Insolvency and Bankruptcy Code, 2016 – Spreading its wings


It’s been less than two years that the Insolvency and Bankruptcy Code, 2016 (IBC) came into force. National Company Law Tribunal (NCLT) which acts as adjudicating authority and Insolvency Resolution Professional (IRP) appointed under the code are bound by timelines to dispose of an application for corporate insolvency process.

Initially, the parties and lawyers were struggling with several interpretations of provisions of IBC by respective NCLT benches. However, with time there is much clarity and uniformity on the interpretation of its provision which I have attempted to highlight in the present article. The most frequent interpretation faced by the NCLT benches can be broadly categorized as follows:

Lawyers authority to issue demand notice:


The IBC contemplates issuance of demand notice by operational creditor in the prescribed forms. National Company Law Appellate Tribunal (NCLAT) while interpreting these prescribed formats of demand notices has held that the demand notice has to be issued in the prescribed forms only by the operational creditor or through a person authorised on his behalf and holding position with or in relation to the operational creditor. NCLAT had taken a view that a lawyer cannot issue a demand notice.

However, Supreme Court after closely analysing the provisions of IBC, has recently held that the expression “an operation creditor may on the occurrence of a default deliver a demand notice” under the IBC must be read as including operational creditor’s authorised agent and lawyer. Consequently, it is now permissible for a lawyer to issue demand notice on behalf operational creditor. This ruling of Supreme Court becomes crucial in view of recent influx of orders rejecting the applications on the ground of invalid demand notice.

2. Disputes raised prior to and after issuance of demand notice:

The IBC defines the expression “dispute”. NCLAT has taken a view that the intention of legislature is clear that the expression dispute is not limited to pending suit or arbitration proceedings but also includes other proceedings, if any. It is held that disputes raised by corporate debtor prior to issuance of demand notice can be treated as pending dispute which includes complains regarding inferior quality goods and/or services but such dispute should not be illusory and malafide.

To my understanding, such an interpretation of a provision is not only broadminded but also establishes a course of law to be adopted by parties. There would be several parties contemplating to take recourse under the Code but owning to such interpretation parties are free to choose their course of action and may decide to approach civil courts in case there already exist a dispute.

3. Delayed claims and Law of Limitation:

Further, there was a debate if the Limitation Act, 1963 is applicable to the IBC. After thoroughly examining the Law of Limitation, NCLAT came to the conclusion that Limitation Act, 1963 is not applicable to the Code, but Doctrine of Limitation and Prescription is necessary to be looked into. While it was held that old claims without explaining delay, normally should not be entertained, but an opportunity to the applicant to explain such delay can be accorded by NCLT. In effect, even if the debt/claim is time barred, a party can approach NCLT.


To sum up, while initially the Insolvency Code was unsteady and NCLT’s were struggling to cope up with various interpretations of its provisions, however the laws now being settled is surely proving the Code to be a progressive legislation which is not only attempting to curb the long delays in insolvency process but is also cheaper and accessible to parties.

It has indeed in a very short period of time has spread its wings to protect the operational creditors and the object for enacting the IBC is visibly seen to have been achieved.

(Luckyraj Indorkar is Senior Associate, J. Sagar Associates, Mumbai. The views expressed here are personal.)moneycontrol