Examining The Influence Of The Corporate Insolvency Resolution Process On Companies Within The Insolvency And Bankruptcy Code

Rishi Khandelwal, Amity Law School, Amity University Lucknow

Dr.. Parishkar Shreshth, Assistant Professor, Grade III, Amity Law\ School, Amity University Lucknow

ABSTRACT

This paper investigates the impact of the Corporate Insolvency Resolution Process (CIRP) within the Insolvency and Bankruptcy Code (IBC) on Indian companies. It begins by discussing the corporate personality doctrine and the challenges companies face when liabilities exceed assets, leading to potential failure. The regulatory changes introduced aimed to provide struggling organizations with the means to revive themselves, consolidating multiple regulations into a unified framework.

As the moratorium under the IBC concludes, an increase in disputes between debtors and creditors is anticipated, with reports already indicating borrowers' difficulties in meeting obligations. The National Company Law Tribunal (NCLT) plays a central role in resolving such disputes.

The study examines how the CIRP impacts financial stability, operational coherence, and investor confidence, fostering responsible borrowing and lending practices. It also analyzes its role in asset optimization, systemic issue resolution, and overall economic growth.

The paper highlights the significance of the IBC's enactment in 2016 as a pivotal moment in India's bankruptcy landscape, aiming to enhance governance and business opportunities. Despite initial complexities, amendments like Section 29A aimed to fortify the resolution framework.

In conclusion, this paper provides a comprehensive analysis of the CIRP's influence on Indian companies, emphasizing its transformative potential in enhancing business prospects and assets within the evolving economic environment.

Under the corporate personality doctrine, companies are endowed with specific rights and responsibilities. However, when a company's liabilities surpass its assets and income, it may face the prospect of failure. In India, regulations have been enacted to provide struggling organizations with the opportunity to revive themselves. The Indian Insolvency resolution underwent a comprehensive overhaul, consolidating several prior regulations into a single framework for addressing bankruptcy and liquidation-related issues.

As the moratorium under the IBC comes to an end, many debtors are expected to encounter difficulties in repaying their debts. This situation is likely to lead to a significant increase in disputes between debtors and creditors. There have been reports indicating that borrowers are already facing challenges in meeting their debt obligations. Consequently, numerous companies have renounced assured salaries and benefits, leading counterparties to initiate legal action seeking compensation. The National Company Law Tribunal (NCLT), established under the IBC in 2016, plays a crucial role in resolving disputes between debtors and creditors.

The Corporate Insolvency Resolution Process (CIRP) is examined in terms of its impact on the financial well-being, operational coherence, and overall stability of businesses. It explores how the CIRP instills confidence among investors, safeguards businesses' sustainability, and promotes responsible borrowing and lending practices. Additionally, it analyzes the CIRP's influence on businesses' ability to optimize their assets, address systemic issues, and contribute to overall economic growth.

One of the most significant regulatory changes in 2016 was the enactment of the Insolvency and Bankruptcy Code (IBC)1, which has long been considered a necessity for effective governance in India. The implementation of the IBC marked a pivotal moment in India's approach to bankruptcy and insolvency matters. Despite facing numerous challenges and debates, the enactment of the IBC aimed at achieving the critical objective of enhancing business opportunities and assets.

The initial stages of the IBC's implementation were marked by complexity, with any entity meeting the definition of a "resolution applicant" under section 5(25) being eligible to file for resolution. However, amendments such as Section 29A were later introduced to the Code, aiming to provide lenders with a more robust framework for resolution.