The Rajya Sabha on 11 May 2016 passed the Insolvency and Bankruptcy Code Bill 2016. The bill is being seen as a transformational legislation that will help in improving India’s ranking in the World Bank’s Ease of Doing Business index.
The Lok Sabha had already cleared the bill on 5 May 2016.
The Bill is based on the recommendations of the Joint Parliamentary Committee on the Insolvency and Bankruptcy Code, 2015 chaired by Bhupender Yadav. The committee submitted the report to government on 28 April 2016.
Major Highlights of the Bill
• Insolvency resolution: The Code creates time-bound processes for insolvency resolution of companies and individuals. These processes will be completed within 180 days. If insolvency cannot be resolved, the assets of the borrowers may be sold to repay creditors.
• Insolvency Professionals: The resolution processes will be conducted by licensed Insolvency Professionals (IPs). This IPs will be members of Insolvency Professional Agencies (IPAs). IPAs will also furnish performance bonds equal to the assets of a company under insolvency resolution.
• Information Utilities: Information utilities (IUs) will be established to collect, collate and disseminate financial information to facilitate insolvency resolution.
• NCLT: The National Company Law Tribunal (NCLT) will adjudicate insolvency resolution for companies.
• DRT: The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for individuals.
• Insolvency and Bankruptcy Board: The Insolvency and Bankruptcy Board of India will be set up to regulate functioning of IPs, IPAs and IUs.
Suggestions recommended by Joint Parliamentary Committee and accepted by government in toto include:
• Insolvency Bill Cross-border insolvency: Cross border insolvency relates to an insolvent debtor who has assets abroad. The Code does not contain provisions to deal with such situations. The Committee recommended that new provisions should be made to provide for the central government to enter into agreements with other countries to enforce provisions of the Code.
• Information storage with IUs: A person should not have the right to remove information, and should only be allowed to modify or correct information provided by him.
• Purpose of establishing the Bankruptcy Fund: A contributor should be allowed to withdraw his contribution from the fund in cases including where he has to make payments to workmen.
• Insolvency Professionals: The Code does not specify the professional streams from where IPs will be drawn. The Committee recommended that these streams should be specified in the Code.
• Employee benefits during liquidation: Any dues payable to workmen from these funds should be excluded from the debtor’s assets during liquidation.
• Insolvency Professional Agencies: The Board should make model bye-laws to ensure consistency among rules followed by all IPAs.
• Information Utilities: Operational creditors should also be a part of the creditors committee’s deliberations. The IUs should be made interoperable, to ensure that a seamless network of information is created.