insolvency
Insolvency is a financial state; the legal process that follows is resolution, liquidation or bankruptcy. In India the main law is the Insolvency and Bankruptcy Code, 2016. For companies and LLPs, a financial or operational creditor, or the debtor itself, may apply to the National Company Law Tribunal on a default of at least the notified amount (now one crore rupees); a moratorium follows, and a resolution professional runs the corporate insolvency resolution process, failing which the company is liquidated.
The Code's provisions for individuals and partnership firms, heard by the Debts Recovery Tribunal, have so far been brought into force only for personal guarantors to corporate debtors; other individuals remain under the Provincial Insolvency Act, 1920 and the Presidency Towns Insolvency Act, 1909. In Swiss Ribbons (2019) the Supreme Court upheld the Code's constitutional validity. “Bankruptcy” is usually used for individuals.
Example
When the company failed to repay a loan of five crore rupees, the bank filed for insolvency resolution under the IBC before the NCLT.
In Indian law
- Insolvency and Bankruptcy Code, 2016
- Swiss Ribbons Pvt. Ltd. v. Union of India, 2019 INSC 95
See also
winding up · pari passu · lifting the corporate veil · corporate personality
Read more in the study notes
- Corruption, maladministration and the ombudsman: Lokpal and Lokayukta (Administrative Law)
- Central Vigilance Commission, parliamentary committees and commissions of inquiry (Administrative Law)
- Need for ADR, international commitments and suitability of disputes (Alternative Dispute Resolution Systems)
- History and evolution of banking in India (Banking Law)
- Control over banking companies: management, accounts, lending, reconstruction and winding up (Banking Law)
- Banker and customer: who they are and the legal character of the relationship (Banking Law)