Insolvency and Bankruptcy Framework: India Perspective

Abstract

Insolvency or Bankruptcy is a state where an individual or an entity is unable to pay its debts as and when they fall due or when the realizable value of assets are insufficient to meet the liabilities. A strong insolvency and bankruptcy regime should provide for resolution/reorganization to enable the entity to become financially sound in a time-bound manner. If this is not possible, it should ensure that a quick liquidation/bankruptcy mechanism is put in place to enable take over and disposal of assets and make payment of the proceeds to creditors. India has enacted comprehensive legislation called Insolvency and Bankruptcy Code 2016 (IBC) for dealing with insolvency resolution and liquidation of corporate entities and insolvency resolution and bankruptcy for non-corporate entities like individuals and firms. A separate regulatory body, the Insolvency and Bankruptcy Board of India, has been set up for overseeing the process and also to regulate the entities involved in the process, i.e., insolvency professional agencies and professionals, information utilities, registered valuers, etc. Special courts, i.e., National Company Law Tribunal and National Company Law Appellate Tribunal, have been set up for handling matters relating to Insolvency and Bankruptcy of corporates. While the corporate insolvency process has been implemented, the provisions of the Code relating to individuals and firms would be implemented in a phased manner. With the enactment and implementation of IBC, the necessary infrastructure – legal, regulatory, institutional and capacity building – for handling insolvency and bankruptcy in the country under single legislation has been put in place. This important reform has helped India leap significantly in the ranking in World Bank’s Ease of Doing Business and resolving insolvency. IBC has shown promising results in facilitating the resolution/reorganization of companies in distress and recovery of money from the sale of business and take over and sale of their assets. Simultaneously, there are several concerns in effective resolution and liquidation making it necessary for further reforms to make the law more effective. The paper discusses the historical perspective, key aspects of Insolvency and Bankruptcy Code of India, its performance and the progress made, issues faced and the future agenda, including suggestions to improve the system.