India’s banking enterprise is experiencing exceptional pressure as the numbers of debtors are on a rise. The number of stressed resources among residents/citizens have increased tremendously in the last few years, 14.5% as per stats.
The Insolvency And Bankruptcy Code, also recognized as IBC, was enacted by the legislature on 11th May 2016 and received the seal of official approval on May 28 of the same year.
The prevailing state of urgency in the country
According to the World Bank’s Index, India is ahead of 63 other countries and is holding the 136th spot, in the list of 189 countries. The standard time to settle distress in India is around 4.5 years, which is worse than most of the developing nations on the globe.
India has the weakest return rate in the world, which is roughly around 20% of the entire debt amount. Banks need to take urgent and serious measures to reclaim the money, which is around 10 trillion!
Know the Code
The bankruptcy code of India tries to fortify the current structure by establishing a common law for both bankruptcy and distress related issues. It focuses on a time-bound approach in fixing distress among companies and individuals. The law has made things better in a certain way. Let’s take a look:
Here is the list of the advantages to it:
- It is effective in resolving, the rate of insolvency with its time-bound approach.
- It improves the availability of assets in the industry.
- Assures money repayment to the creditors in an appropriate manner.
- It helps by promoting new and rising entrepreneurs.
- Eliminates several old codes related to insolvency and bankruptcy in India.
The hardships faced by IBC in its functioning:
Consumer bankruptcy lawyersstate that a law which obtains a business and asset from debtors and allows donors to shift the control towards them is compelled to face legal hurdles.
Borrowers have questioned multiple aspects of the code in courts and to the authority in benches. Many benchmark cases that were assigned to the National Company Law Tribunal in the IBC section were halted, due to various hurdles faced in the process of its functioning.
SC gave its crucial verdict in the later stages of the trial. Here’s what the top court of India has to say about it:
The road to Victory
The court saw that the investigation escorted in establishing the Code in the system, is convincingly successful. The passage that debtors used to take to block proceedings has been blocked.
The top court has further stated that a minor relationship with an incompetent person cannot exclude someone from becoming a bidder for a distressed asset. It has to be shown with valid proof in closed courtrooms that such a person is “Related “to the trading activity of the candidate concerned.
The backbone of IBC code
Thebankruptcy and insolvency laws in India have developed the following plans for the betterment of the system.
- Insolvency practitioner:
IPA’s are professionals who are authorized and allowed to work in connection to an indebted person, corporation or business.
- Information Utilities:
IU’s are a service agency that manages daily databases for public entrance, a central reservoir of data for an institution or organization.
- Adjudication: A legal decision on an argued topic
(NCLT) or National Company Law Tribunal: The Law Tribunal is the judicial authority for the bankruptcy analysis process of Corporations and LLP under the code of Insolvency and Bankruptcy, which came into effect from 2016.
- (DRT)/ Debt Recovery Tribunal:
Deals with the non-corporate bodies and organizations, the Tribunals were built to help the debt restoration process involving banks and other commercial institutions with their clients.
The Order of the process under IBC:
- On day 1, a lender/ the borrower has to address NCLT/ DBT body to launch the insolvency process. The petition passed or accepted entirely depends on the body. The process normally takes around 14 days for completion.
- Once the case is approved, all the donors/lenders will form a board and select an IRP, who will take charge of borrowers firm in the meantime.
- The elected personnel within 180 days have to decide on an appropriate debt restructuring plan which needs to be followed in the case.
- An added 90 days is given to lenders to report the ultimate resolution policy in this process.
- If the donors agree (by random voting), the appointed personnel will go on with the debt restructuring policy. After the passage of 180 days, organization’s/ borrower’s assets will be seized completely.
The Key Objective:
- The insolvent corporation/firm/body is either settled or solved.
- The lenders are repaid their principals on time.
- International investors can now have a flexible exit plan.
The consequences of implementing IBC code
- It helps in overcoming situations where banks/lenders have to hold bad assets for a long period of time, affecting their well-being, negatively!
- Improved facility and the simplicity offered in business influences the transaction process in the country. More transactions will have an impact on the economy and the GDP to a certain extent.
- The employees would get their wages on time, eliminating any confusion and delays in the process.
IBC (Amendment)/ 2018
- Real estate bidders/owners would be treated as commercial creditors and they hold the right to be designated in the Committee of Creditors (CoC).
- Promoters and bondsmen of various MSMEs are spared from elimination. It further allows the Centre to provide further privileges or changes with respect to the concerned sector.
- A company can file a bankruptcy petition, provided it seeks stockholders’ approval and at the most 3/4 of the stakeholders support in the proposal.
Amy Jones has been serving as an experienced legal expert in Ahlawat & Associates-best law firm in India.She is a passionate writer and always on the lookout for opportunities for sharing her knowledge with legal community. Follow her company on various social media networks like: Twitter and LinkedIn.