SCOPE OF INSOLVENCY
Presently the insolvency code applies only to Corporate Defaulters. However, the Insolvency and Bankruptcy Board of India (IBBI) released the draft rules which deal with insolvency resolution process of individuals and firms on its website www.ibbi.gov.in. Here public comments can be posted till 31st of October 2017.
This precisely means that even the individual business personnel like Proprietorships will be brought under the bankruptcy management. The guidelines will be applicable to issues involving insolvency resolution process for individuals and firms under Part III of the Code drafted by IBBI. The part III of the IBBI code 2016 deals with insolvency and bankruptcy of individuals and partnership firms.
These recommendations have been submitted by a group formulated to draft the guidelines for Insolvency and Bankruptcy rules 2016 and the provisions related therein. This will cover personal guarantors and individuals having business dealings, apart from Corporates. The jurisdiction for corporate, companies and Limited Liability partnerships lie with National Company Law Tribunal (NCLT) and for Individuals and firms it lies with Debt Recovery Tribunal (DRT).
Since for companies there was a recourse to the Companies Act however, for individuals and firms there were only arbitrary rulings prevailing since a long time, and since many of the Small and Medium Enterprises (SMEs) take the legal status of either a proprietorship or partnership, this rule is expected to be much helpful.
It is noteworthy that Government is keen on the Bankruptcy resolution, which would simplify doing business in India, and pave way for more private investments both from domestic as well as overseas investors. This will also boost their morale in making investments, since they can rely on a recognized body for a resolution in the event of a business failure.
The Regulations on Insolvency and Bankruptcy framed by the Insolvency and Bankruptch Board of India (Voluntary Liquidation Process) Regulations, 2017. (2) is in force since 1st April, 2017.