The Insolvency and Bankruptcy Code, 2016, was enacted to consolidate and amend laws related to insolvency resolution for corporate persons, partnership firms, and individuals, aiming for a time-bound process to maximize asset value and promote entrepreneurship. Section 16 of IBC is given in Chapter II (Corporate Insolvency Resolution Process) of Part II and addresses the initial step of appointing an interim resolution professional (IRP). This role is important in managing the corporate debtor's affairs during the early stages of insolvency in order to ensure continuity and stakeholder interests are balanced.
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What is Section 16 of IBC, 2016?
Section 16 of the Insolvency and Bankruptcy Code, 2016 (IBC), is part of the corporate insolvency resolution process. It outlines how an interim resolution professional (IRP) is appointed and their tenure, which is crucial for managing a debtor's affairs during insolvency proceedings. Given below is a clear breakdown of Section 16 of IBC, 2016.
Section 16(1): The court (Adjudicating Authority) picks an interim resolution professional (IRP) on the day the insolvency process starts.
Section 16(2): If a financial creditor or the company itself files for insolvency, the person they suggest as the resolution professional (if they have no ongoing disciplinary issues) becomes the IRP.
Section 16(3): If an operational creditor files for insolvency:
(a) If they don’t suggest anyone for IRP, the court chooses one with help from the Insolvency and Bankruptcy Board.
(b) If they suggest someone under section 9(4) and that person has no disciplinary issues, the court appoints them as the IRP.
Section 16(4): The Board has to recommend a suitable insolvency professional (with no disciplinary issues) to the court within 10 days of the court’s order.
Section 16(5): The IRP keeps working until a permanent resolution professional is appointed under Section 22.
The importance of Section 16 lies in its procedural clarity, which varies based on the type of creditor initiating the process i.e., financial, operational, or the corporate debtor itself. The IBC has undergone several amendments since its enactment, with Section 16 seeing notable changes to enhance efficiency and address practical challenges.
Also read about Section 12A of IBC, 2016.
Amendments in Section 16 of IBC, 2016
Section 16 has been amended twice, reflecting legislative efforts to refine the insolvency process. These amendments highlight the dynamic nature of the IBC, responding to operational challenges and judicial interpretations to streamline insolvency resolution:
Insolvency and Bankruptcy Code (Amendment) Act, 2020: Section 16(1) was revised to replace "within 14 days from the insolvency commencement date" with "on the insolvency commencement date." The aim of this amendment is to expedite the process in order to ensure immediate action to stabilize the debtor's operations and protect the interest of stakeholder. The amendment addresses delays previously experienced, enhancing the time-bound nature of the IBC.
Insolvency and Bankruptcy Code (Second Amendment) Act, 2018: Sub-section (5) was amended to extend the IRP's tenure from "not exceeding thirty days from date of appointment" to "till the date of appointment of a resolution professional under Section 22," which provides flexibility, allowing the IRP to continue managing affairs until a permanent resolution professional is appointed, which could take longer than 30 days in complex cases. This amendment balances efficiency with practical needs and ensures continuity.
Comparison with Pre-Amendment Provisions
Before the 2018 and 2019 amendments, Section 16 had stricter timelines i.e, 14 days for appointment and 30 days for tenure and that sometimes led to rushed decisions and procedural gaps. The current version with "on the insolvency commencement date" and extended tenure offers more operational flexibility along with aligning with the IBC's goal of maximizing value and promoting entrepreneurship. This evolution reflects legislative learning and stakeholder feedback, ensuring the IBC remains adaptive to economic realities.
Role and Significance of the Interim Resolution Professional
The IRP as appointed under Section 16, is responsible for managing the corporate debtor's affairs, including taking control of assets, running operations and facilitating the formation of a committee of creditors. The IRP's role is temporary, lasting until a resolution professional is appointed under Section 22, typically within the corporate insolvency resolution process (CIRP) timeline of 180 days (extendable by 90 days). The IRP's appointment process varies by creditor type, reflecting the IBC's tailored approach:
For financial creditors and corporate debtors, the proposed resolution professional (if eligible) ensures continuity and leverages existing proposals.
For operational creditors, the lack of a proposal triggers Board consultation, ensuring an impartial and qualified IRP is appointed.
Summary
Section 16 of IBC, 2016 is a provision for initiating the corporate insolvency resolution process along with clear guidelines for appointment and tenure of the IRP. Its amendments in 2018 and 2019 have enhanced efficiency and flexibility, addressing initial challenges and aligning with the IBC's objectives. For legal practitioners and stakeholders, understanding these provisions is crucial for navigating insolvency proceedings effectively.
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Section 16 of IBC: FAQs
Q1. What is Section 16 of the IBC?
Section 16 of the IBC, 2016, covers appointing an interim resolution professional (IRP) on the insolvency start date, based on the applicant (financial creditor, corporate debtor, or operational creditor), ensuring no disciplinary issues. The IRP manages until a permanent professional is appointed under Section 22.
Q2. What is Section 17 of the IBC?
Section 17 of the IBC, 2016, outlines the IRP’s duties, including managing the debtor’s business, assets, and claims, forming the creditor committee, and ensuring compliance until a resolution professional takes over.
Q3. How to check if a company is under insolvency?
Visit the NCLT or IBBI website for case updates or public notices, or contact the resolution professional.
Q4. What is a moratorium under IBC?
A moratorium under Section 14 of the IBC pauses lawsuits, debt recovery, or asset actions against the debtor during insolvency to protect assets.
Q5. What is the full form of IRP in IBC?
The full form of IRP in the Insolvency and Bankruptcy Code (IBC), 2016, is Interim Resolution Professional.
