy statutes
Structured regulation by IBBI enhances transparency and accountability
Supreme Court jurisprudence has brought clarity on moratorium, jurisdiction, appeals, and commercial wisdom of the CoC

Conclusion

The Insolvency and Bankruptcy Code, 2016 is a transformative legislation that reshaped insolvency and bankruptcy law in India. It introduced a uniform, creditor-driven, and time-bound resolution framework supported by professional regulation and judicial oversight. Through consistent interpretation by the Supreme Court, the Code has evolved into a robust legal regime balancing creditor rights, debtor protection, and commercial realities.