Legal Guide

Provisions Related to Individual Insolvency in India

by Mansi Gehrana · 3 min read

Individual Insolvency in India

Introduction

  • The Insolvency and Bankruptcy Code is a significant piece of legislation that gives India’s current restructuring and insolvency, and bankruptcy laws a facelift. 
  • The Code established a framework for time-bound resolution for insolvent debts, filling in the largest gap in the existing jigsaw of regulations. 
  • The Code’s journey will endure a long time because it will significantly contribute to the country’s ability to conduct business with greater confidence and predictability.
  • Honest debtors will have a time-bound framework to restructure their obligations and fix their credit problems thanks to the process of individual insolvency in India outlined in the Code.
  • Due to the voluntary nature of the insolvency process, in which the debtor actively participates in the creation of the plan to be submitted to the creditors, it will also protect them from being embroiled in time-consuming judicial processes.

The gist of the provisions relating to Individual Insolvency in India 

The goal of individual insolvency in India’s legislation is to protect a person from pressure from creditors and societal criticism. This gives it a more social viewpoint. Relief must be given to the person in order for him to lead a quiet life once more. Personal insolvency rules, therefore, aim to create a balance between creditors’ rights and debtors’ rights by enabling debtors to be free of debt constraints (by ensuring repayments to the extent possible).

The corporate insolvency legislation in India took influence from personal insolvency law before IBC became well-known. The Presidency Towns Insolvency Act of 1909 (PTIA) and the Provincial Insolvency Act of 1920, two-century-old (or even earlier!) legislation, respectively, contained the personal insolvency law (PIA).

The new Code, IBC, has only been made aware of corporate insolvency thus far, despite the fact that it has specific provisions for the resolution of individual insolvency in India. The IBC’s individual insolvency in India provisions has only been put into practice for those who have given guarantees for debts obtained by enterprises, not for other people or entities (operating as sole proprietorships or partnership firms). In case of any issues relating to individual insolvency in India take online legal advice. 

One of India’s most significant changes is regarded as the Code. The insolvency and bankruptcy of businesses, LLPs, partnership firms, sole proprietorships, and individuals were governed and regulated by a multitude of laws and adjudicating bodies prior to the passage of the Code. 

The numerous conflicting laws addressing bankruptcy and insolvency issues created significant uncertainty and made it difficult to resolve stressed firms.

Leaving a gap in the existing laws and removing the chance that the populace would profit from the unnoticed provisions So far, draught rules and regulations have been developed by the Central Government and IBBI.

What are the provisions relating to Individual Insolvency in India under the new IBC?

Individual Insolvency in India and Bankruptcy with a default amount of at least Rs. 1,000 are covered in Part III of the Code. The Debt Recovery Tribunal would be the insolvency resolution adjudicating authority for sole proprietorships and partnership enterprises (DRT). The Central Government’s notification of November 15, 2019 (hereinafter referred to as the “Notification”), which implemented Part III of the IBC’s provisions regarding individual insolvency in India, served as the foundation for the writ petitions submitted to the High Courts.

The Notification brought into effect Sections 78 and 79 of the IBC, which pertain to the definitions under Part III of the IBC and the applicability of insolvency and bankruptcy to individuals and partnership firms when the amount of the default is not less than Rs. 1000, respectively. Sections 94 to 187 of the IBC, which provide the basis for the start of insolvency resolution processes and bankruptcy procedures of individuals and partnership firms, were also made effective by the aforementioned announcement. According to Section 179 of the IBC, the Debt Recovery Tribunal would serve as the arbiter in cases involving both individual and corporate insolvency.

What is the process provided for individual insolvency in India?

The IBC provides for two processes for individual insolvency in India. These are-

1. Fresh Process– If the following requirements are met, a debtor who is unable to pay his obligation may submit an application to the adjudicating authority (AA), either directly or via a resolution professional (RP), for a new beginning and the discharge of his qualified debt.

  • The debtor’s gross annual income is not more than sixty thousand rupees; 
  • The total value of the debtor’s assets is not more than twenty thousand rupees; 
  • The total value of the qualifying debts is not more than thirty-five thousand rupees; 
  • The debtor is not an undischarged bankrupt; 
  • The debtor does not own a dwelling unit, whether or not it is mortgaged;
  • There is no ongoing bankruptcy, insolvency, or fresh start process against him, and no prior new start order has been made with respect to him in the twelve months prior to the date of the fresh start application.

An interim moratorium regarding all of the debtor’s obligations will start on the date the application for a fresh start is filed by the debtor. It will stop being effective on the day that the application is accepted or rejected, as applicable.

2. Insolvency Resolution Process– The debtor or the creditor may start the individual insolvency in India resolution procedure by submitting an application to the Adjudicating Authority, either directly or through a Resolution Professional.

Hence, these are the two processes of Individual Insolvency in India provided under the IBC. 

Conclusion 

The Code was passed with the intention of combining the rules governing insolvency and bankruptcy in order to provide for a time-bound resolution of stressed assets and encourage ease of doing business in India. 

Individual insolvency in India has received little attention in India, despite the fact that corporate insolvency has garnered a lot of attention. Always take the help of a Company Lawyer in case of individual insolvency in India. 

Only personal guarantors for loans taken out by companies have individual insolvency in India specified under the IBC. In order to offer better solutions to people and small businesses who are struggling with debt, this must be improved. As part III of the IBC, the central government and the Insolvency & Bankruptcy Board of India have released proposed rules for individual insolvency in India.

To know more about the process of individual insolvency in India take advice from a Business Lawyer.

Mansi Gehrana

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Mansi Gehrana

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