Insolvency: Insolvency is the state where an individual or a company is unable to pay its debt at maturity. And such an individual or company is known as an insolvent.
Bankruptcy: Bankruptcy is a legal process followed by the insolvents to seek relief from a few or all of their debts.
(A) The Insolvency And Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016 is a comprehensive Act enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation 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 order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto
Applicability
The provisions of this Code shall apply to
(a) any company incorporated under the Companies Act, 2013 (18 of 2013) or under any previous company law;
(b) any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act;
(c) any Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008 (6 of 2009);
(d) such other body incorporated under any law for the time being in force, as the Central 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).]
in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the case may be.
(B) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 (SARFAESI Act, 2002)
The Act is enacted to regulate securitisation and reconstruction of financial assets and enforcement of security interest and to provide for a Central database of security interests created on property rights, and for matters connected therewith or incidental thereto. Under the Act, if a borrower is unable to repay his loan (this includes home loans) for a period of six months, the bank has the legal right to send a notice to him, asking him to clear the dues in 60 days. If the borrower fails to meet this liability, the financial institution has the right to go for a distress sale of the property, to recover the dues. Basically, the SARFAESI Act empowers financial institutions to ‘seize and desist’. If the debtor doesn’t comply, the bank can resort to one of the three following measures:
- Take the possession of the loan security.
- Sell or lease or assign the right over the security.
- Manage the asset or appoint someone to manage the same.