The Insolvency And Bankruptcy Code, 2016- May 11, 2016

The passage of this Bill will establish an entrepreneur- friendly legal bankruptcy framework for speedy resolution of insolvencies for companies

The bill was necessitated as banks are yet to recover 8 lakh crore in troubled loans from Corporate defaulters. The Bill will help them recover the money. It is a big step in the Prime Ministers efforts of improving ease of doing business in his efforts to achieve Good Governance. Lenders can recover outstanding debts by setting a deadline of 180 days for companies failing which banks can liquidate their assets.

The World Bank estimates that winding up an ailing company in India typically takes four years, or twice as long as in China and Russia, with an average recovery of 25.7 cents on the dollar, one of the worst rates in emerging markets.

Under the new law, a debtor could be jailed for up to five years for concealing property or defrauding creditors. Bankrupt individuals would be barred from contesting elections as well. Currently, over 70,000 liquidation cases are pending in debt recovery tribunals and courts. The new law virtually empowers creditors to decide whether a defaulter is declared insolvent or not, though legally their decision could still be challenged in the higher courts.

Employees and workmen will have the first right to the amount raised in the case of defaulters assets dilution. The Bill mulls the creation of National Company Law tribunal (NCLT) . Appellate body for the same would be NCLAT.

Appropriate changes are being made in Debt Recovery Tribunal (DRT) and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) to match the provisions of this Bill.

The repealed Laws include Partnership Act of 1932, Central Excise Act of 1944, Customs Act of 1962, Income Tax Act of 1961, the Recovery of Debts due to Banks and Financial Institutions Act of 1993, Sarfaesi Act of 2002, Sick Industrial Companies Repeal Act of 2003, Payment and Settlement Systems Act of 2007, Limited Liability Partnership Act of 2008 and Companies Act of 2013. Act5 of 2007, Limited Liability Partnership Act of 2008 and Companies Act of 2013.

The resolution processes will be conducted by licensed insolvency professionals (IPs). These IPs will be members of insolvency professional agencies (IPAs). Information utilities (IUs) will be established to collect, collate and disseminate financial information to facilitate insolvency resolution. The Insolvency & Bankruptcy Board of India will be set up to regulate functioning of IPs, IPAs & IUs.

  1. Not enough emphasis on turnaround/revival
  2. Identifying Expertise to effect a turnaround
  3. In the absence of a well established bond market in the country how would the Funds for Performance Bonds be raised.
  4. How do we avoid induced Bankruptcy proceedings by vested interests
  5. Accountability of bankers also needs to be set to help avoid misuse of the Code Bill.

  6. - Prof. Manish Kelkar