The Insolvency and Bankruptcy Code (IBC), 2016, is a law in India designed to make it easier to handle financial troubles for companies, partnerships, and individuals. Its goal is to organize and improve the process of resolving debts and help creditors recover their money. Section 60 of the IBC is a key part of this law, found in Part II, which focuses on insolvency and liquidation for companies and similar entities. This section explains the role of the National Company Law Tribunal (NCLT), a special court set up under the Companies Act, 2013 in order to handle insolvency cases.
Understanding Section 60 is important for businesses and legal professionals involved in insolvency cases because it determines where and how these cases are handled, which affects legal strategies and outcomes. This article breaks down Section 60 of IBC in simple terms, covering its rules, court rulings, practical effects, and common questions.
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What is Section 60 of the IBC?
Section 60 of the IBC, 2016, sets up the NCLT as the main authority (called the Adjudicating Authority) to deal with insolvency and liquidation cases for companies and their personal guarantors (people who promise to pay a company’s debts if the company cannot). It explains the NCLT’s powers, responsibilities, and limits. The section ensures that insolvency cases are handled by a specialized court with the right expertise, based on the location of the company’s registered office.
Courts, especially the Supreme Court, have made it clear that the NCLT has a lot of authority, but it cannot handle issues related to government policies or public law decisions. This limitation has sparked some debate about exactly how much power the NCLT has under this section.
Detailed Breakdown of Section 60 of IBC
Section 60 has six parts (subsections) with each explaining a specific role or rule for the NCLT. Here’s what each part means in simple language:
Subsection (1): NCLT as the Main Authority
This part says the NCLT is the official court for handling insolvency and liquidation cases for companies, including their personal guarantors. The NCLT located where the company’s registered office is will take care of these cases, making sure the process is managed locally.
Subsection (2): Personal Guarantors and the Same NCLT
If a company is already going through an insolvency or liquidation process in an NCLT, any case involving the insolvency or bankruptcy of a personal guarantor (someone who guaranteed the company’s debts) must also go to the same NCLT. This rule ensures that related cases are handled together which also avoid the confusion.
Subsection (3): Transferring Cases to the NCLT
If a personal guarantor’s insolvency or bankruptcy case is already happening in another court or tribunal, this part requires that case to be moved to the NCLT handling the company’s insolvency or liquidation. This keeps all related cases in one place.
Subsection (4): NCLT’s Extra Powers
This part gives the NCLT the same powers as the Debt Recovery Tribunal (DRT) when dealing with personal guarantor cases. The DRT is another court that handles debt recovery, so this rule strengthens the NCLT’s ability to manage these cases effectively.
Subsection (5): NCLT’s Broad Responsibilities
This is a very important part because it gives the NCLT the power to handle:
Any application or case involving a company or corporate person.
Any claims made by or against the company, including claims related to its subsidiaries in India.
Any legal or factual questions related to insolvency or liquidation under the IBC.
This makes the NCLT a central place for resolving insolvency disputes, but it can sometimes overlap with other courts.
Subsection (6): Protecting Against Time Limits
During an insolvency process, there’s often a “moratorium” period when legal actions against the company are paused. This part says that the moratorium time does not count toward the time limits for filing lawsuits or claims (as per the Limitation Act, 1963). This protects companies from losing their rights due to delays during insolvency.
What Courts Have Said About Section 60
Section 60(5), which gives the NCLT broad powers, has been closely examined by courts, especially the Supreme Court. Two important cases help explain its limits:
1. M/s Embassy Property Developments Pvt. Ltd. v. State of Karnataka (2019)
The Supreme Court said the NCLT cannot handle public law issues, like decisions about extending a mining lease under a mining law. The court explained that Section 60(5) only covers questions directly related to insolvency, not government or public authority decisions. It also said the NCLT isn’t a higher court that can review government actions, keeping its role focused on insolvency matters.
2. Gujarat Urja Vikas Nigam Limited v. Amit Kumar Gupta (2019)
The Supreme Court ruled that the NCLT’s powers under Section 60(5) are limited to disputes directly connected to the insolvency process. For example, if a power purchase agreement is canceled because of insolvency, the NCLT can handle it. But if the dispute is about something unrelated, like not supplying electricity, it must go to another court.
These court decisions show that while the NCLT has a lot of authority, it’s not allowed to handle every type of dispute, especially those involving public laws or unrelated issues.
Unresolved Questions and Debates
Even with court rulings, some parts of Section 60 are still unclear, leading to ongoing discussions among legal experts:
What Does Clause (a) of Section 60(5) Cover?
This clause talks about applications or cases involving a company but hasn’t been clearly explained by courts. Some experts think it might cover a wider range of disputes than the other clauses but this needs more clarification.
Conflict with Section 14(1)(a):
Section 14(1)(a) of the IBC stops lawsuits against a company during the insolvency process. This creates confusion about whether third parties can use Section 60(5) to file claims against the company, which needs to be sorted out.
NCLT’s Powers Under the Companies Act:
The NCLT has powers similar to a civil court under the Companies Act, 2013, which might suggest it can handle more types of cases. However, the IBC is designed to be fast, which can make it hard for the NCLT to deal with complicated disputes that need a lot of time.
Need for Clearer Laws:
Legal experts, like those from Shardul Amarchand Mangaldas & Co, say that while court rulings have helped, some issues remain unclear. New laws or more court decisions might be needed to fully explain Section 60(5)’s scope.
How Section 60 Relates to Other IBC Rules
Section 60 works alongside other parts of the IBC, especially Part III, which deals with insolvency for individuals and partnerships. For example, Section 179(1) says the Debt Recovery Tribunal (DRT) handles individual insolvency cases, but Section 60 can override this by giving the NCLT authority in certain situations. This shows how Section 60 helps centralize insolvency cases.
Other laws, like the Companies Act, 2013, and the Recovery of Debts Due to Banks Act, 1993, also mention the IBC and connect to Section 60. For instance, a rule in the Sick Industrial Companies Repeal Act, 2003, allows companies to approach the NCLT under the IBC within 180 days, which fits with Section 60’s framework.
Why Section 60 Matters in Real Life
For companies, creditors, and personal guarantors, Section 60 is critical because it decides which court will handle their insolvency cases. Having the NCLT as the main authority ensures consistency, but the court rulings show that some disputes (like those involving government policies) must go to other courts, such as high courts. This can make legal planning more complicated, especially in cases that involve both insolvency and other issues.
The rule in Section 60(6) of IBC which is about excluding moratorium periods from time limits is helpful for companies. It ensures they aren’t unfairly penalized for delays during insolvency. However, because Section 60(5) is still being debated, lawyers and businesses need to stay updated on new court rulings to handle potential challenges.
Summary
Section 60 of the IBC, 2016, is a core rule that makes the NCLT the main court for handling insolvency and liquidation cases for companies and their personal guarantors. It sets out detailed guidelines on the NCLT’s jurisdiction, how personal guarantor cases are managed, and how time limits work. Court rulings, like those in the Embassy and Gujarat Urja cases have clarified that the NCLT’s powers are limited to insolvency-related matters and don’t cover public law issues. Some questions about Section 60(5) remain unanswered which suggests a need for new laws or court decisions. This section is essential to India’s insolvency system and affects everyone involved in corporate or individual insolvency cases.
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Section 60 of the Insolvency and Bankruptcy Code (IBC), 2016: FAQs
Q1. What does the NCLT do under Section 60 of the IBC?
The NCLT is the main court for handling insolvency and liquidation cases for companies and their personal guarantors. It deals with applications, claims, and disputes related to insolvency, based on the location of the company’s registered office. It also has the same powers as the Debt Recovery Tribunal for personal guarantor cases.
Q2. Can the NCLT handle disputes that aren’t about insolvency under Section 60(5)?
No, the NCLT can only handle disputes directly related to the insolvency or liquidation process, as explained by the Supreme Court in the Gujarat Urja case. Disputes about other issues, like contracts not affected by insolvency, must go to other courts.
Q3. How does Section 60(2) affect personal guarantors?
If a company’s insolvency or liquidation case is already in an NCLT, any insolvency or bankruptcy case for a personal guarantor of that company must also go to the same NCLT. This keeps related cases together for consistency.
Q4. What happens to time limits for claims during an IBC moratorium?
Section 60(6) says the moratorium period (when legal actions are paused) doesn’t count toward the time limits for filing lawsuits or claims against a company. This protects the company from losing rights due to delays, following the Limitation Act, 1963.
Q5. Can the NCLT handle public law issues under Section 60(5)?
No, the Supreme Court in the Embassy case said the NCLT cannot handle public law issues, like government decisions about mining leases. Section 60(5) only covers insolvency-related questions, and public law disputes must go to other courts, like high courts.
