section-60-5-ibc
section-60-5-ibc

Section 60(5) of Insolvency and Bankruptcy Code, 2016: An Overview

Section 60(5) is part of Chapter VI of the IBC, titled “Adjudicating Authority for Corporate Persons.” It became effective on December 1, 2016, as announced in a government notification. This section is key because it defines the NCLT’s role and ensuring that it can handle all aspects of insolvency and liquidation for companies. Below, we’ll break down this section in simple language, covering its meaning, importance, legal interpretations, and related details to ensure it’s easy to understand.

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Section 60(5) of IBC, 2016

Section 60(5) of the IBC, 2016, is a rule that defines what the NCLT can do when it comes to insolvency and liquidation cases. The NCLT is a special court set up to handle company-related legal matters, and this section gives it the power to:

  1. Handle applications or cases: Any legal request or case involving a company (known as a corporate debtor or corporate person) can be brought to the NCLT.

  2. Deal with claims: This includes any claims made by or against the company, including claims involving its subsidiaries located in India.

  3. Resolve questions: The NCLT can decide on any legal or factual issues that come up during the insolvency or liquidation process, such as who gets paid first or how the law applies.

The section starts with a special rule called a “non-obstante clause,” which means that it overrides other laws that might say something different. This ensures that the NCLT's decision is binding in insolvency matters and so, making the process centralized and efficient.

Importance of Section 60(5) of IBC

This section is like a guide that ensures all insolvency-related matters go to one place: the NCLT. Without it, different courts or laws could create confusion, slowing down the process of resolving a company’s financial troubles. By giving the NCLT broad powers, Section 60(5) helps:

  • Creditors (people or businesses owed money) get their issues resolved quickly.

  • Debtors (companies that owe money) have a clear process to follow.

  • Legal professionals understand which court to approach for insolvency cases.

It also includes subsidiaries of companies in India, which is important because many businesses operate through multiple related entities. However, the section’s exact boundaries have been debated in courts, which we’ll explain further below.

  • NCLT’s Role: The National Company Law Tribunal (NCLT) is responsible for managing all applications, claims, and questions related to a company’s insolvency or liquidation process.

  • What It Covers: Applies to companies (corporate debtors or corporate persons) and their subsidiaries located in India. It includes disputes involving legal issues (e.g., how the law applies) and factual issues (e.g., specific details of a case) during insolvency or liquidation.

  • Override Power: Contains a “non-obstante” clause, meaning it takes precedence over any other conflicting laws, ensuring the NCLT has the final authority in insolvency matters.

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Judicial Interpretations on Section 60(5) of IBC, 2016

Indian courts, especially the Supreme Court, have looked at Section 60(5) in many cases to clarify what it means and how it applies. Here are some key court rulings, explained in simple terms:

  • Gujarat Urja Vikas Nigam Ltd. v. Gujarat Electricity Regulatory Commission: This case showed that the NCLT is the main authority for insolvency matters, reinforcing its importance.

  • Alok Kaushik v. Bhuvaneshwari Ramanathan: The court said that even if there are other ways to resolve disputes, the NCLT can still handle them under Section 60(5).

  • ArcelorMittal India (P) Ltd. v. Satish Kumar Gupta: This ruling confirmed that the NCLT has exclusive power because of the non-obstante clause, meaning other laws don’t apply if they conflict with the IBC.

  • Anamika Singh v. Shinhan Bank: The court said the NCLT can handle applications involving companies under this section.

  • Insolvency & Bankruptcy Board of India v. SBI: This case clarified that the NCLT can deal with both legal and factual questions during insolvency or liquidation.

  • Directorate of Enforcement v. Manoj Kumar Agarwal: The court said the NCLT can decide who gets priority (e.g., who gets paid first) under Section 60(5).

  • Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta: This case confirmed that the NCLT can handle disputes related to insolvency, even if they’re complex.

  • Committee of Creditors of Metalyst Forging Ltd. v. Consortium of Deccan Value Investors LP and DVI PE (Mauritius) Ltd: This ruling supported the idea that the NCLT has exclusive power because of the non-obstante clause.

  • Union of India v. Kolkata Municipal Corporation: This case pointed out some limits to the NCLT’s powers under Section 60(5), especially when other specific rules apply.

  • Reliance Communication Limited v. Rajendra P. Bansal: The court said that insolvency cases often lead to claims that the NCLT can handle under this section.

These cases show that while Section 60(5) gives the NCLT a lot of power, there are still some gray areas. For example, the Supreme Court has noted that the NCLT’s role has limits, and some questions about how far its authority extends are still being debated.

Related Rules in the IBC

To understand Section 60(5) better, it’s helpful to look at related parts of the IBC:

  • Section 59: This section talks about voluntary liquidation, where a company chooses to wind up its operations. It requires things like a declaration from the company’s directors, financial statements for the past two years and a valuation report.

  • Section 179(1): This section says that the Debt Recovery Tribunal (DRT) handles insolvency cases for individuals and partnership firms, but it works alongside Section 60 for companies.

These sections show how Section 60(5) fits into the bigger picture of the IBC, ensuring that the NCLT and DRT have clear roles depending on the type of entity involved.

Challenges and Uncertainties

Even though Section 60(5) is clear in many ways, there are still some challenges. Courts have pointed out that the NCLT’s powers have limits, and there’s ongoing debate about how much it can intervene in certain cases. For example, some Supreme Court rulings (like Embassy Property Developments Pvt. Ltd. v. State of Karnataka) have highlighted these limits, suggesting that the law might need changes to clear up confusion.

Legal experts have also noted that the broad wording of Section 60(5) can lead to different interpretations, which is why courts keep revisiting it. Some have even suggested that the government might need to amend the IBC to make the section clearer.

Learn more about Corporate Insolvency Resolution

Summary

Section 60(5) of the Insolvency and Bankruptcy Code, 2016, is a vital rule that gives the National Company Law Tribunal (NCLT) the power to handle all insolvency and liquidation matters for companies. It ensures that one court oversees these cases, making the process faster and more consistent. The section’s ability to override other laws is a key feature, but court cases show that its exact scope is still being figured out. By understanding this section, along with related rules and court rulings, you can see how it plays a central role in India’s insolvency system.

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Section 60(5) of IBC: FAQs

Q1. What is Section 60(5) of the Insolvency and Bankruptcy Code?

Section 60(5) gives the National Company Law Tribunal (NCLT) the power to handle applications, claims, and legal or factual questions related to insolvency or liquidation of companies, including their Indian subsidiaries, overriding other laws.

Q2. What is an application under Section 60(5)?

An application under Section 60(5) is any legal request or proceeding filed with the NCLT involving a company’s insolvency or liquidation, such as disputes, claims, or priority issues.

Q3. What is Section 59 of the Insolvency and Bankruptcy Code, 2016?

Section 59 outlines the process for voluntary liquidation of a company, requiring a directors’ declaration, audited financial statements for two years, and a valuation report.

Q4. What is the minimum amount for insolvency?

The minimum amount for initiating insolvency under the IBC is ₹1 crore for corporate debtors, as per the amendment effective March 24, 2020.

Q5. Who is eligible for insolvency?

Companies, partnership firms, and individuals facing financial distress, unable to pay debts of ₹1 crore (for companies) or ₹1,000 (for individuals), are eligible to initiate insolvency proceedings under the IBC.

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Contact

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+91 6306521711 | +91 8407834532

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5th Floor, D-7, Sector 3, Noida - Uttar Pradesh

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© The Legal School