Today India is developing very rapidly in the entrepreneur sector. With it’s very limited resources the growth of India’s economy has been phenomenal. The country is following the new trend of start-ups and is doing excellent in the field. Many businesses and start-ups with unique and very successful ideas are coming up and making their place globally. With this new trend going on people are coming together informing partnerships for the businesses. In today’s time we can say that this field is like a joint family with many members and one objective of working together to become successful. So, with the benefits, it comes with the troubles that occur in joint families, the disputes and the fraud which may or may not take place. The people working together need their own sense of security from any of such taking place which may eventually lead to their losses.
With one’s rising business, there still goes around a risk of insolvency and bankruptcy that prevails in the future. India has formulated some acts and taken some actions in this path. The Companies Act 2013, the Sick Industrial Companies (Special Provisions) Act, 1985, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI Act), 1993, and others were formulated by the government to check up on the issue. Every Act had its own merits and demerits. But the biggest demerit was that they didn’t cover the issue as a whole and gave a just solution for it.
In 2014, the Ministry of Finance, headed by T. K. Viswanathan, created the Bankruptcy Legislative Reforms Committee (BLRC) and tasked with drafting a new bankruptcy law. The Committee submitted its report which paid the way for further reforms. Soon Arun Jaitley, then Minister of Finance, introduced the Insolvency and Bankruptcy code.
Soon, the Insolvency and Bankruptcy Code was established on May 28, 2015 with proper working and objectives against the backdrop of mounting non-performing loans, with a view to establishing a consolidated framework for insolvency resolution of corporations, partnership firms and individuals in a time-bound manner, seeks to tackle the non-performing asset (NPA) problem.
The foundation of everything in the field lies around the debtors and creditors. The relationship between both me beneficial for the better working. The behavioural change on part of the debtors to ensure sound business decision-making and prevent business failures is encouraged by the Indian government. The Indian insolvency regime shifted from ‘debtor-in-possession’ to ‘creditor-in-control’ which gives the in-hand control to creditors reducing the risk of them beings the victims. The Code provides a time-bound process for resolving the insolvency of corporate debtors (within 330 days) called the corporate insolvency resolution process (CIRP), which was managed by a resolution professional (RP). Later these were divided into 3, who were meant responsible for the trigger of corporate insolvency resolution process- the operational creditors, financial creditors and corporate debtors. It worked on established a healthy interrelation between these three to avoid any case of insolvency among them. In July 26, 2021, a new amendment made its place in the Bill, fixing all the disfunctioning aspects. After that under CIRP, a committee of creditors is constituted to decide on the insolvency resolution. The committee may consider a resolution plan which typically provides for the payoff of debt by merger, acquisition, or restructuring of the company.
The Bill introduces an alternate insolvency resolution process for micro, small, and medium enterprises (MSMEs), called the pre-packaged insolvency resolution process (PIRP). During PIRP, the management lies with the debtors. The debtor will submit the base resolution plan to the RP within two days of the commencement of the PIRP, who will then under next 7 days, constitute a committee to consider the base resolution plan. PIRP, the board of directors or partners of the debtor will continue to manage the affairs of the debtor. If a resolution plan is not approved by the committee of creditors within the specified time, the company is liquidated.
With the emerging economy and new steps taken by Indians to excel in these fields, Indian government has made its full effort to support them in times of need.