New Delhi: The Union Cabinet on Tuesday approved the final amendments to the Insolvency and Bankruptcy Code (IBC), for which legislation will be moved in the Parliament in the ongoing session, two persons familiar with the development said.
The Bill seeks to make limited modifications to the proposals by the Baijayant Panda-led Parliamentary select committee, which examined the previous version tabled in the monsoon session.
It is possible that the Bill may be moved for passage in Parliament this week, said one of the persons quoted above, speaking on the condition of anonymity as information is not public yet.
The government has approved most of the recommendations of the committee, including disallowing the resolution professional of a company to also act as its liquidator in case the rescue plan fails, and prescribing a three-month timeline for the National Company Law Appellate Tribunal (NCLAT) to decide on bankruptcy cases, the people said. However, it has not accepted the suggestion for retrospective application of the ‘clean slate’ principle in debt resolution.
Queries emailed to the ministry of corporate affairs on Tuesday remained unanswered at the time of publishing.
Extinguishing claims
The Bill proposed that once a debt resolution plan under IBC has been approved by a tribunal, all claims other than those recognised in the revival plan will get extinguished and shall not be pursued. While this is a clarificatory amendment, the committee proposed that this part should be applicable from the commencement of the IBC in 2016.
Given that complex cases are at different stages of the judicial process, the government is not keen to specifically articulate it in the law in so many words, said the second person, who also spoke on condition of anonymity. Articulating it explicitly in IBC could lead to abuse of the legal process by unethical businessmen siphoning public funds and rendering the company bankrupt, this person said.
Siddharth Srivastava, partner at law firm Khaitan & Co., said the adoption of a two-tier approval framework for resolution plans—where plan approval and approval of distribution of proceeds are dealt with separately by the National Company Law Tribunal (NCLT)—should help secure prompt in-principle clearances, with distribution disagreements among creditors addressed without stalling the plan itself.
Dispensing with NCLT discretion at the admission stage could be a turning point in addressing delays in the corporate insolvency resolution process, long seen as a key weakness in India’s insolvency framework, added Srivastava.
IBC reforms aim to speed up debt resolution, cut litigation and improve outcomes for creditors.
Reduced threshold
As part of the proposed reforms, the voting threshold for pre-packaged insolvency resolution is likely to be reduced from 66% to 51% and certain offences, such as non-compliance with the moratorium on recoveries or the resolution plan and non-disclosure of disputes by operational creditors, will be decriminalized.
The reforms also cover rolling out a framework for ‘group insolvency’ for handling the distress of multiple entities within a business group, and a cross-border insolvency regime for entities and creditors situated in different jurisdictions.
A creditor-led insolvency resolution process (‘CIIRP’) with an out-of-court mechanism for resolving cases of genuine business failures is also part of the proposed reform.
The proposed reforms mark another important step in the evolution of India’s insolvency framework, said Amit Maheshwari, managing partner at AKM Global, a tax and consulting firm.
“These appear to focus on addressing procedural bottlenecks, particularly the time taken for admission of insolvency applications and strengthening the overall efficiency of the corporate insolvency resolution process,” said Maheshwari. Strengthening institutional capacity and reducing case backlogs, he said, will be important for the amendments to achieve their intended impact.