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The Insolvency and Bankruptcy Code, 2016 is listed for passage in Rajya Sabha today.  Last week, Lok Sabha passed the Code with changes recommended by the Joint Parliamentary Committee that examined the Code.[1],[2]  We present answers to some of the frequently asked questions in relation to the Insolvency and Bankruptcy Code, 2016. Why do we need a new law?Time resolve insolvency1 As of 2015, insolvency resolution in India took 4.3 years on an average.  This is higher when compared to other countries such as United Kingdom (1 year) and United States of America (1.5 years).  Figure 1 provides a comparison of the time to resolve insolvency for various countries.  These delays are caused due to time taken to resolve cases in courts, and confusion due to a lack of clarity about the current bankruptcy framework. What does the current Code aim to do? The 2016 Code applies to companies and individuals.  It provides for a time-bound process to resolve insolvency.  When a default in repayment occurs, creditors gain control over debtor’s assets and must take decisions to resolve insolvency within a 180-day period.  To ensure an uninterrupted resolution process, the Code also provides immunity to debtors from resolution claims of creditors during this period. The Code also consolidates provisions of the current legislative framework to form a common forum for debtors and creditors of all classes to resolve insolvency. Who facilitates the insolvency resolution under the Code? The Code creates various institutions to facilitate resolution of insolvency.  These are as follows:

  • Insolvency Professionals: A specialised cadre of licensed professionals is proposed to be created. These professionals will administer the resolution process, manage the assets of the debtor, and provide information for creditors to assist them in decision making.
  • Insolvency Professional Agencies: The insolvency professionals will be registered with insolvency professional agencies. The agencies conduct examinations to certify the insolvency professionals and enforce a code of conduct for their performance.
  • Information Utilities: Creditors will report financial information of the debt owed to them by the debtor. Such information will include records of debt, liabilities and defaults.
  • Adjudicating authorities: The proceedings of the resolution process will be adjudicated by the National Companies Law Tribunal (NCLT), for companies; and the Debt Recovery Tribunal (DRT), for individuals. The duties of the authorities will include approval to initiate the resolution process, appoint the insolvency professional, and approve the final decision of creditors.
  • Insolvency and Bankruptcy Board: The Board will regulate insolvency professionals, insolvency professional agencies and information utilities set up under the Code.  The Board will consist of representatives of Reserve Bank of India, and the Ministries of Finance, Corporate Affairs and Law.

What is the procedure to resolve insolvency in the Code? The Code proposes the following steps to resolve insolvency:

  • Initiation: When a default occurs, the resolution process may be initiated by the debtor or creditor. The insolvency professional administers the process.  The professional provides financial information of the debtor from the information utilities to the creditor and manage the debtor’s assets.  This process lasts for 180 days and any legal action against the debtor is prohibited during this period.
  • Decision to resolve insolvency: A committee consisting of the financial creditors who lent money to the debtor will be formed by the insolvency professional. The creditors committee will take a decision regarding the future of the outstanding debt owed to them.  They may choose to revive the debt owed to them by changing the repayment schedule, or sell (liquidate) the assets of the debtor to repay the debts owed to them.  If a decision is not taken in 180 days, the debtor’s assets go into liquidation.
  • Liquidation: If the debtor goes into liquidation, an insolvency professional administers the liquidation process. Proceeds from the sale of the debtor’s assets are distributed in the following order of precedence: i) insolvency resolution costs, including the remuneration to the insolvency professional, ii) secured creditors, whose loans are backed by collateral, dues to workers, other employees, iii) unsecured creditors, iv) dues to government, v) priority shareholders and vi) equity shareholders.

What are some issues in the Code that require consideration?

  • The Bankruptcy Board (regulator) will regulate insolvency professional agencies (IPAs), which will further regulate insolvency professionals (IPs).  The rationale behind multiple IPAs overseeing the functioning of their member IPs, instead of a single regulator is unclear. The presence of multiple IPAs  operating simultaneously could enable competition in the sector. However, this may also lead to a conflict of interest between the regulatory and competitive goals of the IPAs.  This structure of regulation varies from the current practice where the regulator directly regulates its registered professionals.  For example, the Institute of Chartered Accountants of India (which regulates chartered accountants) is directly responsible for regulating its registered members.
  • The Code provides an order of priority to distribute assets during liquidation. It is unclear why: (i) secured creditors will receive their entire outstanding amount, rather than up to their collateral value, (ii) unsecured creditors have priority over trade creditors, and (iii) government dues will be repaid after unsecured creditors.
  • The smooth functioning of the Code depends on the functioning of new entities such as insolvency professionals, insolvency professional agencies and information utilities.  These entities will have to evolve over time for the proper functioning of the system.  In addition, the NCLT, which will adjudicate corporate insolvency has not been constituted as yet, and the DRTs are overloaded with pending cases.

 


 

  1. The Insolvency and Bankruptcy Code, 2016, http://www.prsindia.org/administrator/uploads/media/Bankruptcy/Bankruptcy%20Code%20as%20passed%20by%20LS.pdf.
  2. Report of the Joint Committee on the Insolvency and Bankruptcy Code, 2015, April 28, 2016, http://164.100.47.134/lsscommittee/Joint%20Committee%20on%20Insolvency%20and%20Bankruptcy%20Code,%202015/16_Joint_Committee_o n_Insolvency_and_Bankruptcy_Code_2015_1.pdf

A version of this blog appeared in the Business Standard on May 7, 2016.

This blog has been updated on Jan 19, 2021 to also cover the Madhya Pradesh Ordinance which was promulgated earlier in the month. The comparison table has also been revised accordingly.

On November 27, 2020, the Uttar Pradesh (UP) Prohibition of Unlawful Conversion of Religion Ordinance, 2020 was promulgated by the state government. This was followed by the Madhya Pradesh (MP) government promulgating the Madhya Pradesh Freedom of Religion Ordinance, 2020, in January 2021. These Ordinances seek to regulate religious conversions and prohibit certain types of religious conversions (including through marriages). The MP Ordinance replaces the MP Dharma Swatantra Adhiniyam, 1968, which previously regulated religious conversions in the state. Few other states, including Haryana and Karnataka, are also planning to introduce a similar law.  This blog post looks at existing anti-conversion laws in the country and compares the latest UP and MP Ordinances with these laws.

Anti-conversion laws in India

The Constitution guarantees the freedom to profess, propagate, and practise religion, and allows all religious sections to manage their own affairs in matters of religion; subject to public order, morality, and health.  To date, there has been no central legislation restricting or regulating religious conversions. Further, in 2015, the Union Law Ministry stated that Parliament does not have the legislative competence to pass anti-conversion legislation. However, it is to be noted that, since 1954, on multiple occasions, Private Member Bills have been introduced in (but never approved by) the Parliament, to regulate religious conversions. 

Over the years, several states have enacted ‘Freedom of Religion’ legislation to restrict religious conversions carried out by force, fraud, or inducements.  These are: (i) Odisha (1967), (ii) Madhya Pradesh (1968), (iii) Arunachal Pradesh (1978), (iv) Chhattisgarh (2000 and 2006), (v) Gujarat (2003), (vi) Himachal Pradesh (2006 and 2019), (vii) Jharkhand (2017), and (viii) Uttarakhand (2018). Additionally, the Himachal Pradesh (2019) and Uttarakhand legislations also declare a marriage to be void if it was done for the sole purpose of unlawful conversion, or vice-versa. Further, the states of Tamil Nadu (2002) and Rajasthan (2006 and 2008) had also passed similar legislation.  However, the Tamil Nadu legislation was repealed in 2006 (after protests by Christian minorities), while in case of Rajasthan, the bills did not receive the Governor’s and President’s assent respectively.  Please see Table 2 for a comparison of anti-conversion laws across the country.  

In November 2019, citing rising incidents of forced/fraudulent religious conversions, the Uttar Pradesh Law Commission recommended enacting a new law to regulate religious conversions. This led the state government to promulgate the recent Ordinance in 2020. Following UP, the MP government also decided to promulgate an Ordinance in January 2021 to regulate religious conversions. We discuss key features of these ordinances below. 

What do the UP and MP Ordinances do?

The MP and UP Ordinances define conversion as renouncing one’s existing religion and adopting another religion. However, both Ordinances exclude re-conversion to immediate previous religion (in UP), and parental religion (in MP) from this definition. Parental religion is the religion to which the individual’s father belonged to, at the time of the individual’s birth. These Ordinances prescribe the procedure for individuals seeking to undergo conversions (in the states of UP and MP) and declare all other forms of conversion (that violate the prescribed procedures) illegal.  

Procedure for conversion: Both the Ordinances require: (i) persons wishing to convert to a different religion, and (ii) persons supervising the conversion (religious convertors in UP, and religious priests or persons organising a conversion in MP) to submit an advance declaration of the proposed religious conversion to the District Magistrate (DM). In both states, the individuals seeking to undergo conversion are required to give advance notice of 60 days to the DM. However, in UP, the religious convertors are required to notify one month in advance, whereas in MP, the priests or organisers are also required to notify 60 days in advance. Upon receiving the declarations, the DMs in UP are further required to conduct a police enquiry into the intention, purpose, and cause of the proposed conversion. No such requirement exists in the MP Ordinance, although it mandates the DM’s sanction as a prerequisite for any court to take cognisance of an offence caused by violation of these procedures.

The UP Ordinance also lays down a post-conversion procedure. Post-conversion, within 60 days from the date of conversion, the converted individual is required to submit a declaration (with various personal details) to the DM. The DM will publicly exhibit a copy of the declaration (till the conversion is confirmed) and record any objections to the conversion.  The converted individual must then appear before the DM to establish his/her identity, within 21 days of sending the declaration, and confirm the contents of the declaration.  

Both the Ordinances also prescribe varying punishments for violation of any procedure prescribed by them, as specified in Table 2.

Prohibition on conversions: Both, the UP and MP Ordinances prohibit conversion of religion through means, such as: (i) force, misrepresentation, undue influence, and allurement, or (ii) fraud, or (iii) marriage.  They also prohibit a person from abetting, convincing, and conspiring to such conversions. Further, the Ordinances assign the burden of proof of the lawfulness of religious conversion to: (i) the persons causing or facilitating such conversions, in UP, and (ii) the person accused of causing unlawful conversion, in MP. 

Complaints against unlawful conversions: Both Ordinances allow for police complaints, against unlawful religious conversions, to be registered by: (i) the victim of such conversion, (ii) his/her parents or siblings, or (iii) any other person related to them by blood, and marriage or adoption. The MP Ordinance additionally permits persons related by guardianship or custodianship to also register a complaint, provided they take the leave of the court. Further, the MP Ordinance assigns the power to investigate such complaints to police officers of the rank of Sub-Inspector and above.

Marriages involving religious conversion: As per the UP Ordinance, a marriage is liable to be declared null and void, if: (i) it was done for the sole purpose of unlawful conversion, or vice-versa, and (ii) the religious conversion was not done as per the procedure specified in the Ordinance. Similarly, the MP Ordinance declares a marriage null and void, if: (i) it was done with an intent to convert a person, and (ii) the conversion took place through any of the prohibited means specified under the Ordinance. Further, the MP Ordinance explicitly provides for punishment (as specified in Table 2) for the concealment of religion for the purpose of marriage. 

Right to inheritance and maintenance: The MP Ordinance additionally provides certain safeguards for women and children. It considers children born out of a marriage involving unlawful religious conversion as legitimate and provides for them to have the right to property of only the father (as per the law governing the inheritance of the father). Further, the Ordinance provides for maintenance to be given to: (i) a woman whose marriage is deemed unlawful under the Ordinance, and (ii) her children born out of such a marriage.

Punishment for unlawful conversions: Both the MP and UP Ordinances provide for punishment for causing or facilitating unlawful religious conversion, as specified in Table 1. Also, all offences under both Ordinances are cognisable and non-bailable. 

Additionally, under the UP Ordinance, the accused will be liable to pay compensation of up to five lakh rupees to the victim of conversion and repeat offences will attract double the punishment specified for the respective offence. However, under the MP Ordinance, each repeat offence will attract punishment of a fine, and imprisonment between five and 10 years. Further, it provides for the Session Court to try an accused person, at the same trial, for: (i) an offence under this Ordinance, and (ii) also for other offences he has been charged with, under the Criminal Procedure Code, 1973.

Table 1: Punishments prescribed under the UP and MP Ordinances for offences by individuals for causing/facilitating the conversion

Punishment

Uttar Pradesh

Madhya Pradesh

Mass conversion (conversion of two or more persons at the same time)

Term of imprisonment

3-10 years

5-10 years

Fine Amount 

Rs 50,000 or more

Rs 1,00,000 or more

Conversion of a minor, woman, or person belonging to SC or ST

Term of imprisonment

2-10 years

2-10 years

Fine Amount 

Rs 25,000 or more

Rs 50,000 or more

Any other conversion

Term of imprisonment

1-5 years

1-5 years 

Fine Amount 

Rs 15,000 or more 

Rs 25,000 or more

If any of the above three offences are committed by an organisation, under the UP Ordinance, the registration of the organisation is liable to be cancelled and grants or financial aid from the state government is liable to be discontinued. Under the MP Ordinance, only the registration of such organisations is liable to be cancelled.

* - It is not clear if the Chhattisgarh Law is currently in force or not.

** - Madhya Pradesh originally enacted a law in 1968. And has now replaced it with an Ordinance in 2021.

Note: For Odisha, Jharkhand, and Uttarakhand, some of the penalties have been specified in the Rules published under their respective Acts. For the rest of the states, the penalties have been specified in the respective Acts itself.