‘Insolvency and Bankruptcy Code, 2015’- What it means to the World
March 22, 2016 | Blog, Uncategorized
By – Prof. Soman Nambiar
School of Management,
Presidency University, Bengaluru
The talk of the Town is “ Dr.Vijay Mallaya and his financial woes” This event, though unfortunate on its own, is closely related to the Bill introduced, in December 2015, in Parliament. The Bill, referred to as the ‘Insolvency and Bankruptcy Code, 2015’ is aimed at expeditious resolution of insolvency, promotion of fruitful investments, releasing resources of the banking sector locked up in unproductive segments, improving the viability of the credit markets and generally easing the business controls in India.
In addition, the Bill also provides for establishment of an ‘Insolvency and Bankruptcy Board of India’ to regulate professionals, agencies and information utilities engaged in resolution of insolvencies of companies, partnership firms and individuals. It also envisages the setting up of a fund called the ‘Insolvency and Bankruptcy Fund’ of India.
Per the proposed legislation, corporate insolvency would have to be resolved within a period 180 days, to be extended a further period of 90 days, should the situation so warrant. It also inter alia provides for a fast-track resolution of corporate insolvency within 90 days.
As of date, there is no single law that deals with insolvency and bankruptcy in India. Currently liquidation of companies is decided by the High Courts. Though not totally bereft of legal redress in the form laws like Sick Industrial Companies Act, 1985 [SICA]; Recovery of Debt Due to Banks and Financial Institutions Act, 1993, Securitisation and Reconstruction of Financial Asserts and Enforcement of Security Interest Act, 2002 [SARFAESI] and Companies Act, 2013, legal redressal of insolvency related issues is time-consuming. Thus different agencies like the High Courts, The Company Law Board and The Board for Industrial and Financial Reconstruction [BIFR], and the Debt Recovery Tribunals [DRTs], have overlapping jurisdiction, giving rise of systemic delays and complexities.
The Code attempts to balance the interest of all the stakeholders The Code seeks to provide for designating National Company Law Tribunal [NCLT] and Debt Recovery Tribunal [DRT] as the adjudicating authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy.
Pending the establishment of the Insolvency and Bankruptcy Board of India, the Code equips the Central Government with the powers of the Board or to designate any financial sector regulator to exercise its powers and functions. The Code also enumerates the priority with regard to distribution of proceeds following liquidation of the company with the first charge will be on insolvency resolution process cost and liquidation costs, which are to be paid in full. Liquidation proceeds will then be used to clear debts owed to Secured Creditors followed by the discharge of workmen’s dues for 12 months, Unpaid dues to Employees other than workmen, and financial dues owed to Unsecured Creditors, in that order. Government taxes for two years, other debts, preference shareholders and equity shareholders will receive last priority for payment.
It also provides for monetary penalty and jail term of up to five years for concealment of property, defrauding creditors and furnishing false information.
In the light of the above, there is an urgent need to pass this Bill in the Parliament . But do our law makers understand the urgency of this law?