When the procedure got implemented, right from that time, the insolvency and bankruptcy code proved to be a lot easier to exit or just attempt a revival of the said business. In return, it helps in improving the current NPA sector for the present financial services.
As per the Union Budget speed of the financial year 2014-15, the finance minister did not waste time to announce the current development of an effective form of the bankruptcy code for covering an easy exit. Just after the announcement has been made, the Viswanathan Committee was formed in the year 2014, August 22nd. This committee’s main work was to study the present corporate bankruptcy and its legalized framework, as set forth in India.
Just within a very short period of time, the comprehensive bankruptcy and the insolvency code was introduced in the Indian parliament in 2015, just after going through some public consultation. It actually helped in consolidating individual insolvency along with with that of insolvency of limited liability based partnerships. It further consolidated the corporate insolvency and unlimited liability partnerships as well.
Details about the code as follows:
The code was primarily referred to the joint parliamentary committee of Rajya and Lok Sabha for covering some scrutiny purposes. The report was then presented on April 28th, 2016, to the Lok Sabha and then laid down in front of the upper house, just on the same day.
- The committee has worked quite hard on this code and taken care of some of the issues, which remained unaddressed beforehand. Those issues were well-marked and taken care of in this code before introducing to the Parliament.
- These points included provision for the cross-border insolvency and even participation of the present operational creditor in some of the insolvency proceedings.
- It did not waste time further to include the public financial institution right under financial institution definition and even talking about the rationalization of the timelines by respecting multiple steps in the current insolvency resolution procedure.
- The code focused on ways to rectify some of the drafting errors made beforehand and even removal of the clause, which is well related to registration bond. It focused on the performance security by any insolvency professional over here.
The result depending on recommendations made:
As per the bankruptcy law lawyer, the recommendations of the joint committee are to be taken care of. The Lok Sabha is known to have passed code on May 5th, 2016. This step will probably make it a lot easier for all the banks and financial institutions to just deal with some of the NPAs, as coming out of some of the failed versions of corporate ventures. These recommendations, as now followed, helped out the firms to cover some of the easier revival procedure or even painless liquidation.
Once it got approved by Rajya Sabha, this law ensures some of the time-based settlement of insolvency. It helps in giving rise to faster business turnaround and can also help in creating a database of multiple defaulters. They are all noted to be critical in resolving the present bad debt problem of India, which has well crippled the bank lending.
Heading towards reform and repeal:
The code here talks about the ways to repeal Presidency Towns Insolvency Act, 1909, and also dealing with the Provincial Insolvency Act, 1920. It further focused on the ways to amend 11 legislation, which will be including Limited Liability Partnership Act, 2008, Enforcement of Security Interest Act, 2002, Securitization and Reconstruction of Financial Assets and Companies Act, 2013, to name a few.
- Some of the policy based aspects are also covered in the code along with the procedural aspects, which are to be dealt with under the delegated legislation for enjoying some flexibility.
- The code right now is known to focus on the positive attributes of the current bankruptcy systems, which are followed in some other parts of the world, like offering moratorium period focusing towards resolution procedure, time-based insolvency process and a lot more.
- But, the code is yet to address some other aspects like options of affair management by the corporate debtor right under supervision, lifting of the moratorium while covering fraud cases and more.
- On the other hand, according to some of the US-based bankruptcy code, the debtor is provided with possession concept. The main purpose of this code is to propose management of affairs by any of the insolvency resolution professional, which prove to be more or less similar to the bankruptcy laws of the UK.
Right now, there are four different areas as CLB, High court, BIFR, and DRT, which have overlapping jurisdiction and giving rise to complexities and delay in this procedure. However, this proper code is thought to overcome those challenges and can further reduce the burden of the courts as the litigations which have been a part of this code before NCLT for insolvency of LLPs and corporates.
Author Bio
Amy Jones has been serving as an experienced legal content writer in Ahlawat & Associates, who is related to general counsel attorney . 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, Facebook and LinkedIn.