Context: There is a need to streamline the Insolvency and Bankruptcy Code (IBC) to instill more con?dence in foreign and local investors. The Significance of IBC
A key legislative reform: that would help aid India’s path to self-reliance on a high growth trajectory – as mentioned by the Prime Minister.
Ease of Doing Business: enabling India to emerge as a ‘Make for World’ platform.
The Ministry of Corporate Affairs (MCA) has highlighted the IBC’s important role in India’s rapid rise in the Ease of Doing Business rankings.
According to the Resolving Insolvency Index, India’s ranking improved to 52 in 2019 from 108 in 2018, a leap of 56 places.
The recovery rate improved nearly threefold from 26.5% in 2018 to 71.6% in 2019.
The overall time taken in recovery also improved nearly three times, coming down from 4.3 years in 2018 to 1.6 years in 2019.
Increased Foreign Direct Investments (FDIs): by 20% to $74.5 billion in 2019-2020.
Transformed Insolvency Resolution: It replaced a rather inefficient bankruptcy law regime with a time-bound resolution process rather than liquidation.
Instilled confidence among the investors: Its core implication has been to allow credit to ?ow more freely to and within India while promoting investor and investee con?dence.
Established the Insolvency and Bankruptcy Board of India (IBBI): as an unprecedented organisation that both regulates and develops insolvency policy, and assesses market realities.
Issues with the IBC
Rising backlog of cases (to the tune of nearly four crores): The novel coronavirus pandemic will exacerbate this.
Challenge in enforcements: On an average, it takes as many as 1,445 days for a contract to be enforced, and that too at the cost of nearly 31% of the claim value.
Criminal penalties acting as deterrent to investors: The Government’s challenge is to help di?erentiate between ‘Good-faith mistakes’ and ‘Intentional bad faith actions’; to penalize the former, and criminalise the latter.
Delay in the resolution process: due to inability to make significant decisions without full clarity of ownership and control.
The delays result in low-value liquidation due to a high economic rate of depreciation. Higher value stems from the ?rm being acquired as a going concern.
Positive measures by the Government:
Decriminalize minor offences: NITI Aayog is planning to signi?cantly reduce the risk of imprisonment for actions or omissions that are not necessarily fraudulent or an outcome of mala ?de intent.
Legislative Measures: Rolled out commercial courts, commercial divisions, and the Commercial Appellate Divisions Act, 2015, to allow district court-level commercial courts, and removed over 1,500 obsolete and archaic laws.
Help to the Micro, Small and Medium Enterprises (MSMEs): The MCA along with IBBI is working diligently on putting in place an MSME and non-MSME framework to help expedite this process.
Way Forward:
Reduce delays: The report of the Bankruptcy Law Reforms Committee speaks of the critical need for speed in the working of the bankruptcy code.
Institutionalising the introduction of a prepacked insolvency resolution process, the need for which is highlighted by the recent necessary suspension of the IBC proceedings.
This will also help resolve matters expeditiously, outside of the formal court system, and allow resolution even during the COVID-19 altered reality.
Bringing in technology: to ensuresocial distancing and enhance the efficiency of proceeding & hearings.
It would help ease of access to justice and greatly help ease of doing business from a process and e?ciency standpoint as well.