Having no animus revertendi can land you in Insolvency…

Ever since the insolvency law has been curated, it has caused an upheaval in the lives of people possessing no animus revertendi after they take loans from banks or purchase goods, services on credit having no intention to return. The basic idea of the insolvency law was to consolidate the existing laws pertaining to insolvency which have gone haywire and have resulted in the stupefaction instead of recovery for those who seek action against the defaulting debtors; whether it is the Sick Industrial Companies Act, 1985 or the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 etc. The insolvency and Bankruptcy code has created an umbrella-like structure and is trying to accommodate the plethora of laws which were earlier existing to resolve the matters relating to debts.
Insolvency process is triggered by the occurrence of a default. A default under Section 3(12) means “non-payment of debt when whole or any part or installment of the amount of debt has become due and payable and is not [paid] by the debtor or the corporate debtor, as the case may be.” The bare reading of this section exhibits that the debtor does not get a prima facie opportunity to narrate his story with respect to the debt. The rationale behind the same is that the code was created to provide quick disposal of the application by National Company Law Tribunal and thereafter by the Interim Resolution Professional/ Resolution Professional. This stipulation seeks to provide an embargo against the debtor so that he does not go on filing flimsy, unfounded and whimsical objections under the garb of natural justice.
The code has provided a mechanism for the creditors to initiate insolvency, whether it is the Financial creditors or the Operational creditors. Recently, an amendment has been made into the code that accorded a status of financial creditors on the homebuyers. However, it is still to be elucidated whether they are secured creditors or unsecured creditors. The code is still at its nascent stage, it will take time to cross various practical and logistic hurdles before becoming fully comprehensive.
Having said that and considering the entire process of IBC, it is important to understand that a resolution process under Insolvency and Bankruptcy Code, 2016 is neither a liquidation nor a recovery. Liquidation is only to be gone into, in case of failure of the resolution process. As against the above the Insolvency and Bankruptcy Code, 2016 aims to balance the interests of all stakeholders and does not only scope itself in maximizing the value of Financial creditor. Therefore, it is to be kept in mind that the person making an application is the one who is actually affected in some possible way; it must not be a fanciful suggestion of grievance. A likelihood of some injury in the course of trade may meet the test of locus standi.