Though the Code has brought valuable changes to the existing laws and provided an efficient process of dealing with the insolvency and bankruptcy of the corporate persons but at the same time there are certain critical issues and predicaments which are being faced by the Code. These difficulties need to be resolved so that the Code could meet the objective with which it was enacted.
Some of the suggestions for effective implementation of cross Insolvency and Bankruptcy Code, 2016 are mentioned below to make the insolvency resolution and liquidation process more smoother and effective are:i. The default of one lakh rupees or more, stimulating the insolvency proceedings is considered biased towards the debtor. It pressurizes the debtor to repay the money due, as it allows action by the creditors on the very first instance of default by the corporate debtor. So, the amount limit prescribed under the definition of the word ‘default’ should be increased so that not every case of failure of payment of debt leads to insolvency of the corporate persons.ii. The strict application of time bound process of 180 days leads to liquidation of companies which could be otherwisesalvageable and thereby effecting the employment.
Hence, the adjudicating authority should be given the power to extend this time limit in the necessary and appropriate circumstances.iii. The appropriate authorities should try to provide clear and explicit meaning to each of the technical words used in the Code. For example the term like financial creditor, resolution applicant needs to interpret so as to understand who all be included in the respective definitions.iv. A clear opinion needs to be developed as to the liability of the personal guarantor viz a viz the corporate debtor. Although the liability of guarantor is co-extensive with corporate debtor, but different benches of NCLT has contrary opinion as to whether the moratorium period will extend to the property of the personal guarantor as well. Thus, a clarification is required on the same and necessary amendment needs to be done to that effect.v. Though the Code has provided for various authorities like Insolvency and Bankruptcy Board, Insolvency professional agencies, information utilities etc. which perform different roles in the corporate insolvency resolution process but till now they have not been able to function properly due lack of specific rules and procedures regulating their functioning. Thus, more clarification is required regarding the working and mode of operating of these authorities.vi. The Code provides for the appointment of resolution professional who are well qualified professionals who will conduct the corporate insolvency resolution process, and assist at the time of liquidation, but this requires huge force of trained and skilled professionals. Though the regulations issued by the Insolvency and Bankruptcy Board provides for the basic qualification of these professionals, however, they need to be given practical training as well to enable them to not only understand the difficulties in restructuring or liquidation but also make them capable of carrying out the affairs of the company during the whole insolvency resolution process.vii. The provision under the code wherein, the adjudicating authority appoints an interim resolution profession results in shift of management from the hands of corporate debtor thus affecting their interest. Thus, provisions should be made to allow the corporate debtor to continue managing the affairs of the company under certain guidance. They should actively participate in the corporate insolvencyresolution process as they are the
ones who are best aware of the working of the corporate entity and the difficulties faced by them. They should help the resolution professional to implement the resolution plan and continue the business of the entity.viii. Further in the Code, once the resolution plan is submitted by the resolution professional, the adjudicating authority only insures that it complies with the requirements of the code and cannot evaluate the merits of the plans. So, authority should be given an opportunity to evaluate thesame.ix. In the creditors committee also, if any financial creditor or group of such creditors hold the majority voting share they can prevent a plan from being submitted within the prescribed time and can get the company liquidated. They may even ignore the interest of other classes of the creditors. Further the operational creditors have no say in the meetings of the committee of the creditors. Thus, the small as well as operational creditors should have say in the meetings of the creditor’s committee.x. The code fails to provide any opportunity to the corporate debtor to make a representation, at various stages of the insolvency proceedings the code also prohibits withdrawal of the application once the same has been admitted thereby eliminating the scope for settlement. Hence, the process ensaviged in the Code sometimes results in some sufferings for the corporate debtor. Thus, the provisions should be modified in such manner so as to give debtor an opportunity of being heard that would in turn help in achieving the ultimate objective of the Code which is to revival of the sick companies.xi. The Code has not only repealed the two statues governing the individual insolvency but has also amended other legislations dealing with the insolvency and liquidation of all legal and natural persons. This has lead to interplay of the provisions of the Code and the amended statutes. Thus, it is necessary to synchronize and harmonize the provisions of all the legislations so that there are no overlappingprovisions.
Thus, with certain alterations, adaptations and proper implementation these issues could be resolved.Once fully operational, it would cure many ills of the banking and financial sector and facilitate early, transparent and fair resolution of liquidity problems of businesses. It will help India to climb many notches on the Ease of Doing Businesses Index from its current rank.It can, therefore, be said that once the Code is fully implemented it would boast the Indian economy and aid the country in achieving economic prosperity.
BIBLIOGRAPHY
PRIMARY SOURCESA. Legislations• Companies Act, 2013• Competition Act, 2002• Constitution of India• Indian Partnership Act, 1932• Insolvency and Bankruptcy Code, 2016• Recovery of Debt Due to Banks and Financial Institutions Act, 1993• Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002• Sick Industrial Companies (Special Provisions) Act, 1985• Sick Industrial Companies (Special Provisions) Repeal Act of 2003• The Limited Liability Partnership Act, 2008• The Presidency Town Insolvency Act, 1909• The Provincial Insolvency Act, 1920B. Reports• Government of India, Report of the BLRC on Rationale and Design (Ministry of Finance, 2015)• Government of India, Report of the High Level Committee on Law Relating to Insolvency and Winding Up of Companies (Ministry of Law, Justice and Company Affairs)• Government of India, Report on Company Law (Ministry of Corporate Affairs, 2005)• Reserve Bank of India, Report of Committee on Banking Sector Reforms• Reserve Bank of India, Report of Committee on the Financial System• Reserve Bank Of India, Report of The Advisory Group on Bankruptcy Laws• Reserve Bank of India, Report of the Committee on Industrial Sickness and Corporate RestructuringC. Rules and Regulations• Insolvency and Bankruptcy Board of India (Fast Track Resolution Process for Corporate Persons) Regulations, 2017• Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017• Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016• Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016• Insolvency and Bankruptcy Board of India (Insolvency Resolution of Corporate Persons) Regulation, 2016• Insolvency and Bankruptcy Board of India (Model bye-laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016• The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rule, 2016D. Notifications• Government of India, Notification, (Ministry of Corporate Affairs, 14 June, 2017)• Notification no.37, Official Gazette of India (Extraordinary)(Ministry of Finance, May 28,2016)