Insolvency Laws explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Code did not arrive on empty ground. Corporate distress had been dealt with under four statutes and individual insolvency under three, each with its own forum — which is precisely the fragmentation the IBC was enacted to end.
Corporate insolvency before the Code
| Statute | What it did |
|---|---|
| Sick Industrial Companies Act, 1985 | Provided for the revival and rehabilitation of sick industrial companies, which could be referred to the Board for Industrial and Financial Reconstruction for assessment and potential revival plans |
| Recovery of Debts Due to Banks and Financial Institutions Act, 1993 | Established Debt Recovery Tribunals to expedite recovery of debts owed to banks and financial institutions, faster than traditional civil courts |
| SARFAESI Act, 2002 | Enabled banks and financial institutions to recover dues without court intervention, focusing on enforcement of security interests |
| Companies Act, 2013 | Governs corporate affairs including winding up and procedures for corporate restructuring |
| Insolvency and Bankruptcy Code, 2016 | A comprehensive overhaul, consolidating the insolvency resolution of corporate entities, partnership firms and individuals into a single code |
The problem the Code addressed was not that these insolvency laws were badly drafted. It was that a distressed company could be in front of the BIFR seeking revival, a DRT hearing a bank's recovery suit, a civil court hearing an operational creditor's claim and a company court hearing a winding-up petition — simultaneously.
Each forum could grant relief inconsistent with the others, and none of them had a mechanism to bind creditors who were not before it. Consolidation into a single code with a single adjudicating authority and a collective process is the substance of the reform; the timelines and the moratorium are what make it work.
Individual insolvency before the Code
- Presidency Towns Insolvency Act, 1909 — applicable primarily in the major cities of Mumbai, Kolkata and Chennai.
- Provincial Insolvency Act, 1920 — applicable to individuals outside the presidency towns, setting out the process for declaring personal bankruptcy.
- Partnership Act, 1932 — primarily about partnerships, but also addressing the insolvency of partners within them.
The geographic split between the 1909 and 1920 Acts is a reminder of how old these insolvency laws were. A debtor's rights depended on which city they lived in, under statutes enacted before either the Companies Act or the Constitution.
Who adjudicates now
| Authority | Jurisdiction |
|---|---|
| NCLT | Corporate persons — companies registered in India — for insolvency resolution and liquidation; and personal guarantors to those corporate debtors |
| DRT | Individuals who are not personal guarantors; partnership firms; and proprietorship firms |
| NCLAT | Appeals from the NCLT |
| DRAT | Appeals from the DRT |
Personal guarantors go to the NCLT because their liability is co-extensive with that of the corporate debtor — they can be pursued for recovery if the corporate debtor defaults, so the guarantee and the principal debt belong before the same bench.
The regulator
The Insolvency and Bankruptcy Board of India oversees insolvency proceedings and regulates three classes of participant:
- Information utilities;
- insolvency professional agencies; and
- insolvency professionals.
None of the earlier insolvency laws had anything equivalent. The BIFR adjudicated, the DRTs adjudicated, and there was no body responsible for the standards, registration and discipline of the people who ran the processes.
What carried over
Consolidation did not mean repeal of everything. SARFAESI and the RDDBFI Act remain in force and operate alongside the Code — which is why so much of the case law concerns the interface between them: whether a secured creditor in possession under SARFAESI must hand over to the IRP, whether the DRT retains jurisdiction, and how a secured creditor elects between relinquishing security and realising it.
Common mistakes
- Treating the pre-2016 insolvency laws as wholly repealed — SARFAESI and the RDDBFI Act still operate.
- Taking a partnership firm's insolvency to the NCLT.
- Assuming individual insolvency under Part III is fully in force; it is notified only for personal guarantors.
- Confusing the appellate route — NCLAT for NCLT matters, DRAT for DRT matters.