The law relating to Insolvency and Bankruptcy in India has recently become a hallmark of dynamism with the passage of the Insolvency and Bankruptcy Code, 2016 (Code) and is witnessing new horizons. The legal regime has undergone a paradigm shift to reach a position where the law is facilitating faster resolution of stressed assets, while also opening avenues for acquisition of businesses as going concerns.
The Code has received wide-spread acclaim at resolving the stress situation in the country’s financial system. To keep pace, the legislature and the Insolvency and Bankruptcy Board of India, a dynamic institution, has been proactive in making amendments to the Code and the regulations to address the changing needs in insolvency resolution processes. This effort is being further supplemented by the judiciary by putting to rest various issues that have been creating a great deal of hurdles in giving effect to the provisions of the Code. Other stakeholders such as the Securities and Exchange Board of India (SEBI) have also notified various changes to further streamline the corporate insolvency resolution process towards the advancement of the objective of the Code.
Strengthening the debt market and business landscape
The Code is a path-breaking legislation, welcomed as a breath of fresh air. It is revitalising the staggering debt market in India that is reeling under the enormous pressure of non-performing assets, bad debts and banking frauds. In nearly two years of its operation, the Code has been a game changer for all stakeholders in the country. The quarterly newsletter of Insolvency and Bankruptcy Board of India pegs the average at 69.7 per cent of total claims admitted in the 12 cases that had been resolved in the January-March quarter of 2018.
The Code consolidates the extant laws such as Sick Industrial Companies Act, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, and Recovery of Debt Due to Banks and Financial Institutions Act, to one where the insolvency resolution process is streamlined and only two adjudicating authorities are involved – a departure from the old framework that involved multiple fora. The emphasis of the Code has always been on providing a time-bound resolution process, which transfers control of the stressed asset from the defaulting directors / promoters to the creditors. Like every other new legislation, the Code has also been subject to various interpretational challenges – however, the judiciary, including the National Company Law Tribunal (NCLT), the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court, has been an active participant in providing a texture to the Code which is conducive for business and for the overall growth of the economy. It is also notable that the resolution plans selected by the committee of creditors is subject to further approval of the NCLT under Section 31 of the Code, which makes the plan binding on the corporate debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. This provides a great degree of certainty to the process.
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