With Finance and Corporate Affairs Minister Nirmala Sitharaman taking charge of her responsibilities, attention is drawn towards potential reforms in the implementation of the Insolvency and Bankruptcy Code (IBC). Experts highlight the urgency for the Modi 3.0 government, particularly the Corporate Affairs Ministry (MCA), to address implementation issues surrounding the IBC and tackle judicial delays that impede its efficacy.
What ails?
Despite the IBC stipulating a time-bound resolution process of 330 days, the average time for resolution completion now exceeds 800 days, indicating significant delays. Judicial bottlenecks, especially at the National Company Law Tribunal (NCLT), contribute to these delays, eroding the value of stressed assets.
Delays are also evident in the admission of cases under the IBC, with average admission times during FY21 and FY22 standing at 468 days and 650 days, respectively.
One crucial aspect affecting the IBC’s effectiveness is the lack of discipline and adherence to timelines among corporate debtors, creditors, and insolvency professionals. There is a call for regulatory discipline to be enforced uniformly across all stakeholders involved in the insolvency resolution process.
The absence of regulatory discipline among debtors, creditors, and resolution applicants poses a challenge to the successful implementation of the IBC. Instances of misconduct often go unchecked, necessitating regulatory intervention to uphold discipline and accountability.
Extending IBC framework
Moreover, there is a pending decision on extending the IBC framework to partnerships and sole proprietorships, which play a significant role in India’s entrepreneurial landscape. Despite provisions for insolvency in these sectors, implementation has been lacking.
The government is expected to make critical decisions regarding the IBC’s future, including the adoption of a cross-border insolvency framework and the extension of pre-packaged insolvency schemes to large corporates.
However, the government’s stance on cross-border insolvency remains uncertain, with no comprehensive study conducted to assess its potential benefits for India. Additionally, legislative changes may be necessary to introduce a Group Insolvency framework under the IBC.
