The Insolvency and Bankruptcy Code (for short “I&B Code”), enacted in 2016, marked a significant reform in India’s economic landscape by streamlining the insolvency resolution process and providing a balanced framework for the rights of creditors and debtors. Its primary objective is to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders involved in the insolvency resolution process and its approach to safeguarding the rights of both creditors and debtors, ensuring a fair and efficient resolution of insolvency cases.
Rights of Creditors under the IBC:
- Equal Treatment: The IBC ensures that all creditors are treated equally within a class, preventing any discrimination based on the nature or quantum of claims. This principle is crucial in maintaining fairness and transparency throughout the resolution process.
- Insolvency Resolution Process (IRP): Creditors have the right to initiate the insolvency resolution process against a debtor who has defaulted on payments. This process is designed to maximize the value of assets and ensure timely resolution of insolvency.
- Committee of Creditors (CoC): Once the IRP is appointed, creditors form a Committee of Creditors to make key decisions regarding the resolution plan. This committee plays a pivotal role in evaluating and approving resolution plans submitted by potential resolution applicants.
- Voting Rights: Creditors have the right to vote on important matters such as the approval of a resolution plan. Their voting rights are based on the financial exposure they have towards the debtor, ensuring that larger creditors have a greater say in the decision-making process.
- Enforcement of Security Interests: Secured creditors have the right to enforce their security interests under the IBC. This allows them to recover their dues by selling or liquidating the assets provided as collateral.
Rights of Debtors under the IBC:
- Moratorium: Upon initiation of insolvency proceedings, debtors are granted a moratorium period to prevent creditors from taking any legal action against them. This period provides debtors with breathing space to reorganize their finances and negotiate a resolution plan.
- Right to Propose a Resolution Plan: Debtors have the right to propose a resolution plan to the Committee of Creditors during the CIRP. This allows them to retain control of their business operations and work towards restructuring their debts.
- Protection from Personal Liability: The IBC protects debtors from personal liability for the debts of the company, unless fraudulent or wrongful trading is proven. This safeguard encourages entrepreneurial risk-taking and innovation.
- Information Rights: Debtors have the right to access relevant information pertaining to the insolvency proceedings and the resolution plan being considered. This transparency ensures that debtors can participate effectively in the resolution process.
- Appeals: Debtors have the right to file an appeal against decisions made during the insolvency proceedings if they believe their rights have been unfairly prejudiced. This appellate mechanism ensures procedural fairness and safeguards against potential abuse.
Conclusion
The Insolvency and Bankruptcy Code in India represents a paradigm shift towards a more efficient and equitable resolution framework, balancing the rights of creditors and debtors. By providing clear guidelines for the resolution of insolvency cases and protecting the interests of all stakeholders involved, the IBC aims to foster a robust and sustainable economic environment. As India continues to refine and implement the provisions of the IBC, it is crucial to uphold these rights diligently to maintain confidence in the insolvency resolution process and support economic growth.
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