Q.1. What is the purpose of enactment of the Insolvency and Bankruptcy Code, 2016? A.1 As per Preamble to the Code, the purpose of this Act is as follows:- (a) To consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals. (b) To fix time periods for execution of the law in a time bound manner. (c) To maximize the value of assets of interested persons. (d) To promote entrepreneurship (e) To increase availability of credit. (f) To balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues. (g) To establish an Insolvency and Bankruptcy Board of India as a regulatory body for insolvency and bankruptcy law. Q.2. To whom shall the provisions of the Code apply? A.2 The Code shall apply for insolvency, liquidation, voluntary liquidation or bankruptcy of the following entities:- (a) Any company incorporated under the Companies Act, 2013 or under any previous law. (b) Any other company governed by any special act for the time being in force, except in so far as the said provision is inconsistent with the provisions of such Special Act. (c) Any Limited Liability Partnership under the LLP Act 2008. (d) Any other body incorporated under any law for the time being in force, as the Central Government may by notification specify in this behalf. (e) Partnership firms and individuals. FAQs on The Insolvency and Bankruptcy Code 2016 2 Exception: The Code shall not apply to Financial Service Providers like Banks, Financial Institutions and Insurance companies. Q.3. Who shall be termed as Corporate Debtor? A.3 As per Section 3(8) of the Code, Corporate Debtor means a corporate person who owes a debt to any person. Q.4. Who is a Corporate Person? A.4 Corporate Person means a) a company as defined under section 2(20) of the Companies Act, 2013; b) a Limited Liability Partnership as defined in 2(1)(n) of Limited Liability Act, 2008; or, c) any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider. Q.5. Who shall be covered in the definition of a Financial Service Provider? A.5 As per Section 3(17) of the Code, a Financial Service Provider means a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator e.g. banks, financial institutions, insurance companies, mutual funds etc. Q.6. What shall be included in Financial Information? A.6 Financial Information includes the following:- a) Records of debt of the person b) Records of liabilities when the person is insolvent c) Records of assets of assets of the person over which security interest has been created d) Records, if any, of instances of default by the person against any debt e) Records of the balance sheet and cash-flow statements of the person; and f) Such other information as may be specified Q.7. What shall be treated as Debt under the Code? Introduction 3 A.7 As per Section 3(11) of the Code, Debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. Q.8. What shall be considered as Claim under the Code? A.8 As per Section 3(6) of the Code, Claim means a right to payment or right to remedy for breach of contract if such breach gives rise to a right to payment whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. Q.9. Who are covered in the definition of person? A.9 As per Section 3(23) of the Code, a person means and includes the following:- a) an individual b) a Hindu Undivided Family c) a company d) a trust e) a partnership f) A limited liability partnership and any other entity established under a Statute. and includes a person resident outside India Q.10. What do you understand by the term Security Interest? A.10 Security Interest means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person. Q.11. What is termed as a transaction under the Code? A.11 A transaction includes an agreement or arrangement in writing for transfer of assets, or funds, goods or services, from or to the corporate debtor. Q.12. What shall be included in Transfer as per the Code? A.12 Transfer includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien. In case of property- transfer of property means transfer of any property FAQs on The Insolvency and Bankruptcy Code 2016 4 and includes a transfer of any interest in the property and creation of any charge upon such property. Q.13. What is a "Charge" under the Code? A.13 A Charge means an interest or lien created on the property or assets of any person or any of its undertakings or both, as the case may be, as security and includes a mortgage. Q.14. Who shall be termed as creditor under the Code? A.14 A creditor means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder. Q.15. What is a Financial Product? A.15 A financial product means securities, contracts of insurance, deposits, credit arrangements including loans and advances by banks and financial institutions, retirement benefit plans, small savings instruments, foreign currency contracts other than contracts to exchange one currency (whether Indian or not) for another which are to be settled immediately, or any other instrument. Q.16. What is the definition of property under the Code? A.16 As per Section 3(27) of the Code, property includes:- a) Money, goods, actionable claims, land and every descripttion of property, whether situated in India or outside India and b) Every descripttion of interest including present or future or vested or contingent interest arising out of, or incidental to, property. Part II Insolvency
