Understanding the interpretation of the Insolvency and Bankruptcy Code, 2016


Status as on- 12/07/2023


“Know what happens when an individual declares

bankruptcy and how it affects his or her life.”-

 Marilyn vos Savant


The Insolvency and Bankruptcy Code (IBC) of 2016 is a crucial piece of legislation in India that seeks to consolidate and streamline the insolvency and bankruptcy laws. It aims to provide a comprehensive framework for resolving corporate insolvency, individual insolvency, and the liquidation of entities. Central to the effective implementation of the IBC is the interpretation of its provisions and principles. This article explores the key aspects of interpreting the Insolvency and Bankruptcy Code 2016 and sheds light on its significance in shaping the insolvency and bankruptcy landscape in India.

Legislative Intent and Objectives

To interpret the IBC effectively, it is essential to understand the legislative intent and objectives behind its enactment. The primary goal of the IBC is to promote a time-bound resolution process for insolvent entities while maximizing the value of their assets. It seeks to strike a balance between the interests of creditors and debtors, encourage entrepreneurship, and facilitate the ease of doing business.

Textual Interpretation

Textual interpretation involves analyzing the language and provisions of the IBC to determine their meaning and scope. It requires a careful examination of definitions, provisions, and their interplay within the code. The judiciary plays a significant role in interpreting the code’s provisions and resolving any ambiguities or conflicts that may arise.

Principles of Economic and Commercial Viability

One crucial aspect of interpreting the IBC is the emphasis on economic and commercial viability. The code seeks to promote the resolution of insolvent entities as a going concern whenever possible, to preserve jobs, maintain operations, and maximize the value of assets. Courts and tribunals consider the feasibility and viability of a resolution plan while interpreting and applying the IBC.

 Precedents and Judicial Interpretation

As the IBC is relatively new legislation, judicial precedents play a vital role in interpreting its provisions. Courts and tribunals have issued several judgments that have shaped the interpretation and implementation of the code. These precedents provide guidance and clarity on various aspects, such as the eligibility criteria for resolution applicants, the rights of creditors, and the hierarchy of claims.

Harmonious Construction with Other Laws

The IBC is a comprehensive legislation that interacts with various other laws and regulations. While interpreting the code, courts strive for harmonious construction with other applicable laws, such as the Companies Act, Securities and Exchange Board of India (SEBI) regulations, and other statutes. This approach ensures consistency and avoids conflicts between different legal frameworks.

Balancing Stakeholder Interests

The IBC aims to balance the interests of all stakeholders involved, including creditors, debtors, and shareholders. Courts and tribunals interpret the code with the objective of protecting the rights and interests of all parties and ensuring a fair and equitable resolution process.

Evolution and Amendments

The interpretation of the IBC is not static and evolves over time. The government may introduce amendments to address practical challenges and clarify ambiguous provisions. Judicial pronouncements also contribute to the evolution of the interpretation of the code. Stakeholders must stay updated on these developments to ensure compliance and effective utilization of the code.

Latest Case Laws

Case Title:

M/s Sunflag Iron & Steel Co. Ltd vs M/s. J. Poonamchand & Sons

The Bombay High Court has ruled that the mere filing of an application under Section 7(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) is not enough to invoke the bar of Section 238 of the Code. Thus, the same would not bar the court from entertaining an application under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “A&C Act”) for the appointment of an Arbitrator.

The bench of Justice Avinash G. Gharote held that there is no inconsistency between the provisions of the A&C Act and the IBC since the provisions of Section 238 of the IBC would come into play only after an order has been passed by the Adjudicating Authority under Section 7(5) of the Code.

Case Title:

M/S Next Education India Pvt. Ltd. v M/S K12 Techno Services Pvt. Ltd. Citation: 2023 Live Law (SC) 270

According to a ruling by the Supreme Court Bench of Justice M.R. Shah and Justice C.T. Ravikumar, when a petition under Section 9 of the IBC is based on multiple invoices, some of which are time-barred, NCLT must consider the remaining invoices that are still within the statute of limitations and determine whether they exceed the minimal limit of Rs. 1 Crore. The fact that some of the invoices are past due cannot be used as the primary justification for dismissing the Section 9 petition.


The interpretation of the Insolvency and Bankruptcy Code 2016 is a crucial aspect of its implementation. It involves understanding the legislative intent, analyzing textual provisions, considering economic viability, and drawing guidance from judicial precedents. By promoting a fair, efficient, and time-bound insolvency resolution process, the interpretation of the IBC plays a pivotal role in shaping the insolvency and bankruptcy landscape in India.

Disclaimer: The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinions before relying upon the article. For more information, please contact us at ibc@centrik.in.

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