New Delhi: The government has put forward a bill in the current monsoon session to change the Insolvency and Bankruptcy Code (IBC). This is the first time this has happened since 2021. The timing of this action is very important because the IBC hasn’t been working well because of long delays and unpredictable court decisions, even though the number of non-performing loans has gone down.
The proposed measure has a lot of changes that are meant to make the corporate bankruptcy procedure easier and more trustworthy. The main modifications focus on the admission process, the rights of financial creditors when it comes to statutory dues, and a clearer approach to timeframes. The law also wants to provide people more power to challenge and undo transactions that are aimed to trick creditors. Most people have been happy with these recommendations as a good move forward.
While a select committee looks at the law, legal and financial experts have pointed up a few things that need more attention to make sure the new rules are properly followed.
Dealing with the capacity of the courts and case management
One of the most important things that has to be done is to increase the capacity of the courts and the way cases are handled. Experts say that the bill’s good intentions can’t be met without enough staff and better technology and administration for the National Company Law Tribunals (NCLTs). In 2019, the government promised to create up more circuit benches for the appeal tribunal within six months, but so far just one has been set up.
Some people say that the bill’s sanctions for “frivolous or vexatious proceedings” aren’t enough. They think that a tougher “loser pays winner’s costs” rule is needed to stop people from suing for no reason and to keep the process in line.
Going back to creditor rights and dissent
The bill creates a new difference in how opposing creditors are treated that could be controversial. It suggests that “dissenting financial creditors” get at least their liquidation value or their part of the resolution proceeds, whichever is less. “Operational creditors,” on the other hand, don’t have voting rights but are entitled to the higher of the two amounts. Critics say this difference doesn’t make sense, especially when operational creditors are lower in the liquidation waterfall than dissenting financial creditors.
The bill’s new “creditor-initiated resolution process” is a good thing since it might encourage creditors to deal with defaults sooner. Experts, on the other hand, say that the way these resolution plans are approved should be different from the way things are now to avoid more delays and lawsuits. A simpler system in which committee approval binds all creditors, with only a short time to oppose it, might work better.
Asking about a “Code of Conduct” for Creditors
There are also worries about the suggestion for the Committee of Creditors (CoC) to have “standards of conduct.” The Supreme Court has always agreed with the business sense of the CoC. Putting their business actions under a new code of conduct could be a “retrograde step,” especially since many financial creditors are already regulated by groups like the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (SEBI).
The Need for Insolvency Across Borders
Finally, experts underline how important it is to have strong cross-border insolvency rules. The new bill should not have any restrictions like the previous draft, which required reciprocity. This will make it easier for Indian insolvency experts to get help and recognition abroad. It is also suggested that these rules should apply to more than just the IBC. They should also apply to liquidations under the Companies Act and personal bankruptcies under other relevant legislation to make a complete system for collecting assets from abroad.
In the end, the amendment bill is considered as a successful “surgical strike” against a number of serious problems that have been bothering the IBC. With minor tweaks and a lot of work on increasing the judicial system’s capability, the law might make people trust the IBC again as India’s best way to deal with corporate stress.