Chapter 2: Preliminary
1. Short Title, Extent and Commencement [Section 1]
The law is called Insolvency and Bankruptcy Code, 2016.
It extends to the whole of India.
The Central Government notifies different provisions of the Code on different dates via Official
Gazette.
Examples of notified provisions:
o Sections 188 to 194 notified on 5th August 2016
o Sections including 3(1), 3(5), 3(22), 3(26), etc. notified on 19th August 2016
2. Applicability of the Code [Section 2]
IBC applies to insolvency, liquidation, voluntary liquidation or bankruptcy for:
Companies under Companies Act, 2013 or previous law
Companies governed by special acts (unless inconsistent with the Act)
LLPs (under LLP Act, 2008)
Other notified bodies
Personal guarantors to corporate debtors
Partnership and proprietorship firms
Individuals (excluding personal guarantors)
❌ Not applicable to financial service providers like:
Banks
NBFCs
Insurance companies
(as per Section 3(7), they are excluded from "corporate person")
❌ However, Section 227 allows the Central Government to notify specific financial service providers in
consultation with regulators.
❌ Example: As per notification dated 18 Nov 2019, NBFCs and HFCs with asset size ≥ ₹500 crore are
covered under IBC.
3. Key Definitions under the Code [Sections 3 and 5]
(i) Board [Section 3(1)]
Refers to Insolvency and Bankruptcy Board of India (IBBI). It's a body corporate with powers like issuing
summons, inspecting records, etc.
(ii) Charge [Section 3(4)]
A lien or interest created on property as security, including a mortgage.
(iii) Claim [Section 3(6)]
Right to payment (secured or unsecured, fixed or disputed) or right to remedy for breach of contract.
SC in Innoventive Industries Ltd. v. ICICI Bank: Claim includes even disputed debts.
SC in Swiss Ribbons Case: A claim becomes debt only when due; default arises when unpaid.
(iv) Corporate Person [Section 3(7)]
Company
LLP
Any body incorporated with limited liability
❌ Excludes financial service providers
❌ HCC v. Union of India: NHAI is not a corporate person under IBC.
(v) Corporate Debtor [Section 3(8)]
Corporate person who owes a debt.
❌ Laxmi Pat Surana Case: Even a corporate guarantor for a non-corporate borrower is a corporate debtor.
(vi) Core Services [Section 3(9)]
Services by Information Utilities, such as recording, verifying, and authenticating financial information.
(vii) Creditor [Section 3(10)]
Includes:
Financial/Operational Creditor
Secured/Unsecured Creditor
Decree Holder
❌ Nikhil Mehta Case: Real estate buyers with assured returns are financial creditors.
(viii) Debt [Section 3(11)]
Liability in respect of a claim, includes both financial and operational debts.
(ix) Financial Debt [Section 5(8)]
Debt + interest disbursed against time value of money:
Loans, bonds, debentures
Lease obligations, receivables discounting
Derivatives, guarantees, etc.
Includes allottee's payment in real estate projects
❌ Orator Marketing Case: Interest-free loans also qualify as financial debt.
(x) Operational Debt [Section 5(21)]
Claim related to:
Goods/services supplied
Employment
Statutory dues (Govt. taxes)
(xi) Default [Section 3(12)]
Non-payment of debt when due (even partial or single installment).
❌ Innoventive, Transmission Corp., BK Educational Services: Emphasized the wide definition of default and
actual non-payment as trigger.
(xii) Financial Information [Section 3(13)]
Includes records of debts, assets, defaults, balance sheets, etc.
(xiii) Financial Product [Section 3(15)]
Covers:
Securities
Loans and deposits
Insurance
Retirement and savings instruments
(xiv) Financial Service [Section 3(16)]
Includes:
Accepting deposits
Managing financial products
Investment schemes
Issuing payment instruments
(xv) Financial Service Provider [Section 3(17)]
Entities like banks, NBFCs, insurance companies, regulated by financial sector regulators.
(xvi) Financial Sector Regulator [Section 3(18)]
Includes:
RBI
SEBI
IRDAI
PFRDA
Any notified regulator
(xvii) Insolvency Professional (IP) [Section 3(19)]
Registered professional who conducts resolution/liquidation.
❌ Post-2022: LLPs, Firms, Companies can be recognized as Insolvency Professional Entities (IPEs).
(xviii) Insolvency Professional Agency (IPA) [Section 3(20)]
Body that regulates and enrolls IPs.
(xix) Information Utility (IU) [Section 3(21)]
Registered entity to collect and authenticate financial data for insolvency use.
(xx) Person [Section 3(23)]
Covers:
Individuals, HUF, companies
Trusts, partnerships, LLPs
Includes persons outside India
❌ JK Jute Mill Mazdoor Morcha Case: Trade Union is a ‘person’ under IBC.
(xxi) Property [Section 3(27)]
Includes:
Money, goods, land, actionable claims
Rights and interests (present/future, vested/contingent)
(xxii) Secured Creditor [Section 3(30)]
Creditor holding a security interest.
(xxiii) Security Interest [Section 3(31)]
Includes any legal interest like mortgage, charge, hypothecation securing performance or payment.
(xxiv) Transaction [Section 3(33)]
Written agreement for transfer of assets, funds, goods, services.
(xxv) Transfer [Sections 3(34)–(35)]
Includes sale, gift, mortgage, pledge, exchange of property or any interest in it.
(xxvi) Interpretation Clause [Section 3(29)]
Words not defined in IBC but found in Acts like:
Indian Contract Act
LLP Act
Companies Act
SEBI Act, etc.
will carry meanings from those Acts.
