INDIAN BANKRUPTCY CODE: BOON OR BANE

Abstract

The bankruptcy regime currently prevalent is highly fragmented, borne out of multiple judicial forums resulting in lack of clarity and certainty in jurisdiction. Often, decision are appealed, stayed, or overturned by these forums having a concurrent or overlapping jurisdiction. The judicial systems pro-revival approach leads to delays in closure of businesses which are unviable since the standstill mechanism has been misused by corporate debtors. Stakeholders like Secured and unsecured creditors, employees, regulatory authorities have different and often competing rights with no common regulatory process to determine the priority of claims. Often the lack of adequate and credible data regarding the assets, indebtedness and security situation of companies further accentuates the problems. Because of all the above reasons, the average time to resolve an insolvency case in India is 4.5 Years in comparison to 0.8 Years in Singapore and 01 Year in London. India has the lowest recovery rate in the world at about 20% of debt value as per World Bank Report – 2014. Insolvency and Bankruptcy Code 2016- The INDIAN BANKRUPTCY CODE 2016 Code provides for a specialised forum to oversee all insolvency and liquidation proceedings for individuals, SMEs and Corporates. The code empowers all classes of creditors (secured/unsecured lenders, employees, trade creditors, regulatory authorities) to trigger a resolution process in case of non-payment of valid claim. It provides for immediate suspension of the Board of Directors and promoters‟ powers. A „stand-still period‟ is enabled which provides stakeholders time to facilitate discussions and arrive at a common resolution rather than running independent processes. It offers a finite time limit within which the debtor‟s viability can be assessed and a resolution process agreed. The power of commercial decision to revive or liquidate the company is on the creditors rather than the courts.