The long awaited Bankruptcy Code has reached the crucial stage of approval by the Parliament of India.
The Code prepared by the Vishwanathan Committee and approved by the Cabinet was placed before the Parliament and the House of People has decided to refer it to a Joint Parliamentary Committee.
By a recent notification the JPC secretariat has asked comments of the stakeholders by 10th February, 2016.
The draft Insolvency and Bankruptcy Code must be considered as a watershed development for ‘Easing of Doing Business’.
The Insolvency and Bankruptcy Bill, proposed by the Vishwanathan Committee, fulfils a long standing demand from the Industry and business for an legal environment facilitating easy exit from a non-viable venture.
Structured on the model of U S Bankruptcy Code, the greatest contribution of the proposed Act, if enacted, will be repelling of draconian Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920 under which the straight path for an insolvent was prison.
The cornerstones of the proposed act are the transparent processing of the bankruptcy / insolvency case and stipulation of strict time frame for the entire process.
The draft Bill proposed a total time frame of 180 days for closure of any bankruptcy / insolvency proceeding, which in certain cases could be closed in straight 90 days.
The draft even proposes the maximum number of days an Bankruptcy / Insolvency Adjudication Authority may take at each stage to dispose of the matter thus overriding long pendency in judicial procedures.
The real paradigm shift proposed in the draft Bill is in the treatment of the Proprietary and Partnership firms, which constitutes nearly 99% of the MSME sector in India.
While some legal framework already exists for the Bankrupt/ Insolvent corporate entities; for the non-corporate firms any failure of the entity meant lifelong hassles for the owner(s).
While there are quite a few laudable initiatives under the proposed Act, there are also issues of concern particularly regarding treatment of Bankrupt/ Insolvent non corporates to which category the Indian MSMEs predominantly belong.
The existing Debt Recovery Tribunals (DRT) have been proposed to be the Adjudicating Authorities in relation to insolvency matters of individuals and (partnership) firms. With their present focus on expeditious adjudication and recovery of debts due to banks and financial institutions, how these institutions will be able to take a balanced view on the creditors’ and debtors’ interests, is a big question.
The experiences of majority MSMEs are these DRTs mostly take care of the Bankers’ interests.
The draft Bill also specifies the crucial role of processing the Insolvency / Bankruptcy application from an individual / firm and preparation of the ‘Repayment Plan’ to the Resolution Professional. In India today, where there is not much expertise available on Insolvency resolution and large number of Non-Performing Assets of the Banks, availability of required number of Resolution Professionals to expeditiously process the Insolvency cases will be a big question.
Another glaring lapse, according to the experts, in the proposed Bill is while the archaic Bankruptcy Acts have been proposed to be repealed, the two more recent Acts, viz., Recovery Of Debts Due To Banks And Financial Institutions Act, 1993, popularly known as DRT ACT and Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002, popularly known as the SARFAESI Act, have been left intact.
Both these acts are at present the principal tools of the Banks, who in most cases are the predominant creditors of any entity, corporate and non- corporate, for realisation of debts and with the enactment of the proposed Insolvency and Bankruptcy Bill should become infructuous.