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INSOLVENCY AND BANKRUPTCY CODE, 2016: THE BIGGEST ECONOMIC REFORM IN INDIA POST NEW ECONOMIC POLICY OF 1991

The New Economic Policy of 1991 had marked the development of the Indian economy in big way including in its scope liberalisation, privatisation and globalisation (‘LPG’). As a consequence there was tremendous growth witnessed in the country on the economic front. Removal of trade barriers, ease of doing business, inviting foreign direct investments, initiation of divestment in the government enterprises and other related procedures announced by the government led to the growth of the Banking sector bringing in introduction of transactional interaction between the Banks and body corporates. Although, the Banking sector witnessed vast growth by providing financial assistance to companies that timely repaid the loans but gradually over the years, a majority of the Banks’ “Performing Assets” turned into “Non-Performing Assets (‘NPAs’)” in their books. The Banks, although, were equipped with recovery powers and laws under “Civil Procedure Code, 1908, Recovery of Debts due to Banks and Financial Institutions Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002” but under the said recovery laws and procedures, the Banks got embroiled in years of tedious and tardy litigation in order to recover the money due to them and still not successful in majority of the cases.

Then came the Insolvency and Bankruptcy Code of India, 2016 (‘IBC’) introduced in Loksabha vide Bill No. 349 of 2015 on 21.12.2015 and passed by LokSabha on 05.05.2016 and by RajyaSabha on 11.05.2016 and received the assent from the President on 28.05.2016 and notified in the Gazette of India on the same day. With the implementation of IBC, the Banking sector in India witnessed the “biggest economic reform” in the matters of creating a single law and one stop solution for insolvency and bankruptcy providing to protect the interest of the banks and small investors and making the process of doing business less cumbersome.

IBC outlines insolvency resolution processes for individuals, partnership firms, LLPs and Companies which may be initiated either by the debtor itself or by the creditors. The Code proposes two separate tribunals to oversee the insolvency resolution process i.e. National Company Law Tribunal (‘NCLT’) in matters of companies and LLPs and Debt Recovery Tribunal in matters of individuals and partnership firms with maximum time limit of 180 days extendable by 90 days in case of companies and LLPs and 90 days extendable by 45 days in case of small companies having assets value less than Rs. 1 Crore and start-ups other than partnership firms.

The IBC paved the way for the Banks to pursue NPAs in the most efficient way by offering the Corporate Debtor to be first considered for an effective resolution failing which the Corporate Debtor would be ordered for liquidation. Therefore, IBC is considered to be “uniquely distinguished from other legislations” as the IBC is the only code which considers revival of the corporate debtor before it is subjected to the action of liquidation.

With IBC coming into existence, the 12 major accounts(“Dirty Dozen”)identified for immediate resolution by Reserve Bank of India under IBC including Electrosteel Steels Limited,Bhushan Steel Limited, Monnet Ispat and Energy Limited, Amtek Auto Limited, etc. witnessed bidders successfully submitting their resolution plans for the “debt-laden companies” and as of now in 2019, several of these stressed assets are in the final stages of resolution thus enabling the Banks to realize their NPAs. The gross NPAs in March 2018 stood at Rs. 9.62 Lakh Crores and now on the decline mode and 2019 is expected to be bounce back year for the banks and coming down of the NPAs.

It is therefore evident that the with help of IBC, the Banks have been able to deal with NPAs in an ever effective way thus marking a new beginning for the Banks to charge the defaulting borrowers under the most viable regime.

The Banks are now largely relying on the IBC by making an application for initiation of “Corporate Insolvency Resolution Process” against the defaulting borrower which leads the banks on to the correct path of “appointing an Interim Resolution Professional (‘IRP’)”and final collation of claims existing against the Corporate Debtor following which resolution of the corporate debtor is considered.

It can be summed up that IBC is the most reliable piece of legislation as it first considers the scope of resolution of the Corporate Debtor which if not successful, the Corporate Debtor is sent for liquidation.

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