Insolvency Laws In India

What is insolvency and how is it governed by law in India ?
Posted 1 year ago  | 
Civil Litigation,Corporate Law,General Legal
Civil Litigation Corporate Law General Legal

1 Answer(s)

Deepika Gill

India does not have one single comprehensive and integrated statute on corporate insolvency similar to a Chapter 7 or Chapter 11 insolvency and bankruptcy regime in the United States. Instead, the insolvency and bankruptcy regime in India is made up of several bodies of laws and administrative authorities with sometimes overlapping and conflicting provisions and authority, which makes navigating the insolvency landscape in India treacherous for the unaware.
The most relevant laws governing corporate insolvency and bankruptcy in India are:
The Companies Act of 1956 (the Companies Act). The Companies Act governs liquidation of a company in financial distress via: (i) voluntary winding-up; (ii) involuntary winding-up by the courts; or (iii) winding-up subject to supervision by the courts.
The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). SICA was developed as India’s version of a comprehensive bankruptcy framework for “sick” industrial companies (defined below) and provides a program for the reconstruction of these companies under the supervision of the Board for Industrial and Financial Reconstruction (BIFR). SICA, however, only applies to “sick” companies in select industries that have been incorporated for at least five years, have at least 50 workers on any day in the preceding 12 months and have a factory license. Although technically, SICA has been repealed by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (the Repealing Act), it still continues to be good law today because, to date, the Repealing Act has not yet come into force.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESIA). SARFAESIA empowers banks or financial institutions with a presence in India or which have been notified by the Government of India to recover on non-performing assets without court intervention. An asset is classified as non-performing if interest or installments of principal due remain unpaid for more than 180 days. SARFAESIA provides three alternative methods for recovery of non-performing assets, including taking possession, selling and leasing the assets underlying the security interests such as movable property (tangible or intangible, including accounts receivable) and immovable property without the intervention of the courts. The SARFESIA is not available to secured creditors, which are not Indian banks, or financial institutions notified by the Government of India.

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