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The Insolvency and Bankruptcy Code

When is IBC, 2016 applicable?

According to Section 2, the provisions of the Code shall apply for insolvency, liquidation, voluntary liquidation or bankruptcy of the following entities:
(a) Any company.
(b) Any Limited Liability Partnership.
(c) Personal Guarantors to Corporate Debtors.
(d) Partnership firms and Proprietorship firms.

Difference between Insolvency and Bankruptcy?

Insolvency : An entity becomes insolvent when they are unable to pay back their lenders on time.
Bankruptcy is a legal declaration of one’s inability to pay their debts. On filing of bankruptcy.
1. Restructuring- where the debt is ‘re- structured’ or re- planned to make repayment easier.
2. Liquidation- where all the assets of the entity are sold and paid to debtors.

Who can initiate the insolvency proceedings?

(a) Financial creditor – Individual money lender, banks, NBFCs, etc where money is lent (Section 7) (b) Operational creditor Supplier of goods or/and services (Section 9)
(c) Corporate debtor – A company/LLP who owes debt to any person (Section 10)

Meaning of Financial creditor?

Financial creditor – means any person to whom financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. For example, Banks, Financial Institution, NBFC, any other person who lends / provide finance and Home Buyers(in case Real estate projects).

Meaning of Operational creditor?

Operational Creditor is defined under section 5 (20), it means, a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. Where, Operational Debt means a claim in respect of
(a) provision of goods, or
(b) provision of services including employment, or
(c) any dues payable to the government .


The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.