CA Bimal Jain
The Government, on Monday, December 21, 2015, introduced the Insolvency and Bankruptcy Bill, 2015 (the Bankruptcy Bill), proposing to enact a single bankruptcy code setting deadlines for processing insolvency cases. Once enacted, not only will it improve the ease of doing business in India, it will also ensure better debt recovery for creditors.
The Bankruptcy Bill will consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders including alteration in the order of priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, the Government said.
Key Features:
- The Bankruptcy Bill will replace the existing bankruptcy law and aims at promoting investment, freeing up banks’ resources for other productive uses, boosting credit markets and improving ease of doing business in India;
- It is an effective legal framework for timely resolution of insolvency and bankruptcy which would support the development of credit market and encourage entrepreneurship;
- The proposed Bankruptcy Bill will cover individuals, companies, limited liability partnerships and partnership firms, and proposes a time-bound framework;
- According to the provisions of the Bankruptcy Bill, corporate insolvency applications will have to be decided on within 180 days, with an option of extending it by an additional 90 days;
- The Bankruptcy Bill is quite ambitious in the creation of a new institution for architecture to deal with insolvency. It also provides for setting up an Insolvency and Bankruptcy Board of India to regulate professionals, agencies and information utilities engaged in resolution of insolvencies of companies, partnership firm and individuals;
- The Bankruptcy Bill also proposes to establish a fund to be called the Insolvency and bankruptcy fund of India.
Currently there is no single law dealing with insolvency and bankruptcy in India. There are four different agencies i.e. the High Court, the Company Law Board, the Board for Industrial and Financial Reconstruction (BIFR), and the Debt Recovery Tribunal (DRT), having overlapping Jurisdictions, giving rise to potential of systematic delay and complexity in the process. A strong bankruptcy law can help overcome these challenges.
At present, it takes, on an average, more than four years to resolve insolvency in India, according to the World Bank’s Ease of Doing Business Report. The new code seeks to cut down the time to less than a year.
(Author can be reached at Email: bimaljain@hotmail.com)
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