Insolvency is when the individual, corporation, or other organization can’t meet its financial obligations for paying debts as they are due. Bankruptcy isn’t exactly same as the insolvency. Technically, Bankruptcy occurs when the court has determined insolvency, & given legal orders for it to be resolved. Bankruptcy is the determination of the insolvency made by the court of law with resulting the legal orders intended to resolve insolvency. Insolvency describes the situation as where the debtor is not able to meet his or her obligations. Bankruptcy is the legal scheme in which the insolvent debtor seeks relief. Committees Formed on Insolvency Tiwari Committee: Due to incidence of the industrial sickness which was resulting in loss of production, the loss of employment, the loss of government revenue, the blockage of funds advanced by the banks etc, a committee was constituted under a Chairmanship of Shri T Tiwari, Chairman, Industrial Reconstruction Corporation of India to look into causes of the Industrial sickness & to suggest the remedial measures. Based on recommendations of the Tiwari Committee SICA was enacted. Due to misuse of SICA by erring promoters & others, BIFR failed to fulfill such purpose & mandate as envisaged in SICA. N L Mitra Committee: A Standing Committee on International Financial Standards & Codes has been set up by Governor, Reserve Bank of India (RBI) with the objectives of identifying & monitoring developments in global standards & codes pertaining to various segments of financial system, considering all the aspects of the applicability of such standards as well as codes to Indian financial system, drawing out the desirable roadmap for aligning India’s standards & practices in light of evolving international practices. The Standing Committee in its first meeting held in New Delhi decided to constitute non-official Advisory Groups in 10 major subject areas including 43 different standards/codes. Incidentally, 1 of the subject area identified is “Bankruptcy Laws”. The Advisory Group on “Bankruptcy Laws” under the Chairmanship of Dr. N. L. Mitra, Director, National Law School of India, University, Bangalore The N. L. Mitra Committee noted that Indian laws on cross-border insolvency are obsolete& that they aren’t comparable to any standards set in international legal requirement & as such, stands apart & alone. It also noted that in the event of an international insolvency proceeding involving the Indian company, Indian courts are unlikely to provide any help or assistance to a foreign liquidator or other insolvency official if this was to be prejudicial to the companies’ creditors on basis of how those creditors are or would have been treated under any equivalent Indian law insolvency proceeding. Justice Eradi Committee: The Committee addressed and recommended the following key points: The committee recognized after considering the international practices that law of insolvency should not only provide for a quick disposal of assets but in Indian economic scene, it should first look at the possibilities of rehabilitation and revival of companies. The Committee noted that there are 3 different agencies they are as follows, (i) The High Courts, which have the power to order winding up of companies as per the provisions of Companies Act, 1956; (ii) The Company Law Board to use powers conferred on it by Act or powers of the Central Government delegated to it & (iii) Board for Industrial and Financial Reconstruction (BIFR) that deals with the references relating to the rehabilitation & revival of the companies. The committee revealed the data of time taken to wind up the company – It may run on the average upto25 years; Eastern region being worst. The Committee also recommended that the jurisdiction, the power & the authority relating to the winding up of companies be vested in National Company Law Tribunal (NCLT) instead of the High Court as at present. The National Company Law Tribunal (NCLT) inter alia be— Should have jurisdiction & power presently exercised by (CLB) Company Law Board under the Companies Act, 1956; Should have a power to consider the rehabilitation & revival of the companies – a mandate presently entrusted to BIFR/AFAIR; Should have jurisdiction & power relating to the winding up of the companies presently vested in High Courts. Now changed to National Tribunal. SICA should be repealed and the Companies Act, 1956 be amended accordingly. Should be headed by the sitting judge or the former judge of the High Court & each of its Benches should consist of judicial member & the technical member. Shall have such a number of a member as may be prescribed by (C.G) Central Government. The Principal Bench of Tribunal should be located at New Delhi & its Benches should be located at the principal seats of each of the High Court. The Central Government may set up more such Benches if so required. While passing the order for winding up of the company, the Tribunal shall have the power to prescribe the time limit for each step to be taken by Liquidator in a course of winding up the process. The Tribunal shall also have the power to prescribe the time limits for compliance of each step by parties while bearing in mind the reference for a revival of the sick companies. Should be vested with the power to transfer all proceedings from one Private Liquidator to another "Private liquidator" or to the "Official Liquidator", as the circumstances of a case may require. The Tribunal shall have the power to direct sale of business or company as a going concern or at its discretion to sell its asset in a piece-meal manner. Tribunal may continue to have the jurisdiction for winding up companies on the grounds as stated. a company has failed to file balance sheet & profit and loss accounts &annual returns for last 3 years on due dates; or Any action of a company has or is likely to threaten the security or the integrity of India. A shareholder or Central Government will be entitled to file a petition on the aforesaid grounds. Appropriate legislative action must be taken to ensure that the claims of all employees of a company & its secured creditors are ranked "pari-passu". The reference to the Tribunal for revival by a company should be voluntary. As stated before the jurisdiction of hearing references of revival & rehabilitation of companies will vest in the Tribunal & not BIFR as at present. An explicit provision need be made in the Companies Act gives a right to the secured creditors to file proof of debt with the liquidator without surrendering his laws as a secured creditor & get the dividend in accordance with priority to which he is entitled. The committee further favored the appointment of professionals as Liquidators from the panel to be prepared by Government. The committee considered adoption of the UNCITRAL Model Law in the Companies Act itself to deal with all cases of "Cross-Border Insolvency and Bankruptcy". J.J. Irani Expert Committee on Company Law: Dr. J.J. Irani Expert Committee on Company Law was set up by the Government to recommend the new company law as the part of the on-going legal & financial sector reform process in country The highlights of the report of the Committee regarding Restructuring and Liquidation are given as mentioned as under: Corporate insolvency to be addressed in the company law. No need for the separate insolvency law. Law to strike the balance between the rehabilitation & liquidation process. Rehabilitation & liquidation processes to be time bound. Setting up of the institutional structure in form of NCLT/NCALT for overseeing such processes. Winding up to be resorted to only when revival is not feasible. Reasonable opportunity for rehabilitation of the business before it is decided to be liquidated. Period of 1 year to be adequate for the rehabilitation from the commencement of a process to sanction of a plan. Time-bound processes which limit the possibility of appeals & thereby delays. 2 years to be feasible for the completion of liquidation. Insolvency process to apply to all corporate entities apart from banks, the financial institutions & the insurance companies. Insolvent company to replace a concept of the sick industrial company Debtors as well as creditors to have fair access to the insolvency system. Rather than the net worth erosion principle, test for insolvency should be default in the payment of matured debt on demand within a prescribed time. Debtors who are seeking rehabilitation to approach the Tribunal only with the draft scheme. Creditors being at least 3/4th in value may also file rehabilitation scheme. Law to impose the prohibition on the unauthorized disposition of Debtors’ assets & suspension of actions by creditors. Law to provide for the treatment of unperformed contracts. Provisions to interfere with contractual obligations, which aren’t fulfilled completely. Meeting of secured creditors is convened by debtors to consider the rehabilitation plan when a Company has failed to repay its due debt lacking waiting for creditors to act by default or filing of an application for rehabilitation. Role of operating agency envisaged under an existing law would be performed by the independent Administrator or the other qualified professionals. Qualified Administrator appointed by Tribunal in consultation with secured creditors with board authority to administer the estate in the interest of all stakeholders should replace the management of such a going concern. Creditors to actively participate & monitor insolvency process. Banking Laws Reforms Committee: The Bankruptcy Law Reforms Committee (Chairman: Dr.T. K. Viswanathan) submitted its report to the Ministry of Finance on November 4, 2015. The objectives of the Committee were to resolve insolvency with: Lesser time involved, A lesser loss of recovery, & Higher levels of debt financing across instruments. The Committee observed that currently, the creditors are having limited power, in the event if the debtor defaults in making payment. They are able to recover only 20% of debt amount on an average, which ultimately leads to the lending being restricted to the few large companies. The Committee also observed that decisions regarding defaulting firm are business decisions, & should be taken by creditors. Presently, laws in India bring together a legislature, executive & judiciary for the insolvency resolution. The Committee has moved away from this approach, & has proposed to establish the Creditors committee, where financial creditors will have votes in the proportion to their magnitude of debt. The creditor's committee will undertake negotiations with the debtor, to come up with revival or repayment plan. Insolvency and Bankruptcy Resolution: The report outlines a procedure for the insolvency resolution for the companies & individuals. The process may be initiated by either debtor or creditors. Presently, only the secured financial creditors (creditors who are holding collateral against loans), can file the application for declaring the company sick. The Committee has proposed that operational creditors, such as employees whose salaries are due, be allowed to begin the insolvency resolution process (IRP).The entire IRP will be managed by the licensed insolvency professional. A Committee has proposed to set up the Insolvency Professional Agencies. The agencies will admit the insolvency professionals as the members & develop a code of conduct. An environment where such agencies compete with each other, to achieve greater efficiency & better performance has been proposed. The report recommends the speedy insolvency resolution & time bound negotiations between the creditors & the debtors. To make sure this, a 180 day time period for completion of IRP has been suggested. For cases where there exist high complexity, this time period may extend by 90 days.