Recently, in 2016, the Parliament has passed a new Act called the Insolvency and Bankruptcy Code, 2016. This Act now deals with the resolution of insolvency, liquidation and bankruptcy of corporates and even of firms and individuals.
Under this new Act, “creditor” has been defined as any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder.
Likewise, “debt” has been defined as a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt.
In respect of a corporate debtor where the minimum amount of default is one lakh rupees, corporate insolvency resolution process can be initiated, inter alia, by a financial creditor or an operational creditor. These proceedings can be initiated before the National Company Law Tribunal (NCLT) which is the Adjudicating Authority for corporate debtors.
Section 33 of this Act lays down that where within the stipulated period, the corporate insolvency resolution process does not receive a resolution plan or where such plan is rejected by the Adjudicating Authority (NCLT, in this case), liquidation proceedings can be initiated by the order of such Authority.
Therefore, it should be possible for the creditors to initiate the above process against a company (which may culminate in liquidation proceedings or in resolution of the issue) which has failed to meet its liabilities towards its debts, subject to the conditions / procedure mentioned in the above Act.
Dr. Ashok Dhamija is a New Delhi based Supreme Court Advocate and author of law books. Read more about him by clicking here. List of his Forum Replies. List of his other articles. List of his Quora Answers. List of his YouTube Videos.
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