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Fresh Start Process

The Insolvency and Bankruptcy code is a landmark piece of legislation providing a facelift to the existing regime in the areas of restructuring and the insolvency and bankruptcy in India. The code provided the biggest missing piece in the existing jigsaw of laws by establishing a framework for time-bound resolution for defaulting debts. Today after the implementation of the code, India now has an insolvency and bankruptcy framework which is comparable with international standards. The journey of the code is long-lasting as the code will go a long way in bringing an element of certainty and predictability to commercial transactions in the country thereby providing Ease of Doing Business.

Part III of the code deals with the insolvency resolution and bankruptcy for individuals and partnership firms, where the amount of default is not less than Rs.1, 000. The adjudicating authority of insolvency resolution for the individual and partnership firms would be the Debt Recovery Tribunal (DRT).

The fresh start process is enshrined under Chapter II of Part III of the code. The fresh start process an opportunity to a debtor who is unable to pay his debts to clear off his debts in a time-bound manner on fulfilling the prescribed condition for the fresh start of his qualifying debts. Since the essence of the code is to have a time-bound process and so on this note the time lag for completion of entire process of fresh start is 180 days, to be counted from the date of admission of application for the fresh start process.

“The intent of fresh start process to provide debtors with comparatively small debts a chance to discharge off their debts and restart afresh without any liability. The fresh start process is an alternative to the insolvency and bankruptcy processes. To prevent and curb the abuse of this debtor centric process, the code has aligned certain restrictions on the applicability and validity of fresh start process.”

For availing and undergoing the fresh start process, the first step is to satisfy the essential prerequisites related to fresh start process. Once all the prerequisites are met, an application may be submitted either by the debtor himself or by the resolution professional on behalf of the debtor. Pursuant to this, the code provides for an evaluation of the application by resolution professional, followed by a decision on its acceptance or rejection by the Debt Recovery Tribunal within 14 days of receiving the resolution professional’s recommendations on the application.

Where the application is accepted by the DRT, the code provides for legal protection from both current as well as future legal proceedings against the applicant/debtor for a period of 180 days from the date of admission of application. However, importantly the code provides the creditors in such a situation that bestows on them a right to object any of the facts/grounds listed in an accepted application for fresh start.

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