Mr. Rohan Mehra, a resident of the city of Anandpur, found himself in a precarious financial position. A few years ago, he had taken substantial personal loans from ‘SwiftFin Bank’ and ‘Capital Trust Finance’ to fund a new business venture. Unfortunately, due to unforeseen market changes, his business failed to take off, leaving him with mounting debts and no steady income to repay them. The constant calls and threats from recovery agents added to his distress, and he felt trapped with no way out. He began exploring the possibility of declaring bankruptcy to get a fresh start, but the legal process seemed daunting and complex.
Advice in such cases
Facing overwhelming debt can be incredibly stressful. If you are in a similar situation as Mr. Mehra, it is crucial to act methodically and understand your legal options.
Assess Your Financial Situation: Create a detailed list of all your debts, including the amount owed to each creditor. Simultaneously, list all your assets and sources of income, if any. This will give you a clear picture of your financial standing.
Understand the Law: Familiarize yourself with the basics of the Insolvency and Bankruptcy Code, 2016 (IBC), which governs the process for individuals in India. This will help you understand your rights and the steps involved.
Gather Documentation: Start collecting all relevant financial documents, such as loan agreements, bank statements, income tax returns, and records of your assets and liabilities. This paperwork will be essential for filing an application.
Do Not Make Rash Decisions: Avoid making preferential payments to one creditor over others or transferring assets to family members to hide them. Such actions can be legally challenged and complicate your case.
Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.
Applicable Sections of Law
The primary legislation governing personal insolvency in India is the Insolvency and Bankruptcy Code, 2016 (IBC). Specifically, Part III of the Code deals with insolvency resolution and bankruptcy for individuals and partnership firms.
Section 94 of the IBC: Allows a debtor (who is not a corporate debtor) to file an application for initiating the insolvency resolution process directly to the Debt Recovery Tribunal (DRT).
Section 95 of the IBC: Allows a creditor to file an application to initiate the insolvency resolution process against a debtor.
The Role of the Resolution Professional (RP): Once an application is filed, an RP is appointed to examine the case, verify the claims of creditors, and help formulate a repayment plan.
Section 351 of the Bharatiya Nyaya Sanhita, 2023 (BNS): This section can be relevant if recovery agents engage in criminal intimidation. While insolvency is a civil matter, any criminal threats or harassment can be reported to the police under this section.
If you are the complainant
In this context, the ‘complainant’ is the creditor (e.g., the bank or financial institution). If you are a creditor and a debtor has defaulted on a payment of over one thousand rupees, you can initiate the insolvency process.
Issue a Demand Notice: The first step is to send a formal demand notice to the debtor, asking for the repayment of the outstanding amount.
File an Application: If the debtor fails to pay within the stipulated time, you can file an application under Section 95 of the IBC with the Debt Recovery Tribunal (DRT). The application must be accompanied by evidence of the default.
Appointment of Resolution Professional: You will propose a Resolution Professional to oversee the process. The DRT will then appoint the RP to verify the facts and submit a report.
Participate in Meetings: As a creditor, you will be part of the committee of creditors that votes on the repayment plan proposed by the debtor.
Consult with Lawyer: Engaging a lawyer is critical to ensure all legal formalities are correctly followed, from issuing the demand notice to representing your interests before the DRT.
If you are the victim
If you are the debtor, referred to here as the ‘victim’ of financial hardship, you have the right to initiate the insolvency process to resolve your debts in a structured manner.
File an Application: You can file an application under Section 94 of the IBC with the DRT. This application must include details of your debts, assets, and financial affairs.
Interim Moratorium: The moment you file the application, an interim moratorium begins. This legally protects you from any pending or new legal action from your creditors regarding the debt.
Cooperate with the Resolution Professional: You must fully cooperate with the appointed RP, providing all necessary information and documents. The RP will help you prepare a repayment plan to be presented to your creditors.
Negotiate a Repayment Plan: The goal of the resolution process is to arrive at a feasible repayment plan that is agreeable to the majority of your creditors. If a plan is approved, it becomes legally binding.
Discharge Order: If the resolution process fails or is not viable, you may have to proceed with bankruptcy. Upon completion of the bankruptcy process, you may receive a discharge order from the DRT, which legally releases you from the specified debts.
Consult with Lawyer: The process is highly technical. A lawyer can guide you through every step, from correctly filing the application to negotiating with creditors and representing you before the DRT.
How the police behave in such cases
Insolvency and bankruptcy are civil matters and are handled by the Debt Recovery Tribunal (DRT), not the police. The police generally do not have a role in the debt recovery process itself. However, their involvement may become necessary if a criminal offense is committed. If recovery agents employed by creditors resort to illegal tactics such as threats, violence, or criminal intimidation, you have the right to file a police complaint. The police are obligated to register an FIR under relevant sections, such as Section 351 of the BNS for criminal intimidation, and investigate the matter. It is important to separate the civil issue of debt from the criminal act of harassment.
FAQs people normally have
What evidence is required?
To file an insolvency application with the DRT, whether as a debtor or a creditor, you will need to provide substantial documentary evidence. For the debtor, this includes:
A complete list of all creditors and the amount owed to each.
A detailed list of all personal assets, including bank accounts, property, vehicles, and other valuables.
Copies of all loan agreements and related correspondence.
Personal financial statements and income tax returns for the last few years.
Proof of identity and address.
How long will the investigation take?
The Insolvency and Bankruptcy Code, 2016, is designed to be a time-bound process. Once an application is filed, the Resolution Professional is required to submit a report to the DRT within a specific timeframe. The entire insolvency resolution process for individuals is intended to be completed within 180 days from the date of admission of the application. This period can be extended, but the goal is to provide a swift resolution for both the debtor and the creditors, preventing the process from dragging on indefinitely.
Advocate Sudhir Rao, Supreme Court of India