Introduction
The Insolvency and Bankruptcy
Code (IBC), 2016 has been enacted to merge the existing laws related to
insolvency and bankruptcy. The IBC involves standard steps which is viable and
understandable. So, everyone, be it creditors, debtors, companies, or
shareholders etc. shall have a standard perform
for any matters relating to insolvency.
“The IBC has been a real
game changer in the Indian economy’s business reform initiatives in the last
twenty five years. Ease of doing business is ironically the base premise for
enacting the comprehensive Code to exit from the business.”
The IBC has made a spectacular
progress in short span. The recent orders issued by the Adjudicating
Authorities are beginning to have profound impact on defaulting business owners
as the message is loud and clear “settle dues or cede control”.
Why was IBC enacted?
Initially there was Presidency
Towns Insolvency Acts, 1909 which was applicable in Kolkata, Chennai and Mumbai
and the Provincial Insolvency Act 1920 for the rest of India, for regulating
the insolvency laws. The Act applied to individuals and partnerships but
exempted corporations from within its ambit. Post Independence, the bankruptcy
and insolvency were specified in Constitution and with the passage of time
there were numerous acts which governed Insolvency and bankruptcy issues such
as the Sick Industrial Companies (special provision) Act, 1985 (“SICA”),
SARFAESI Act, 2002, the Recovery of Debts due to Banks and financial
institutions Act, 1993 (“RDDBFI Act”), Companies Act, 1956 as well as Companies
act, 2013.
But these regulations have not
yielded satisfactory results. These regimes were high fragmented, borne out of
multiple judicial forums resulting in lack of clarity and certainty of
jurisdiction. Further, we had various adjudicatory bodies/Tribunals to deal
with such issues and matters under different Acts stated above.
So, this led to the unclear
knowledge about the authority as to whom the parties should approach in the
related matters. Hence, this resulted in overlapping of decisions. There was no
common regulatory authority to regulate the rights of the secured or unsecured
creditors, employees etc. or to determine the priority of their claims. Large
number of stressed assets such as NPAs with low recovery rates due to a lack of
enabling environment for the enforcement of creditor’s rights. Moreover there
was no adequate or credible data regarding the assets, indebtedness etc. of
companies which further heighten the problems. Hence large number of
legislations and non-statutory guidelines have made the recovery of debt a
complex and time consuming process.
The IBC is a welcome overhaul
which has directly addressed in resolving the insolvency and bankruptcy issues
of corporates and simultaneously serving creditors and public financial
institutions by helping them in recovery of bad and distress loans and
ultimately tackling Non Performing Assets. The Main objective of Code is
distribution of the effects of a debtor in the most expeditious, equal and economical
mode. The Code lays down the complete procedure of Insolvency Resolution
process which involves collating claims and reviewing the requisite financial
and other relevant records of the company. The introduction of this Code has
brought in ample opportunities for professionals ranging from being appointed
as official liquidator to managing the financial health of corporates in case
of distressed assets.
Present Scenario
Today we have IBC, 2016, which
provides a specialized forum to oversee all liquidation and insolvency
proceedings for individuals, SMEs and Corporates. The Code triggers a uniform
law or process for a valid claim. The Code has replaced all the existing laws
and come up with a uniform procedure to resolve insolvency and bankruptcy
disputes. Now, in case of any dispute, an insolvency professional will be
appointed to take control of the corporate debtor. The whole process or
proceedings get resolved within a standard time limit. In the case of a
default, the time- limit is 180 days, within which the resolution has to be
completed. This can be extended by another 90 days by the adjudicator, depending
on the process. The Code provides a balanced approach between rehabilitation
and recovery and provides for compulsory liquidation it also provides a clearly
–defined waterfall mechanism for payment of debt in the event of liquidation.
The IBC enacted to radically
change the process of insolvency resolution in India, is keenly watched by
economists and jurists as well as businessmen and investors, for the reason that
each aspect of the implementation of law has the potential to critically impact
the ease of doing business in India. For this reason the code is especially
sensitive to interpretation and it is vital that the issues thrown up in its
inaugural year of implementation be recognized and the judicial remark on the
same be understood.
To meet the objectives of
timeliness and value maximization, the IBC has a new institutional set-up
comprising four critical pillars:
- A robust and efficient adjudicating authority to hear
the cases.
- A regulated profession of insolvency professionals
(IPs) to manage the insolvency and bankruptcy cases.
- A regulated competitive industry of information
utilities (IUs) to reduce information asymmetries in the insolvency
resolution process.
- A regulator – the Insolvency and Bankruptcy Board of
India (IBBI) – to perform legislative, executive and quasi-judicial
functions with respect to the IPs, and IUs and draft regulations for the
resolution procedures under IBC.
Five Main
Pillars /Constituents of Code
Conclusion
Overall this legislation is a huge step for a country like India towards
joining top 50 in the World Bank’s Ease of doing Business and has a potential
to bring business practices in India closer to more developed and advanced
markets over a long period of time. Moreover, the code aims to provide for
speedy disposals of cases as it has divided the authority and the jurisdiction
of the NCLT and DRT between individuals and companies. It also provides with a
list of priorities which shall be given preference for settlement of such debts
at the time of liquidation of the assets of the company (first on the list is
settlement of liquidation cost).
IBC has now brought in a complete change in the scenario of resolution of
financial distress in the country. IBC also sets methods for working with
defaulting borrowers in order to better enable the borrower to better meet
financial obligations. Thus in all together it proves to be a boon for the
Country.
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