Bankruptcies and Insolvencies: A journey from the past to the present [1] – By Angad Mehta


Let’s begin at the beginning

We have a very old relationship with debt and credit. It is so old that this relationship precedes our most recent infatuation – money. Society at its inception divided humans into debtors and creditors. The anthropological evidence points to the existence of ‘human economies’, where debts were and could be repaid in human beings. Humans were commodities, currencies, some more valuable than others [2].

Thankfully, due to the social innovation of fungible money, human economies gave way to the ‘monetary economies’ we know and love today. The main cause of this shift appears to be a sound(er) political system. A means for the people of the time to organize at scale. From the seashells of the early tribes in Central Africa, to the Lydian Stater, arguably the world’s first currency. The point here is that money and political stability seem to go hand in hand.  

We trace the evolving notion of debtors, creditors, insolvents, corporations, and liquidators starting from the rise of the British Empire and concluding with the role of Insolvency Resolution Professionals in the current pandemic. We are no doubt currently writing a significant chapter of human history and though uncertainties abound, it is our duty and prerogative to look at the past and the present to arrive at a sustainable model for the future.

Development of an Official Liquidator [3]

In primitive times, credit as an institution had its basis in an individual’s confidence in the counter parties’ good faith. Therefore, payment was contemporaneous with delivery of goods. However, with economic progress, suspension of payment was introduced, although suspension was an aberration. Non-payment entailed severe consequences, for e.g., servitude, labour, violence against the creditor, confinement of the creditor’s family, etc.

In Roman law, the borrower was said to be Author the creditor, i.e., his person was pledged for repayment of a loan. The non-repayment of debt often entailed slavery. Whilst initially recovery of debts was restricted to the person of the debtor, there was a gradual shift towards execution against proprietary interests/holdings of the debtor as well. The concept of an individual being assigned/nominated to manage the debtors estate traces its history back to the days of the Roman emperor, Marcus Aurelius, and it was under his regime that creditors obtained a private right to recover dues from the estate of the debtor. It is here that we first see the development of what we now call an Official Liquidator or an Insolvency Professional, i.e., someone responsible for managing the estate and settling the debts of the debtor. Under this regime, a curator was committed with the management of the estate of a debtor. The curator’s duty was to settle the debts of the debtor with the creditor on a pro rata basis.

The Tudor touch to bankruptcy laws [4]

A good place to start our journey into English Bankruptcy laws is the reign of Henry VIII of England. It turns out that he played a significant role in the development of the bankruptcy laws as we recognize them today. It is during his reign, in 1542, that the word ‘bankrupt’ was first used in an English Legislation, though it was ‘not applied to the agent or person, but to the act or thing, as in the title to the Statute 34 & 35 Henry VIII: “An act against such persons as do make bankrupt.“’

Prior to the reign of Henry VIII, debt and credit was mostly created by the private traders and  merchants   and  was regulated by the Lex mercatoria (the Law Merchant), a set of customary rules and regulations that existed in Europe during the Medieval Age. In 1283, the Statute of Acton-Brunell was passed by Edward I which sought to remedy the, still current, mischief of debtors not paying their debts in a timely manner and there being no speedy resolution process. To curb this mischief, the now common right of a merchant (creditor) to summon his debtor through a court process was introduced, and if  ‘the debts were not paid, the debtor’s goods were to be sold at a fair appraisement and the proceeds delivered to the creditor. If the debtor was insolvent, he was to be imprisoned until a settlement with the creditor should be made’ (2).  Edward I was trying to increase the ease of doing business, especially for foreign traders.

There were certain other issues that existed in the bankruptcy laws prior to Henry VIII, like, ‘the withdrawal of assets by fraudulent alienations for the benefit of favored creditors, and the withdrawal of debtors so as to evade legal process, there was also the lack of such a thing as rateable distribution of an insolvent’s assets among all creditors.’

Through the Acts of 34 and 35, Henry VIII tried to fix these issues. He ‘aimed to establish a summary proceeding, by which the property of the fraudulent debtor should be at once seized and secured for the benefit of all the creditors, and by which all unfair alienations, even to favored creditors, should be avoided.’ Thus, through his Acts of 34 and 35, Henry VIII laid down the statutory framework for thecompulsory administration and distributionof the fraudulent debtor’s assets ‘on the basis of a statutable equity or equality among all the creditors… Hence the two great features of all bankruptcy law, as we know it today, have their origin in the Acts of 1542 : a summary collection or realization of the assets, and then an administration or distribution for the benefit of all creditors.

As the reign of Henry VIII was winding down, bankruptcy law has the developed the power to summon, examine debtors and to collect and then to administer and distribute the assets, rateably. It, however, has to be noted, that despite its intent, the said Acts of Henry VIII ‘does not seem to have been of much practical effect’. None the less, it set the ball rolling.

This was followed by the Fraudulent Conveyances Act 1571 (The Act Of 13 Elizabeth) which realized that despite earlier statutes, fraudulent bankrupts were on the rise and this naturally had to be curtailed. It was also deemed necessary to determine who was to be declared a bankrupt. This Act laid the formal groundwork for avoiding fraudulent transactions.

So far, though Debtors could be summoned, the formal concept of ‘examination’ of a debtor was not yet found in  any statute. This power was introduced during the reign of James I, in the amending Act Of I Jac., c. 15 (1603). It was complained that thepractices of bankrupts  ‘were so secret and so subtle that they could hardly be found out or brought to light, and the commissioners were given enlarged powers to imprison offenders, if they were endeavouring to evade full inquiry’ 2. This was a very harsh provision at the time, as James I out did Henry VIII and Elizabeth I in punishing debtors by enacting  laws that required ‘pillory and the loss of an ear should be the penalty imposed upon debtor who failed to show that bankruptcy was due solely to misfortune.’.

However as the early 1700s came to a close, insolvents who were guilty of little more than bad fortune were finally catching a break. The Statutes of 4 Anne, c. 17 (1705), and 10 Anne, c. 15 (1711 ), introduced the concept of a ‘discharge’ of a debtor, a concept that entered our statute books through the Presidency-Towns Insolvency Act, 1909.  This aspect of discharge is what truly completes the history of English bankruptcy. “This provision was probably the consequence not only of pity, but also of the feeling that mercantile credit is given in the interest of the creditor as well as of the debtor; that the giving of credit necessarily involves some risk; that it should be the business of the trader to insure against this loss by adding on a percentage for the credit which he advances; and that all the debtor ought to pledge is his estate, not his future earnings, and certainly not his personal liberty.” [2]

From the individual to the corporation

Forming enterprises is a very human thing to do. But beginning any enterprise saddled in debt is no way to start. The only way to raise capital for the longest time was through debt. There was no equity. With the birth of the concept of equity, many individuals could contribute to one undertaking, importantly, without the undertaking becoming a debtor and not being bound to pay, often usurious, interests. This mechanism is first noted to have its origins in China, under the Tang Dynasty (618-907)  and the  Song Dynasty (960-1279). Though the phrase ‘joint-stock company’ had not been coined at the time. yet this is precisely what these undertakings were.

Around 1250, joint stock companies showed up on France as the Société des Moulins du Bazacle, or Bazacle Milling Company, and in 1553, in England as the Company of Merchant Adventurers to New Lands. They also caused the infamous South Sea Bubble.

About 50 years later came the East India Company, incorporated by way of an English Royal Charter by Elizabeth I on 31st December, 1600.  The Dutch East India Company was also formed in 1602. A worthy mention here is of the Mississippi Company (Compagnie du Mississippi)  which created a bubble so big that when it popped in 1719-20, it took out the world’s first and then only central bank issuing paper money, Banque Générale. The crash of the bank and the Mississippi Company laid the groundwork for the French revolution in 1789, which in turn laid the groundwork for the rise of the British Empire with their successful corporations and their solvent central bank, Bank of England which was founded in 1694.


In 1844, two historically important acts were passed; the Joint Stock Company Act, and the Winding-Up Act. The Joint Stock Company Act ‘enabled companies to become incorporated by registering their Deeds of Settlement with the Board of Trade” and, for the first time, attempted to draw a clear-cut distinction between companies and partnerships by providing that associations of more than 25 persons (reduced to the present 20 in 1856) should be unlawful unless registered under the Act or formed under charter or statute. This Act, however, denied one of the most sought after consequences of incorporation-freedom from personal liability; its object was to regulate, not to encourage, speculation.’ [5]

Under Section 66 of this Act, a judgment against the Company ‘could be enforced by execution not only against the assets of a company but also against the property of any shareholder who had not ceased to be such for three years. And by section 67 a shareholder who had suffered from execution had a remedy over against the company’ [6]. The distinction between the individual and the corporation was still blurry.

To regulate the winding up of companies, the Parliament of the time passed a series of legislations, starting with the Winding-Up Acts of 1844, 1848 and 1849.  These Acts were the first bloc of legislations regulating the dissolution and winding-up of Companies. They, however, did not provide any respite from personal liability because the members of the Joint Stock Company were still fundamentally responsible for the debts of the Company.  

This issue was fixed by way of the Limited Liability Act, 1855 which gave members immunity from being tried for the debts of the Company. This Act also required the directors of a Company to initiate winding up of their company if three fourths of its capital was lost. Since the members could no longer be held personally liable, this was incorporated to protect the company’s creditors.

1856 onwards

The second tranche of litigations begin with the introduction of the Joint-Stock Companies Act, 1856, which sought to combine the Acts of 1844, the Winding-Up Acts, and the Limited Liability Act of 1855. This was also the Act gives us the concepts of ‘Memorandum of Association’ and ‘Articles of Association’. This segues into the Companies Act, 1862, on which much of modern day companies law practices are based. The separation of the individual and the corporation is finally complete with the judgment  in Salomon v A Salomon & Co Ltd [1896] UKHL 1, in which the House of Lords established the concept of the ‘corporate veil’ and liberated shareholders from any personal liability for the debts incurred by a Company they held shares in.

To round things up, the water fall mechanism that forms such an important part of modern day insolvency practice, was introduced by way of the Preferential Payments in Bankruptcy Act, 1888, which ‘gave priority in winding up to certain debts, e. g., parochial rates, and wages, to a certain limit, of clerks, servants, laborers and work- men’ (4).

The Evolution of Insolvency, Bankruptcy and Resolutions in India.

India starts in corporate journey with the introduction of the Indian Companies Act of 1882, which was in large part modeled on the Companies Act of 1862. Official Liquidators were introduced by way of Section 141 of this Act. To deal with individual insolvencies, the Presidency- Towns Insolvency Act, 1909 was introduced, wherein under,  a court in the Presidency Towns had the power to appoint Official Assignees to receive the property of the debtors and the manage the debtor’s affairs. However, this Act barred any petition for insolvency against any corporation or against any association or company, which were to be regulated by Part IV of the Act of 1882. The Provincial Insolvency Act, 1920 was applicable to the rest of India.

The role of the Official Liquidator stayed fairly stable and static during the many iterations our Companies Acts’ underwent. From the 1882 Act, the Companies Act, 1913 was introduced. This gave way to the Act of 1956, which was the Act that was ruling the roost when most legal practitioners of this generation joined the profession. We may say that the law once again evolved with the current Companies Act of 2013. However, the largest departure we saw in terms of insolvency and bankruptcy laws was with the Insolvency and Bankruptcy Code, 2016, (“Code”) which introduced a new class of professionals, the Insolvency Professionals (“IPs”).

From fairly early on, it was realized that it was not sufficient to provide a mechanism for a company to be able to declare itself insolvent and wind up its operations. A need was felt for the company to have a chance at revival, restarting its business, even if it be under a different management. The first step towards this was the Sick Industrial Companies Act, 1985 (SICA), under which a two- tiered board system was set up to help reconstitute sick companies and help creditors mitigate their potential losses. A wound-up company is usually bad for the economy, the creditor, the shareholders, the workers – everyone really.

In 1986, the Sick Industrial Companies (Special Provisions) Act, 1985 was enacted with the avowed objective of “…securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto…”, and under SICA, the Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) were established. Whilst the avowed objective of SICA was laudable, the BIFR and AAIFR went on to acquire notorious reputations as cases continued to languish. When SICA was found wanting, the Recovery of Debts Due to Banks and Financial Institutions Act, 1996 was introduced which created the Debt Recovery Tribunals. The idea here was to provide institutional lenders a forum to seek recovery of their debts that would be swifter than filing suits before the Civil Courts.  Under this regime too, debts kept ballooning and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) was introduced. Whilst this sought to give institutional lenders a strong tool to start recovery of their debts under Section 13 of SARFAESI, results were once again, less than ideal.  Recently, even the Reserve Bank of India has introduced the Prudential Framework for Resolution of Stressed Assets in 2019 with a view to providing a framework for early recognition, reporting and time bound resolution of stressed assets.

This brings us back to the Insolvency and Bankruptcy Code of 2016.

The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. As we have noted above, prior to the IBC, the insolvency was governed by two legislations: (i) the Presidency Towns Insolvency Act, 1909 which covered the insolvency of individuals and of partnerships and associations of individuals in the three erstwhile Presidency towns of Chennai, Kolkata and Mumbai; and (ii) the Provincial Insolvency Act, 1920 which was the insolvency law for individuals in areas other than the Presidency towns, and dealt with insolvency of individuals, including individuals as proprietors. As the law relating to insolvency in India was scattered, complex, overlapping, and increasingly ineffective, it was proposed to replace the existing insolvency laws with a unified legislation that would comprehensively resolve insolvency for all companies, limited liability partnerships, partnership firms and individuals. The rationale for the Code was first set out in the Bankruptcy Law Reforms Committee Report (BLRC Report). The BLRC Report suggested the creation of an industry of regulated professionals, i.e., Insolvency Professionals, who would be delegated the task of monitoring and managing matters of business of the undertaking undergoing the insolvency (resolution) process.

The admission to the rolls of an Insolvency Professional (IP) is governed by the Insolvency & Bankruptcy Board of India (Insolvency Professional) Regulations, 2016 (IP Regulations). These regulations mandate, inter alia, the clearance of an examination before one can be empaneled as an Insolvency Professional. [7]

An IP is appointed as an Insolvency Resolution Professional (“IRP”) under the Code in one of two ways-

(i) if he/she is nominated as the IRP in the insolvency application; or

(ii) if no nomination is made in the insolvency application, the Adjudicating Authority makes a reference to the Insolvency & Bankruptcy Board of India (IBBI), which shall recommend the name of a person to be appointed as the IRP. [8]

A series of repercussions flow from the appointment of an individual as an IRP-

(i) the management of the Corporate Debtor vests with the IRP;

(ii) the powers of the Board of Directors of the Corporate Debtor stand superseded and all powers will be exercised by the IRP;

(iii) the IRP shall have access to all documents and records of the Corporate Debtor and all officers and managers of the Corporate Debtor shall report to the IRP; and

(iv) financial institutions maintaining the accounts of the Corporate Debtor shall act on the instructions of the IRP. [9] Section 18 of the Code outlines the duties of the IRP. Section 20 requires the IRP to manage the Corporate Debtor as a going concern, and for the purposes of such, to appoint accountants, legal, or other professionals, to enter into agreements/contracts on behalf of the Corporate Debtor or to amend or modify existing agreements/contracts, to raise interim finance, to issue instructions to the personnel Corporate Debtor to keep the Corporate Debtor as a going concern, and take all other such actions that are required to keep the Corporate Debtor as a going concern.

Subsequent to the admission of an insolvency application, one often sees individuals based in cities other than where the Corporate Debtors registered office is, being appointed as an IRPs. Since, in the first instance, it is the duty of the IRP to take over the management and records of the Corporate Debtor, it is our understanding that the IRP must physically himself/herself initially take over the management of the Corporate Debtor, and we say this because neither the Code nor any of the Regulations permit for an IRP’s ‘authorised representative’ to perform or undertake the duties of the IRP. Of significance is also the Form-2 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (which is the written communication to be provided by the proposed IRP), and which is also a self-certification by the IRP to him/herself of his/her eligibility.Perhaps it is for this reason as well that even judgments/orders admitting insolvency applications never provide for an IRP’s authorised representatives to assume the powers of and carry out the functions of the IRP, but specifically name only the IRP. The restriction on delegation is also contained in Regulation 7(2)(bb) of the IP Regulations and the circular dated 03rd January 2018 No. IP/0003/2018. [10]

How then is such an IRP to comply with Section 18 of the Code? Prior to the Covid-19 lockdown, this was certainly unproblematic as travel was unrestricted. IRP’s could therefore travel to the registered office of the Corporate Debtor to physically effect a take over the management and records of the Corporate Debtor. However, admission of insolvency proceedings during the lockdown has now raised some interesting legal issues-how is an IRP sitting in New Delhi to comply with Section 18 of the Code for a Corporate Debtor whose registered office is in, say Madras, or Bombay? Can the powers under Section 18 of the Code be delegated by an IRP to an ‘authorised representative’? Can an IRP’s functions be demarcated into essential and non-essential functions? If so, what should be classified as essential and non-essential functions?

The nationwide Covid-19 pandemic has thrown up some major challenges to the legal world, and in particular, how certain functions are to be carried out. Take for example, an insolvency application which is admitted. The insolvency application is admitted during the lockdown period; the Corporate Debtor has its registered office in Madras; the insolvency application nominates an IRP from New Delhi. The public announcement has to be made within 3 days of admission of the insolvency application [11]; proof of claims has to be submitted within fourteen days of the appointment of the IRP [12]; the RP has to be appointed at the first meeting of the Committee of Creditors (COC) [13]; and the Corporate Insolvency Resolution Process (CIRP) has to be completed within 330 days from the commencement date [14]-the IRP and RP are therefore on strict timelines. However, to deal with the current predicament of Covid-19, Regulation 40C has been introduced in the CIRP Regulations to exclude the lockdown period from the CIRP timelines. [15] Yet, we are still witnessing an urge to initiate the CIRP within the lockdown period itself. So practically, how does this play out? What we are now witnessing, and perhaps will for time to come, is the delegation of an IRP’s functions, especially those u/s 17 of the Code.

This is of significance because the neither the Code nor any of the Regulations allow for any delegation of an IRP’s powers. In contrast, the Code provides for delegation of a RP’s authority, with prior approval of 60% voting share of the CoC. [16] Since the Code is silent on the issue, this can be interpreted in one of two ways-

(i) since delegation is not expressly prohibited, it is permissible or

(ii) since delegation is not expressly conferred, it is impermissible. The interpretation must however be in a context. Clearly, the Code provides the RP with much greater powers than the IRP. Thus, if there is a restriction on the RP’s powers to delegate, it is incomprehensible that an IRP would have the power to delegate. The silence in the Code on this issue must therefore necessarily be taken to mean that the Code does not permit for an IRP to delegate powers/duties.

Also,  the Code and Regulations provide for appointment of an IRP by name, not optionally through their ‘authorised representative’.

To sum up, the history of insolvency and bankruptcy law assumes ease of travel and physical presence of the receiver, liquidator, Insolvency Professional — by whatever name called, and in this new era of lock downs and  ‘new-normals’, the old laws will have to adapt to the exigencies and vagaries of the present. What form this will take is yet unclear, but we note this as a point to consider meaningfully, as bankruptcies and insolvencies, for individuals and corporations, are bound to multiply once the dust from the present pandemic clears.  Unprecedented times demand unprecedented measures.


Angad Mehta is an advocate with an independent practice at the NCLT, NCLAT, and Delhi High Court. Apart from court-focused litigation, he specializes in construction project arbitrations and has represented several public companies against the Government of India and the National Highways Authority of India. In 2019, he was empaneled as a panel counsel for the Govt. of Delhi, and has represented the government in several arbitrations before tribunals and before the Delhi High Court.

[1] Authored by Dhrupad Das and Angad Mehta, Counsels. Dhrupad is the founding partner of Panda Law, a boutique firm advising, inter alia, on blockchain technology law and corporate-commercial litigation. Angad is a corporate commercial litigator based in New Delhi. Angad practices at the NCLT, NCLAT and the Delhi High Court.

[2] Debt, the first 5000 years.


[4] University of Pennsylvania Law Review (Volume 67 January, 1919 , Number I)


[6] Columbia Law Review, Vol. 8, No. 6 (Jun., 1908), pp. 461-480

[7] Regulation 3 of the regulations.

[8] Section 16 of the Code.

[9] Section 17 of the Code.


[11] Regulation 6(1) of CIRP Regulations, 2016.

[12] Regulation 6(2)(c) of CIRP Regulations, 2016.

[13] Section 22(2) of the Code.

[14] Section 12 of the Code.


[16] Section 28 of the Code.

Disclaimer: The views or opinions expressed are solely of the author.

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