Departure From The Default-Based Test: A Hotbed Of Anomalies

The Insolvency and Bankruptcy Code, 2016 ("Code") was introduced as a measure by the Government of India ("Government") to revive the industrial health of the country and to provide a better alternative mechanism to the rather sick, Sick Industrial Companies Act, 1985 ("SICA"). Prior to the introduction of the Code, The Bank Law Reform Committee presented its report¹ to the Government, where "default"² was preferred as the triggering point of the corporate insolvency resolution process ("CIRP") under the Code and accordingly, the Code under Section 6 provides that CIRP may be initiated where any corporate debtor commits default.

The rationale behind the stress on the occurrence of default as the triggering point of CIRP can be understood from the notes on clauses as appended to The Insolvency and Bankruptcy Code, 2015 bill ("Bill") presented before the Lok Sabha,³ which provide that a default-based test helps in early intervention and revival of the