File No. 30/38/2021-Insolvency
Government of India
Ministry of Corporate Affairs
Date: 23rd December 2021
NOTICE
Invitation of comments from public on proposed changes to the Corporate Insolvency Resolution and Liquidation Framework under Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code ("IBC/Code") was enacted in 2016 to consolidate the laws related to reorganisation and insolvency resolution in India and to ensure a time-bound resolution of insolvency, resulting in maximisation of value of the assets of concerned stakeholders, promotion of entrepreneurship, and ensuring greater availability of credit and balancing the interests of all stakeholders concerned. While the provisions relating to insolvency and liquidation of corporate persons were brought into force in December 2016, those relating to insolvency resolution and bankruptcy of personal guarantors to corporate debtors came into effect in December 2019.
The IBC is one of the deepest financial sector reforms that has been introduced in India in the last decade. It is a modern economic legislation that seeks to rectify the issues in the erstwhile insolvency regime which was plagued by delays, low recoveries, and high costs. The Code provides a market-based mechanism for timely stress resolution of financial distress and a value-maximising exit that is facilitated by qualified professionals.
The provisions of the Code and its subordinate legislation have been periodically reviewed to keep pace with dynamic developments in the market. In November 2017, within just a year of the implementation of provisions relating to corporate insolvency, the Central Government constituted the Insolvency Law Committee ("ILC") to take stock of the functioning of the newly enacted Code and to make suitable recommendations to ensure its effective implementation. The ILC has released four reports since then wherein it has made various recommendations for strengthening the Code and its subordinate legislation (March 2018, October 2018, February 2020, and July 2021). The Central Government and the Insolvency and Bankruptcy Board of India ("IBBI") have taken swift action on many such recommendations that have now been translated into amendments in the law.
I. Recent developments
The ILC has continued to evaluate stakeholder comments and assess the implementation of the provisions of the Code. At the beginning of 2021, the ILC had its first meeting for the year on 28th January, 2021. It had five more meetings on 3rd, 4th, 6th, 10th and 13th of February 2021, during which the ILC analysed and provided its recommendations on existing and emerging issues highlighted by stakeholder comments.
Further, stakeholder consultations have been undertaken from 11th August 2021 to 6th September 2021 on the theme of ‘Reimagining of the Insolvency and Bankruptcy Code, 2016’. Marking the completion of five years since the enactment of the Code, these consultations were facilitated to take stock of issues and measures for strengthening the Code as highlighted by stakeholders such as financial creditors, industry chambers and associations, professionals and various thought leaders.
As the IBC enters the sixth year of its implementation after a year characterised by pandemicrelated disruptions, efforts are continued to ensure effective outcomes under the Code.
II.Proposed Changes
Based on the issues raised in the ILC and from various stakeholder consultations, the following changes are proposed to the Code to further its objectives of time bound resolution of stressed assets while maximising its value and balancing the interests of all stakeholders -
1. Enabling a swift admission process
1.1. Although the Code provides that the Adjudicating Authority ("AA") should dispose of an application for initiation of a corporate insolvency resolution process ("CIRP") within 14 days from the receipt of the application, the admission or rejection of such applications sometimes takes longer in practice. Delays in admission are value destructive and hinder the chances of successful resolution. Consequently, various efforts have been made recently to enable quicker disposal of applications for initiation
of CIRPs under the Code. For instance, the bench strength of National Company Law Tribunal ("NCLT") has been increased and the Code has been amended to require the AA to record reasons for delay in disposal of Section 7 applications. In furtherance of such efforts, it was also considered if steps may be taken to build greater reliance on Information Utilities ("IUs") by certain categories of financial creditors, in order to enable quicker disposal of CIRP applications.
1.2. The Bankruptcy Law Reforms Committee ("BLRC") Report, 2015 conceptualised the IU framework to help reduce information asymmetries and provide quick access to verified financial information. Reliance on IU records was envisaged to reduce the time and costs taken to resolve insolvency. Consequently, Section 215(2) of the Code requires financial creditors to submit financial information and information relating to creation of security interest to IUs. However, Section 7(3) allows financial creditors to
also rely on such other record or evidence of default as specified in the regulations for establishing default (apart from record of default recorded with IUs).
1.3. With the passage of time, the IU framework has become more robust. The IU registered with the IBBI, i.e., the National e-Governance Services Limited or ‘NeSL’, has access to the MCA-21 database and the Central Registry of Securitisation Asset
Reconstruction and Security Interest of India or ‘CERSAI’ portals, which not only increases the availability of and access to reliable data for stakeholders, but also enables them to speedily authenticate financial information. Since December 2017, the Reserve Bank of India has directed all financial creditors regulated by it (scheduled commercial banks, financial institutions, etc.) to put in place appropriate systems for submission of financial information to IUs.1 Such sustained use of IUs has led to the creation of a wider and more robust database of IU authenticated records. There is, thus, an increasing trend in the amount of information stored and recorded with IUs.
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