The Laws against Bankruptcy and Insolvency in India

Bankruptcy & Insolvency » The Laws against Bankruptcy and Insolvency in India

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Introduction to Bankruptcy and Insolvency in India

Bankruptcy is defined as the legal process in which an entity or a person who cannot repay their borrowed sum seeks relief. Whereas insolvency is the state of being unable to repay the debts upon their maturity. In India, all cases related to bankruptcy and insolvency are covered under the Insolvency and Bankruptcy Code (2016). The Insolvency and Bankruptcy Code is a central law that governs bankruptcy proceedings for individuals, partnership firms, and companies. 

The Insolvency and Bankruptcy Code has 11 schedules. Each schedule headlines the various conditions in which creditors, defaulters, entities, and organizations can seek relief in the event of bankruptcy. As per a survey, nearly 1500 Indian companies in the FY 2020 – 2021 were either liquidated or resolved under IBC.

The Application of Insolvency and Bankruptcy Code (IBC) in India

Healthy credit flows and overdrafts are crucial parts of a growing economy. In a country like India, the generation of capital to grow and sustain businesses is important. When a business or a person turns insolvent, they begin to default on loans. It is important that banks can recover as much sum as possible in an event of insolvency or bankruptcy. Here when the laws of Insolvency and Bankruptcy Code step in. 

In an event of insolvency, viable businesses get a chance to either select new owners or pursue liquidation. The IBC code implements the fastest possible way to recover as much new credit as possible.

History of Insolvency and Bankruptcy Code (IBC)

The Insolvency and Bankruptcy Code was launched in 2016 by the Central Government of India. The law overhauls the previous bills and creates a new and sophisticated medium for corporate distress resolutions. Historically, the cases of insolvency and bankruptcy were addressed through the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act and the Debt Recovery Tribunals.

The Processes Under the Insolvency and Bankruptcy Code (2016)

Corporate debtors incur debt to run businesses. When the business defaults on its credit payment, the debtor can appeal as per the Bankruptcy and Insolvency Act. Under section 6 of the IBC code, the Corporate Insolvency Resolution Process (CIRP) is initiated.

Under the Insolvency and Bankruptcy Code, there are only two outcomes of insolvency:

  1. Resolution: In the event of insolvency, a viable business must be resolved by either restriction/change of management or new ownership. The change must be carried out as per the law, and parties with limited liability must separate from the business.

Liquidation: In the event of insolvency, an unrecoverable business must be liquified and all the assets must be sold off to recover the cash.

Appealing for insolvency:

The defaulting party can apply for insolvency through a stipulated adjudicating authority (AA). The AAs are designated across the country under the National Company Law Tribunal (NCLT).  The tribunal must accept or reject the application within 14 working days. Since time is of the essence in the ordeal, NCLT must adhere to the deadline or provide a reason for delay. 

Upon the acceptance of the application, the adjudicating authority appoints an insolvency professional agency registered interim resolution professional (IRP). The IRPs can be trained chartered accountants, lawyers, company secretaries, and professionals working with LEX Solutions. They must know how to carry out a professional audit of the business. Upon the appointment of the IRPs, they take control of the defaulter’s business and assets and collect information about the expenses and earnings of the business. All of this happens in the coordination of the Committee of Creditors (CoC). The committee of creditors appoints the insolvency professionals who oversee the operations of a company under insolvency.

Introduction to the Insolvency Resolution

The Insolvency Resolution is a premier code under the insolvency and bankruptcy law that outlines the process of insolvency for companies, firms, partnerships, and individuals. The process of insolvency is often initiated by the creditor or the debtor. For companies and corporates, the maximum duration for completion of resolution is 180 days (with a 90-day available extension). Whereas for start-ups and small companies, the resolution process must be completed within 90 days (with a 60-day available extension).

Three Main Officials Overseeing Insolvency

  1. Insolvency regulator: Insolvency regulators oversee the insolvency proceedings and regulate the registered entities. 
  2. Insolvency professionals: Insolvency professionals are trained officials who take control of the assets of the business. The IP also examines the resolution proposals of a company while restructuring the debt. 
  3. Bankruptcy and Insolvency Adjudicator: The Bankruptcy and Insolvency Adjudicator oversee the process of insolvency with respect to the Debt Recovery Tribunal and the National Company Law Tribunal for Companies.

Also Read: What happens when a Company goes bankrupt?

Duties of the Interim Resource Professional

Interim Resource Professional (IRP) is central to insolvency operations. Right from its appointment, the IRP is inundated with the responsibilities of consolidating the claims levied by the clients/third parties and evaluating a healthy credit flow from the defaulting business.

Here are the main duties of the IRP:

  • Leading the management of the company and taking control over the daily expenditure
  • Consolidating the claims made by creditors/third parties and asses the entirety
  • Submitting a resolution plan to the AA along with the payment update to the creditors
  • Communicating between the defaulter and debtor in the process of liquidation

The Waterfall Mechanism

Upon insolvency, there is a great chance that the case heads to liquidation. When the terms are accepted, the liquidation occurs through the waterfall mechanism. The waterfall mechanism states that the funds collected from the sale of assets will be disbursed as per the resolution process. In this process, the dues of the third-party creditor or workmen are met before the government or the employees. 

Summing Up,

The Insolvency and Bankruptcy Code is the central law covering all cases of insolvency and bankruptcy in India.  From the speed of processing to the disbursement of funds, there are many pros of IBC. Ever since its launch in 2016, IBC has become one of the most utilised legislations for the recovery of debts.

If you are also looking for a bankruptcy lawyer in Chandigarh or pan India, you can contact Lex Solutions as they are the best Legal Firm in Chandigarh and have the best team of bankruptcy lawyers.

According to estimates, 65% of people living in urban areas around the world are tenants. This is also true in India due to the sky-high prices of real estate in the major cities and the large population of migrant workers who live there. Nevertheless, living as a renter can be a peaceful arrangement, but occasionally there are situations where one can run into rental problems and other connected issues, such as receiving an unauthorized eviction notice or the erratic behaviour of the landlord.

Are you, however, a renter who is experiencing such problems or simply curious about what to do if you ever find yourself in a similar situation? In that case, allow us to help you through this blog, which will briefly discuss about the several protections against landowner harassment.

What does illegal eviction of tenants mean?

An illegal eviction, also known as an unlawful termination of tenancy, typically happens when a landowner forbids a tenant from entering a rental property or removes the tenant’s belongings from the property through the use of force, intimidation, or other methods (such as cutting off utilities or changing the locks). However, if the landowners evict you without taking the proper legal action, they are breaking the law.

How Do You Respond When Your Landlord Forcibly Evicts You?

Almost every state has rental control legislation pertaining to tenant protection, and each state has established specific circumstances for which the landlord may lawfully evict the renter. Additionally, a tenant has a legal right under the law to appear in court and defend himself against unlawful eviction, and some of those accessible remedies for tenants are discussed below:

Grounds for eviction

Non-payment of rent, breach of the lease, property damage, and illegal activity are the most typical grounds for evicting a renter. The tenant must therefore review the provisions of the State Rent Control Act to ascertain the grounds for eviction specified in the Act. In addition, if the tenant is being evicted for any reason other than those specified in the Act—which is considered wrongful eviction—they must seek the help of an eviction lawyer and the enforcement agencies to halt this.

Suit for injunction

A renter might be unable to leave a property when asked to do so for a number of reasons, such as having a medical emergency or having his elderly parents live with him. When this happens, the tenant has the option to file a case in the appropriate court to obtain an injunction that will prevent them from being evicted for any other grounds (other than those listed in the State’s Rent Act). Along with the assistance of housing rental lawyers, the renter should take this action, if they are violently evicted without providing them with adequate notice.

Rent Controller

In the event that the tenant receives a notice of eviction on pretences, they should go see the rent controller of the relevant jurisdiction and explain why they believe the notice of eviction is invalid. Additionally, following the tenant eviction laws, the court will summon the tenant, who will then be forced to submit his or her case and the arguments supporting the necessary evidence.

Notice of rent payment

If the landowner claims that he has not received the required rent and lists this as the reason for serving the notice of eviction, the tenant may legitimately ask him or her to send the information to his bank account so that he can conduct the transaction and deposit the outstanding rent. Moreover, after agreeing to it, the landowner must give the tenant the information within 10 days of the date they received the notice.

Also Read: Lex Solutions – Your One-Stop Destination For All Things Legal

Steps that you must follow to legally evict a tenant in India

Because eviction laws differ from state to state, the following are typical recommendations for evicting a renter. Nevertheless, you can contact the tenants lawyer of Lex Solutions if you need any assistance.

Serve the Tenant With a Termination Notice

The tenancy must be terminated before a landlord can evict a tenant for cause, and the landowner shall provide the tenant with the required notice before taking legal action to do so. Three different kinds of termination notices are generally available:

  • Pay Rent or Quit: The tenant is required to pay the rent within a predetermined period (often three to five days) or leave the rented property.
  • Cure or Quit: A breach of the rental agreement or lease must be remedied by the tenant within a set amount of time.
  • Unconditional Quit: Without a chance to correct the offense or pay the rent, the tenant must leave the property.

But to evict a tenant without good reason, the landlord must give the renter a 30- or 60-day notice to leave the premises.

File an Eviction Lawsuit

If the renter does not correct the issue or quit the property within the allotted time, the landowner must initiate an unlawful detainer case in small claims court. Following this, landlords have the right to evict tenants by serving a legal notice to tenants to vacate their premises.

Wait for the Tenant’s Answer

Within the time frame given on the summons, the tenant may “answer” the complaint. The renter may, however, use the response to refute the charges or present a defence. And, for instance, a tenant might claim that the eviction was carried out in retaliation or that the unpaid rent was used to pay for repairs the landlord refused to undertake.

Receive a Judgment for Possession

A default judgment is granted to the landowner if the tenant ignores the eviction notice India. Moreover, the landowner is entitled to take ownership of the property if the renter replies with an answer but the court rules in his or her favor.

Remove the Tenant

Despite having the right to reclaim the property, the landlord is unable to evict a renter without the help of a law enforcement official. Nevertheless, the tenant will be informed of the legal eviction and the number of days they have to leave once such an official receives the judgment and the cost. Moreover, the law enforcement authority may physically evict the tenant if they don’t leave the property in the allotted period.

Also Read: Introduction To The Indian Judicial System And Court Hierarchy

Summing Up

Now that you are aware of the characteristics of evictions and how to deal with them in a nation like India, you must use them as needed. Additionally, as a landowner, you must evict a problematic renter per the law. And, to ensure that you are acting legally, consult a local landlord-tenant law attorney in your area. For such assistance, a legal firm in Chandigarh, lexsolution can offer you a one-stop solution.


  • Can a tenant seek an injunction against the landlord?

According to the state rental rules present in India, a tenant does not have the right to issue an injunction against the landlord. Moreover, injunction procedures are always discretionary, and a court of law cannot grant a perpetual injunction in favour of the plaintiff against the right owner if the plaintiff is only a trespasser.

  • Can police evict a tenant in India?

Even if the renters behave disrespectfully, the police cannot assist in reclaiming the property. However, the only court with the authority to order the eviction of a tenant is the court of the rent controller under whose jurisdiction the property is located. 

  • When a tenant can get the benefit of protection against eviction?

If the tenant can show that the landlord gave his written approval to the subtenant, he is entitled to protection from eviction. Additionally, it disallows any other consent, including implied or oral permission.