Insolvency and Bankruptcy Code

Need for streamlining the Insolvency and Bankruptcy Code

Note4Students

From UPSC perspective, the following things are important :

Prelims level : IBC

Mains level : Paper 3- Impact of IBC

The article analyses the impact of Insolvency and Bankruptcy Code (IBC) on the insolvency resolution and on Indian economy.

Measures that will improve investment

1)  IBC: transforming insolvency resolution

  • IBC replaced inefficient bankruptcy law regime and has transformed insolvency resolution in India.
  • The IBC has focused on time-bound resolution, rather than liquidation.
  • IBC acts as an empowering tool to support companies falling within its ambit.
  • It has successfully instilled confidence in the corporate resolution methodology.
  • It has allowed credit to flow more freely to and within India while promoting investor and investee confidence.
  • The IBC is both flexible and dynamic, which makes it impactful, given how forward thinking the concept of an omnibus legislation of its nature actually is.
  • Through the Insolvency and Bankruptcy Board of India (IBBI), it has established an unprecedented organisation that both regulates and develops insolvency policy, and assesses market realities.

Impact of IBC

  •  According to the Resolving Insolvency Index, India’s ranking improved to 52 in 2019 from 108 in 2018.
  • Further, the recovery rate improved nearly threefold from 26.5% in 2018 to 71.6% in 2019
  • The overall time taken in recovery also improved nearly three times, coming down from 4.3 years in 2018 to 1.6 years in 2019.

2) Decriminalisation of minor offences

  • Criminal penalties including imprisonment for minor offences act as major deterrents for investors.
  • The Government of India is also working toward decriminalisation of minor offences.
  • This will significantly reduce the risk of imprisonment for actions or omissions that are not necessarily fraudulent or an outcome of mala fide intent.

3) Other legislative measures

  • Together with the IBC, following 3 reforms suggests major and multi-dimensional effort by the government.
  • 1) The rolling out of the commercial courts.
  • 2) Commercial divisions and the Commercial Appellate Divisions Act, 2015, to allow district court-level commercial courts.
  • 3) Removal of over 1,500 obsolete and archaic laws.

Way forward

  • There could perhaps be a look at institutionalising the introduction of a pre-packed insolvency resolution process.
  • This will also help resolve matters expeditiously, outside of the formal court system, and allow resolution even during the COVID-19 altered reality.

Consider the question “Examine the impact of Insolvency and Bankruptcy Code (IBC) on the insolvency resolution procedure and suggest the further improvements in the IBC.”

Conclusion

The IBC has provided a major stimulus to ease of doing business, enhanced investor confidence, and helped encourage entrepreneurship while also providing support to MSMEs. Its further streamlining and strengthening will surely instil greater confidence in both foreign and domestic investors as they look at India as an attractive investment destination.

B2BASICS

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