New Delhi: The Union Cabinet on Tuesday approved the final amendments to the Insolvency and Bankruptcy Code (IBC), for which the bill will be moved in the ongoing session of Parliament, two people familiar with the development said.
The bill seeks to make limited modifications to the proposals of the parliamentary select committee headed by Baijayant Panda, which examined the previous version tabled in the monsoon session.
It is possible the bill could be debated in parliament this week, said one of the people cited above, speaking on condition of anonymity because the information is not yet public.
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The government approved most of the committee’s recommendations, including barring the company’s resolution professional from also acting as its liquidator if the rescue plan fails and prescribing a three-month deadline for the National Company Law Appellate Tribunal (NCLAT) to decide bankruptcy cases, the people said. However, he did not accept the proposal to retroactively apply the “clean sheet” principle in debt settlement.
Inquiries emailed to the Ministry of Corporate Affairs on Tuesday remained unanswered at the time of publication.
Termination of claims
The bill proposed that once a debt resolution plan under the IBC was approved by the tribunal, all claims other than those recognized in the recovery plan would lapse and be unenforceable. Although this is a clarifying amendment, the Committee proposed that this section be applicable from the inception of the IBC in 2016.
Because the complex cases are in various stages of the court process, the government is not interested in spelling it out specifically in the law in so many words, said the second person, who also spoke on condition of anonymity. The explicit wording in the IBC could lead to abuse of the legal process by unethical traders who siphon off public funds and bankrupt the company, the person said.
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Siddharth Srivastava, partner at law firm Khaitan & Co., said the adoption of a two-tier approval framework for resolution plans — where approval of the plan and approval of distribution of proceeds are handled separately by the National Company Law Tribunal (NCLT) — should help ensure immediate background checks, with disagreements over distribution among creditors resolved without halting the plan itself.
Abandoning the NCLT’s discretion at the admission stage could be a turning point in addressing delays in the corporate insolvency resolution process, long considered a key weakness in India’s insolvency framework, Srivastava added.
The IBC reforms aim to speed up debt resolution, reduce litigation and improve outcomes for creditors.
Lowered threshold
The proposed reforms are likely to lower the voting threshold for pre-arranged insolvency resolution from 66% to 51% and decriminalize certain offences, such as failure to comply with a debt collection moratorium or resolution plan and non-disclosure of disputes by operative creditors.
The reforms also include the introduction of a ‘group insolvency’ framework to deal with the difficulties of multiple entities within a business group and a cross-border insolvency regime for entities and creditors located in different jurisdictions.
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The proposed reform also includes a creditor-led insolvency resolution process (CIIRP) with an out-of-court mechanism to deal with cases of genuine business failure.
The proposed reforms mark another important step in the evolution of India’s insolvency framework, said Amit Maheshwari, managing partner at tax and advisory firm AKM Global.
“They seem to be focusing on addressing procedural bottlenecks, particularly the time it takes to receive insolvency applications and enhancing the overall efficiency of the company’s insolvency resolution process,” Maheshwari said. Strengthening institutional capacity and reducing the backlog will be important for the amendments to have their intended effect, he said.
