Indian Insolvency and bankruptcy laws Key developments help the stressed MSME sector. IBC had introduced amendments to support the debt market, employment market, capital perseverance and promote the concept of ease of doing business. The pandemic crisis created hurdles for the MSME sector that needs special attention. From March 2020 to March 2021, there is no engagement of insolvency proceedings. During the Union budget, the honourable Finance Minister told that a new framework and debt resolution scheme will be introduced. IBC has been confronted with six amendments in the last five years. India’s sustained economic recovery happens with amendments in the Company laws and tax laws.
The review committee happened in September 2021 said that the COC need to submit the plan of the resolution, and it is prone to modification if the applicant wants to make changes. Resolution of the asset gets 330 days for settlement. Delay in settling the legal cases are the concern that the RBI governor and experts have also pointed out. The delay in the resolution process stands as 270 days for more than 75 per cent of Companies. June 2021 is the marked date of the delayed process. For the fourth quarter of 2021, the recovery rate shows 39.3 per cent. And this rate goes down further for the first quarter of 2022 to 25.5 per cent. The number of cases in the fourth quarter of 2021 is higher than the cases in the first quarter of 2022. The record shows 250 cases for the last quarter of 2021 and 126 cases for the first quarter of 2022. Insolvency law changes to give a better solution that helps the borrowers and banks to realize the bad assets. And also help to withdraw the resolution plans by business development.
Restriction with several cases of IP’s:
One of the amendments from IBBI states that it controls the number of cases per insolvency professional as five. Some professionals tend to handle many cases as there is an increase in the bankruptcy rates. IRP can handle five cases with resolution process and voluntary liquidation process. The IP professional needs to have the subject knowledge and managerial skills to handle the process without flaws. The structure of CIRPs of two different businesses is not the same. The limitation with the number of cases improves the quality of the process. One report says that Delhi has the highest number of insolvency professionals. The registration with the IBBI is valid for five years. As per the data from 2017, 1,107 registered professionals are practising the Insolvency process in India. The period of the registration ends by 2021. CA, CMA, ACS, management and law professionals with ten years of experience can take up the insolvency job.
Identifying and classification of avoidance transactions:
The time-bound for the process is 180 days, and the upper limit is 330 days. On the 75th day, the IP form an opinion about the avoidance transactions. This period is a mandatory rule. The IP appoints a transaction auditor to take care of the review. The various CIRP forms have timelines, and the delay in the process of filling leads to a small penalty. The CIRP 8 form come into existence on the 20th of July 2021. This form is about avoidance transactions. On or before the 140th day of the process, the opinion of the insolvency professional about the avoidance transaction is presented. In this form, details such as the date of the avoidance transaction, date, directors involved, beneficiaries, proposed date of initiation, ate of the initiation, loss that the creditors face and the underlying value of the business. IP is under management, and after the 100th day, he needs to provide genuine RA, right valuation, convene COC meetings, get approval and assess the plans. If the tasks are many, then it makes the job of the IP difficult. So, it is essential to have limited work with time effectiveness.
Bad loans recovery:
The Company’s guarantor is liable to pay if the secured loan of the Company is not sufficient to repay the loans. Vijay Mallya from Kingfisher and Anil Ambani from Reliance had not paid the loan amount. From the old stories, we know that Videocon Company had settled the debt to release 13 Companies that function under the Videocon group. In India, where the political influence changes the game of the business, it is essential to have stringent rules to recover the debts. The latest amendments say that the lender of loans can send parallel proceedings to the guarantor. So, there is no way to escape. This rule makes the management and guarantor of the Company responsible for the bad loans.
The framework must insist on objective views, not subjective views:
The business houses need a proper mechanism to control creditors. The information utility in India provides information to the questions of the stakeholders. Economic performance and economic freedom are related to the insolvency process. So, the process should be an objective model, not a subjective model. Banks check the risk factor and the repayment capacity before the lending loan. The debtor has intense knowledge about the funds than a bank. So, from the business perspective, it is essential to make the insolvency process clear with the objective framework. This framework makes the banks understand the process better.
Final words:
Indian insolvency law responds to the Covid-19 Pandemic. The insolvency professionals need to understand the amendments and period for the insolvency process. The function of the IBBI is to protect the banking operations and soften the insolvency business operations. The board looks into the challenges and makes changes from time to time. The insolvency process develops capital markets, banking profits and controls the business risks. So, it plays a prominent role in economic development.
