EXTENT AND APPLICABILITY OF INSOLVENCY AND BANKRUPTCY CODE, 2016

Section 1 provides for short title, extent and commencement of the Code. The Code may be called Insolvency and Bankruptcy Code, 2016. The Code extends to whole of India. The Central Government has been empowered to issue notification in official gazette to bring in force provisions of the Code. The Central Government can appoint different dates for different provisions and commencement of code in respect of such provisions will be construed as commencement of such provision.

The Central Government has issued various notifications from time to time to bring in force various provisions of the Code, which are as under:

Provisions	Date of Notification	Date of Enforcement
Sections 188 to 194 (Both Inclusive)	5th August, 2016	5th August, 2016
Sections 3 (1); Section 3(5); Section 3(22); Section 3(26); Section 3(28); Section 3(37); Section 221; Section 222; Section 225; Section 226; Section 230; Section 232; Section 233; Section 239(1); Section 239(2) (zd); Section240(1); Section240(2) (zt); Section 241; Section 242	19th August, 2016	19th August, 2016
Section 3(2) to Section 3(4); Section 3 (6) to Section 3(21); Section 3 (23) to Section 3 (25); Section 3(27); Section 3(29) to Section 3 (36); Section 196; Section 197; Section 223; Section 239 (2) (ze ) to Section 239 (2) (zh); Section 239 (2) (zl) to Section 239 (2) (zm); Section 240 (2) (a) to 240 (2) (zm); Seciton 240 (2) zu) to 240(2)zzzc; Section 244; Section 246 to 248; Section 250; Section 252	1st November, 2016	1st November, 2016
Section 199 to Section 207 (both inclusive); Section 208 (1) (c); Section 208 (1) (e); Section 208 (2); Section 217 to Section 220 (both incusive); Section 251; Section 253; Section 254; Section 255	15th Novermber, 2016	15th November, 2016
Section 2 (a) to (d) (except with regard to Voluntary Liquidation or Bankruptcy); Section 4 to Section 32 (both inclusive); Section 60 to Section 77 (both inclusive); Section 198; Section 231; Section 236 to Section 238 (both inclusive); Section 239 (2) (a) to (f)	30th November, 2016	1st December, 2016
Section 33 to Section 54 (both inclusive)	9th December, 2016	15th December, 2016
Section 59; Section 209 to section 215 (both inclusive); Section 216 (1); Section 234; Section 235	30th March, 2017	1st April, 2017
Section 2(a) to (d) relating to Voluntary Liquidation or Bankruptcy	15th May, 2017	1st April, 2017
Section 55 to Section 58 (both inclusive)	14th June, 2017	14th June, 2017
Section 227 to Section 229 (both inclusive)	1st May, 2018	1st May, 2018
Section 2(e); Section 78 (except with regard to Fresh Start Process); Section 79; Section 94 to Section 187 (both inclusive); Section 239 (2) (g) to Section 239 (2) (i); Section 239 (2) (m) to Section 239 (2) (zc); Section 240 (2) (zn) to Section 240(2) (zs); Section 249	15th November, 2019	1st December, 2019

APPLICATION OF THE CODE

Section 2 deals with applicability of the Code over various persons.  Section 2 reads as under:

2. Application. – The provisions of this Code shall apply to—

 (a) any company incorporated under the Companies Act, 2013 (18 of 2013) or under any previous company law;

(b) any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act;

(c) any Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008 (6 of 2009);

(d) such other body incorporated under any law for the time being in force, as the Central Government may, by notification, specify in this behalf; 

 (e) Personal Guarantors to Corporate Debtors;

 (f) partnership firms and proprietorship firms; and

(g) individuals, other than persons referred to in clause (e)

 in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the case may be.

It is evident from Section 2 that provisions of the Code are applicable to corporate bodies having separate legal identity i.e., Companies incorporated under Companies Act, 2013; Companies incorporated under any previous Company Law; Companies governed by any Special Act and   Limited Liability Partnerships registered under Limited Liability Partnership Act, 2008. The Code is also applicable to Personal Guarantors to a Corporate Debtor; Partnership Firms; Proprietorship Firms; and Individuals. 

The coverage of the Code is comprehensive but as yet it does not cover all type of persons defined uder Section 2 (23).  The term “person” has been defined widely and inclusively under Section 2(23) to include an Individual; a Hindu Undivided Family; a Company; a Trust; a Partnership; a Limited Liability Partnership; and any other entity established by statute. Person also includes a person resident outside India.

In Mohammadiya Ecucational Society¹ the issue before the NCLAT was whether provisions of the Code will be applicable to educational society registered under Society Registration Act, 1860. The NCLAT held that reading Section 2 which prescribes the entities and individuals to which the ‘I& B Code’ applies when considered with definition of ‘Corporate Person’ under Section 3(7) of the ‘I&B Code’, the respondents i.e.  societies cannot be said to be ‘Corporate Persons’ to whom the provisions of the Code apply.

Provision related with insolvency and liquidation of Corporate Persons have already been notified by Central Government and are in force. Provisions related with insolvency and bankruptcy of Personal Guarantors to a Corporate Debtor have also been notified by Central Government and are in force. Provisions related with Insolvency Resolution and Bankruptcy for Individual and Partnership Firms have not been notified and as yet pending.

TYPES OF PROCEEDINGS UNDER THE CODE

Similar insolvency proceedings cannot be suitable to all types of debtors. An insolvency   proceeding which is suitable to a Corporate Debtor may not be suitable to an individual debtor. Insolvency proceedings which is suitable to a large Corporate Debtor may not be suitable to a medium, small and micro enterprises (MSME).   As such, different types of insolvency proceedings have been prescribed under the Code for different types of debtors.

RESOLUTION PROCESS OF CORPORATE PERSONS

1. Corporate Insolvency Resolution Process (CIRP)

Corporate Insolvency Resolution Process is applicable to Corporate Debtors. Corporate Debtor under Section 5 (8) has been defined as Corporate Person who owes debt to any person. Corporate Person has been defined under Section 5 (7) of the Code as under:

(7) “corporate person” means a company as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of Section 2 of Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial serviced provider.

Thus, a Corporate Debtor includes a Company incorporated under Companies Act, 2013 or under any previous Company Law; a Partnership formed and registered under Limited Liability Partnership Act, 2008; and any other person incorporated with limited liability under any law for the time being in force.  

Corporate Debtor does not include any Financial Service Provider. But under Section 227, the Central Government has been empowered to make provisions of the Code applicable to Financial Service Providers or category of Financial Service Providers.

Corporate Insolvency Resolution Process and Liquidation Proceedings as prescribed in Part II (from Section 4 to Section 77A) of the Code is applicable to Corporate Debtors. CIRP follows “creditor-in-possession” model, where after initiation of Corporate Insolvency Resolution Process, the managerial powers shift from Board of Directors of the Corporate Debtor to Interim Resolution Professional. 

B. Pre-Packaged Insolvency Resolution Process (PPIRP)

For such Corporate Debtors, which are micro, small and medium enterprises (MSME), a variant of Corporate Insolvency Resolution Process is applicable which is called Pre-Packaged Insolvency Process. Provisions related with Pre-Packaged Insolvency Process are prescribed in Chapter III A of Part II (from Section 54A to 54P). Pre-Packaged Insolvency Resolution Process follows “debtor -in-possession” model, wherein managerial powers of the Corporate Debtor remain with the erstwhile management.  Only in certain specific circumstances of fraudulent or gross mismanagement of affairs of Corporate Debtor, managerial powers shift to Resolution Professional.

C. Fast Track Corporate Insolvency Resolution Process (FTCIRP)

For such Corporate Debtor, which is a small company, or a startup or an unlisted company having assets not exceeding one crore, Fast Track Corporate Insolvency Resolution Process is applicable as prescribed under Chapter IV of Part II (from Section 55 to Section 58) of the Code.  Timeline prescribed for Fast Track Corporate Insolvency Resolution Process is shorter in comparison to Corporate Insolvency Resolution Process.

D. Liquidation Process

In all cases where the Corporate Insolvency Resolution Process or Fast Track Corporate Insolvency Resolution Process fails, Liquidation Process is initiated. Liquidation Process (Section 33 to Section 54) are applicable to all Corporate Debtors, which are non-voluntary in nature. In case of Pre-Packaged Insolvency Resolution Process, if management has shifted to Resolution Professional due to mismanagement of affairs of the Corporate Debtor or fraudulent conduct of affairs of the Corporate Debtor, Liquidation Process is initiated against the Corporate Debtor.

E. Voluntary Liquidation

Voluntary Liquidation (Section 59) is applicable to such Corporate Persons who have not committed any default in repayment of debt and who intents to liquidate voluntarily. Voluntary Liquidation Proceedings are simpler and role of the Adjudicating Authority is minimum as no default of debt is involved.

RESOLUTION PROCESS FOR INDIVIDUAL & PARTNERSHIP FIRMS

Provisions of Insolvency Resolution and Bankruptcy as prescribed in Part III (from Section 78 to Section 187) of the Code are applicable to Individual and Partnership Firms.  As yet provisions regarding Insolvency Resolution and Bankruptcy for Individual and Partnership Firms have not been notified by the Central Government and hence are not in force.

RESOLUTION PROCESS FOR PERSONAL GUARANTOR OF CORPROATE PERSONS

Provisions related with Insolvency Resolution and Bankruptcy for Individual and Partnership Firms (except Fresh Start Process) are also applicable on Personal Guarantor to a Corporate Debtor.  Provisions related with insolvency and bankruptcy of Personal Guarantor to a Corporate Debtor have already been notified by the Central Government and are in force.

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1. Asset Reconstruction Company (India) Ltd. Vs. Mohammadiya Education Society; Comp. App (AT) (Ins) 495 of 2019