Context:
The Insolvency and Bankruptcy Code, 2016 (IBC) is a significant economic reform in India aimed at structured insolvency resolution. Initially seen as a tool to help India’s business standing, the law has evolved, addressing issues related to institutional capacity and procedural efficiency. The recent Supreme Court of India judgment in Jet Airways has highlighted structural issues in India’s insolvency regime.
The Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016, is a legislation that pertains to the Indian insolvency resolution of individuals, partnership firms, and corporations. It was enacted in the year 2016 and has been called as the exit law of India.
- Purpose
- The code builds a single law for insolvency and bankruptcy. It helps creditors recover dues and reduces bad loans.
- It promotes entrepreneurship and credit availability. This code will maximize the value of assets.
- Features
- Instituted the Insolvency and Bankruptcy Board of India (IBBI)
- Introduced a committee of creditors (COC) and adjudicating authorities (AA)
- Instituted time-bound processes.
- Established judicial discipline
- Pillars
- Information utilities, Information professionals, Adjudicating authority, and Insolvency and Bankruptcy Board of India (IBBI).
Issue and Drawbacks
Too much of work burden for over-stretched NCLT and NCLAT to tackle matters both under IBC as well as Companies Act.
- Poor Institutional Design:
- The NCLT’s design is archaic and not suited to the needs of modern insolvency.
- Lack of Domain Expertise:
- Members often lack specialized knowledge for handling complex insolvency cases, a concern highlighted by the Supreme Court in the Jet Airways case.
- Procedural Inefficiencies:
- Mandatory hearings for all applications cause delays, and sparse adoption of alternative dispute resolution methods further clog the system.
- Erosion of Judicial Integrity:
- The accountability of some of the members of NCLT/NCLAT towards some Supreme Court orders undermines the judicial hierarchy.
Proposed Reforms
- Specialized Institutional Design:
- Hybrid bench model and some infrastructural strengthening.
- Procedural Innovations:
- Mandatory mediation, as a precursor to filing insolvency applications.
- Capacity Building:
- Domain expertise of the tribunal members will be enhanced with proper training.
- Judicial Accountability:
- Mechanisms to enforce compliance with higher court orders need to be strengthened and monitoring of tribunal operations tightened.
Sources: The Hindu
