Insolvency and Bankruptcy Code Key Definitions

1. Amity Law School
Key Definitions Under the
IBC

2. Amity Law School
Section 2
• The provisions of this Code shall apply to–
• a) any company incorporated under the Companies Act, 2013 (18 of 2013)
company law;
• (b) any other company governed by any special Act for the time being in for
the said provisions are inconsistent with the provisions of such special Act;
• (c) any Limited Liability Partnership incorporated under the Limited Liability
(6 of 2009);
• (d) such other body incorporated under any law for the time being in
Government may, by notification, specify in this behalf;
• [(e) personal guarantors to corporate debtors;
• (f) partnership firms and proprietorship firms; and
• (g) individuals, other than persons referred to in clause (e),]

3. Amity Law School
Claim:
(a) a right to payment
(b) right to remedy for breach of contract
under any law for the time being in force, if
such breach gives rise to a right to payment.
[S. 3(6)]
Debt:
A liability or obligation in respect of a claim
which is due from any person and includes a
financial debt and operational debt. [S. 3(11)]
(Concept of Debt payable in B.K Educational
Services Limited)
Default:
Non-payment of debt when
whole or any part or instalment of
the amount of debt has become
due and payable and is not
repaid by the debtor or the
corporate debtor, as the case
may be. [S. 3(12)]

4. Amity Law School
Illustration to the definition
• A supplies goods to B on credit of 30 days.
• ‘A” has a claim against B.
• 30 days subsequent to supply, the sale consideration of
the goods shall become a debt.
• non payment of the debt shall become default.

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Corporate Applicant :
(a) corporate debtor; or
(b) a member or partner of
the corporate debtor; or
(c) an individual who is in
charge of managing the
operations and resources
of the corporate debtor; or
(d) a person who has the
control and supervision
over the financial affairs of
the corporate debtor; [S.
5(5)]
Corporate Debtor:
A corporate person who
owes a debt to any person
[S. 3(8)]
Corporate Person:
A company as defined in
clause (20) of S.2 of the
Companies Act, 2013, a
LLP , as defined in S.
2(1)(n) the LLP Act, 2008,
or any other person
incorporated with limited
liability under any law for
the time being in force but
shall not include any
financial service provider.
[S. 3(7)]

6. Amity Law School
• Laxmi Pat Surana v UOI, 2021 SCC Online SC 267
The corporate debtor guaranteed two loans taken by the Principal Borrower from Union
Bank.
Question: Whether an Action under Section 7 of the Code can be initiated by a financial
creditor against a corporate person concerning guarantee offered by it in respect of a loan
account of the principal borrower who is not a corporate person.
Decision : the Court held that the definition of the term ‘Debt’ is wide enough to include
liability of a corporate person including not being a corporate person in the event of a
default committed by the latter. A default by a Borrower would result in cause of action that
would allow the Creditor to proceed against a Corporate Debtor as the liability of the
Guarantor is co-extensive with that of the Principal Borrower and on default, the Guarantor
directly inherits the liability to repay the debt

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M/S. Innoventive Industries Ltd v. Icici Bank (2018) 1 SCC
407
• The objective of the Insolvency and Bankruptcy Code, 2015 is to
consolidate and amend the laws relating to reorganization and
insolvency resolution of corporate persons, partnership firms and
individuals in a time bound manner for maximization of value of
assets of such persons, to promote entrepreneurship, availability of
credit and balance the interests of all the stakeholders including
alteration in the priority of payment of government dues and to
establish an Insolvency and Bankruptcy Fund, and matters connected
therewith or incidental thereto.

8. Amity Law School
• The Code seeks to provide for designating the NCLT and DRT as the
Adjudicating Authorities for corporate persons and firms and
individuals, respectively, for resolution of insolvency, liquidation and
bankruptcy.
• The Code separates commercial aspects of insolvency and bankruptcy
proceedings from judicial aspects.
• As per the data available with the World Bank in 2016, insolvency
resolution in India took 4.3 years on an average, which was much higher
when compared with the United Kingdom (1 year), USA (1.5 years) and
South Africa (2 years). The World Bank’s Ease of Doing Business
Index, 2015, ranked India as country number 135 out of 190 countries
on the ease of resolving insolvency based on various indicia.

9. Amity Law School
• USA has adopted the Bankruptcy Reform Act of 1978, which has
since been codified in Title XI of the United States Code.
• The UK Law, on the other hand, is governed by the Insolvency Act of
1986 which has served as a model for the present Code.