Context:- The sixth anniversary of the Insolvency and Bankruptcy Board of India (IBBI) on October 1,
What is IBC?
The Insolvency and Bankruptcy Code (IBC) is a one-stop solution for resolving insolvencies, which was formerly a time-consuming process with no economically acceptable remedy. The IBC strives to protect small investors' interests while making the business process easier. There are 255 sections and 11 schedules in the IBC.
IBC (Insolvency and Bankruptcy Code) is one of the biggest insolvency reforms that the parliament implemented in November 2016 to bring uniformity to India’s scattered bankruptcy laws. IBC got its Presidential assent in May 2016 which was necessitated due to the piling up of non-performing assets of banks and delay in debt resolution.
IBC aims to reorganize and resolve the insolvency of corporations, individuals, and partnerships in a time-bound manner.
The sole intention of the Insolvency and Bankruptcy Code, of 2016 is to provide a justified balance between the loss that a creditor might face because of the default, and the interest of all the stakeholders of the company so that they enjoy credit availability.
Objectives of IBC:-
To consolidate all existing insolvency laws in India and make amends if needed.
To make the process of Insolvency and Bankruptcy Proceedings in India simple and fast
To protect the interest of creditors, including stakeholders in a company
To help creditors who have been waiting for the payments for a long time get the necessary relief
To timely revive the company
To resolve India’s bad debt problem by creating a database of defaulters
To promote entrepreneurship
To create a new and timely recovery procedure to be adopted by financial institutions, banks, or individuals.
To maximize the value of assets of interested persons
To set up an Insolvency and Bankruptcy Board of India as a regulatory body for insolvency and bankruptcy law.
Challenges of Insolvency and Bankruptcy Code:-
High number of liquidations is a cause for major worry as it violates IBC’s principal objective of resolving bankruptcy.
There is no provision for cross-border insolvency resolution.
There is also a staffing issue where more than 50% of the strength in the National Company Law Tribunals is lying vacant.
Lower recovery rates as public and private sector banks, non-banking financial institutions, and other financial lenders to the companies that undergo the Corporate Insolvency Resolution Process (CIRP) have taken an additive cut of 61.2% of their admitted claims.
There are many pending cases in the insolvency and bankruptcy code. About 71% of the cases have been pending for more than 180 days. These are pending with National Company Law Tribunals.
However, the main objective of the insolvency and bankruptcy codes was to encourage entrepreneurship and resolution. but they give more emphasis to liquidation.
The IBC has reformed the Indian insolvency law landscape to a great extent.
It is important for the key stakeholders to make their best endeavors to ensure that the power of the IBC does not diminish.
The goal must be to fill the voids that are discovered and move towards a more complex legal system over time.
The government needs to cater appropriate budgetary allocations to upskilling insolvency professionals, improvement of tribunal infrastructure and digitisation of the insolvency resolution process.
There is a long way ahead for the Indian insolvency regime to meet the standards of other mature global jurisdictions.