Offences and Penalties under IBC
Section 243 of the Code: Yet to be Notified
The apt rationale behind introducing the Insolvency and Bankruptcy Code (hereinafter referred to as “ Code”) was to have consolidated and codified legislation instead of multiple laws dealing with several aspects of a company. The fact that the inefficiency of Sick Industrial Companies (Special Provisions) Act, 1985, to effectively dealing with the resolution of stress pertinent to stakeholders affected by business failure or the inability to pay a debt, either through revival or closure of a company, directed towards its lack of market mechanism where the stakeholders had the incentive to resolve stress in a time-bound manner. Therefore, the Code was established to provide an institutionalized creditor-in-control mechanism for revival and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner for maximization of value of assets of such persons and maintaining the interest of the stakeholder. The code has incorporated several sections dedicated to resolving the company related issues of the stakeholders, yet there are some Insolvency resolution provisions for individuals under the Insolvency and Bankruptcy Code to be notified.
Section 243 of the Code
The Presidency Towns Insolvency Act, 1909 has been enacted to cover the insolvency of individuals, partnerships, and associations of the individuals in the presidency town. The law commission of India in its report of February 1964 recommended combining the two acts to form a single code on insolvency. However, the recommendation was never implemented. The Presidency Towns Insolvency Act, 1909, continues to be one of the imperative laws for insolvency regimes covering individuals. While the insolvency resolution process is well defined in the Code now, the rules pertaining to individual bankruptcy are yet to be notified. Although, the presidency towns insolvency act, has been repealed under Section 243(1) of IBC which reads as follows-
Section 243: Repeal of certain enactments and savings.
- (1) The Presidency Towns Insolvency Act, 1909 (3 of 1909) and therefore the Provincial Insolvency Act, 1920 (5 of 1920) are hereby repealed.
The rules of IBC, haven’t framed for insolvency of people except for personal guarantors to corporate debtors, therefore there are not any notified rules for individual insolvency despite the provision of Section 243 when reading with Section 1, which has inherent force from the date of commencement of code. As a result, on harmonious interpretation, it is often said until and unless rules are framed, Section 243 is ineffective and individual insolvency laws still subsist.
Applicability of the Section
On several occasions, the government and the concerned ministry have clarified their stance regarding the applicability of section 243 of the Code which provides for the repeal of said enactments. Despite provisions related to insolvency resolution and bankruptcy for individuals and partnerships as incorporated in Part III of the Code, they are yet to be notified. Therefore, the stakeholders who intend to pursue their insolvency cases may approach appropriate authority/ court under the existing enactments, instead of approaching the Debt Recovery Tribunals.
In the case SBI v. V Ramakrishnan, the court took the stance on the enforcement of section 243 of the Code. The Court stated that Section 243, which contemplates the repealing of all the personal insolvency laws, has not come into force but it would not be necessary due to the presence of Section 238, which gives the Code an overriding effect over all other laws in cases of conflict as has been settled in an earlier judgment. Whereas, in the recent case Lalit Kumar Jain vs. Union of India and Ors., the court emphasized on the applicability of the said section, by reiterating, as far as individual personal guarantors are concerned, they will continue to be proceeded against under the aforesaid two Insolvency Acts and not under the Code. Indeed, by a Press Release dated 28-8-2017, the Government of India, through the Ministry of Finance, cautioned that Section 243 of the Code, which provides for the repeal of the said enactments, has not been notified till date, and further, that the provisions relating to insolvency resolution and bankruptcy for individuals and partnerships as contained in Part III of the Code are yet to be notified.
While Rules & Regulations with respect to Personal Guarantors of Corporate Debtors are anticipated to be notified soon, It might take still longer to come. A key official involved in framing it, says: “While insolvency provisions for companies would not create a direct social impact, individual bankruptcy provisions will directly have social fallouts.”