The objective of the new law is to promote entrepreneurship, availability of credit, and to balance the interests of all stakeholders by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner and for maximization of value of assets of such persons and matters connected therewith or incidental thereto. It aims to consolidate the laws relating to insolvency of companies and limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals, presently contained in a number of legislation, into a single legislation. Such consolidation will provide for greater clarity in the law and facilitate the application of consistent and coherent provisions to different stakeholders affected by the business failure or inability to pay the debt.
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Individual Insolvency: This has always been regulated and administered through the Presidency Towns Insolvency Act, 1909 (for residents of Mumbai, Kolkata and Chennai) and Provincial Insolvency Act, 1920 (for other residents) which are century old legislation and have now outlived their utility.
Corporate and Firm Insolvency: In India till now has always been regulated and administered by multiple and sometimes overlapping laws which are shown as follows :
- Indian Partnership Act, 1932
- Companies Act, 1956
- Sick Industrial Act, 1985
- Recovery of Debts due to Banks and Financial Institutions, 1993
- SARAFESI act, 2002
- Companies Act, 2013
The above-stated laws suffered from many loopholes, contradictory provisions and also none of them stated the time resolution or empowered the operational creditors and entrepreneurial growth and development. Due to these mentioned laws, the Insolvency and Bankruptcy Code introduced.
