The Government of India has been bringing out various legislation and regulations to ease the doing of business in India. One of the key issues faced by any form of business is debt recovery. The Indian Insolvency Regime had been known for a lack of quick resolution of insolvency cases and had been one of the major deterrent factors for foreign investors to contemplate investing in India. The enactment of Insolvency and Bankruptcy Code in May 2016 has reversed the insolvency climate in India and has expedited the debt recovery proceedings.
IBC is here to help!:
Lately, a score of Global institutions have been investing in India and their exposure to Indian Markets has become multifold. Financial defaults by Indian Entities have been a concern for foreign investors and businessmen, mainly the suppliers of goods and services. The Indian Banking Sector has also incurred heavy defaults in the form of Non-Performing Assets. The Government of India thus framed the Insolvency and Bankruptcy Code (IBC) to address the concerns of creditors – both operational and financial creditors. In addition to this, a regulatory body in the name and style of ‘Insolvency and Bankruptcy Board of India’ has been set up as a key pillar of the insolvency ecosystem of India, to frame and enforce the implementation of the Code.
Wait no more!:
The IBC is designed as a stringent law which provides stricter timelines with serious implications for defaulters. The interest of creditors has been given prime importance in the enactment, thus the regulations have been drafted in such a way to safeguard the interest of creditors. The applications under the IBC are to be filed with the National Company Law Tribunal (NCLT), a quasi-judicial body which adjudicates issues relating to Companies in India. The NCLT has a total of 11 Benches (place of operation) in India, in the cities of New Delhi, Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai; the applications for initiating the Corporate Insolvency Resolution Process shall be filed in the appropriate bench having jurisdiction in the place where the Registered Office of the defaulter is situated. It is the intention of the Government of India to increase the number of benches so as to have a Bench each in every State. This necessarily means that all the proceedings are time-bound under NCLT unlike the earlier Civil Suits filed in Indian Courts which could go on for years together. IBC mandates the completion of corporate insolvency proceedings in 180 days (+90 days depending on the nature of the case) from the date of admission of the application by NCLT. Essentially, within the period of 180 days, a resolution plan for debt repayment is passed or liquidation proceedings are initiated.
It is Effective!:
The Indian party would tend to drag the suit in the Court using procedural flaws under the previous regime; the foreign party would also be mandated to attend the trial proceedings of the Civil Suits earlier. The arbitration proceedings, if sought by foreign party to resolve the dispute in a timely manner would also have been stayed by the Courts on application of the Indian Party. However under IBC, the regulations have been spelt out to regulate the proceedings and for completion of proceedings in a timely manner. Thus the parties would find it cheaper and time effective to move an application to NCLT to commence the proceedings than go for arbitration. The presence of the foreign party is not required during the NCLT proceedings, thus making it logistically easier to pursue its legal recourse in India.
Go for it!:
It is to be observed and appreciated that a number of global corporations have initiated Corporate Insolvency Resolution Process against their defaulting debtors in India under the IBC.
To summarize in the words of Dr. M.S. Sahoo, the Chairman of the Insolvency and Bankrupcty Board of India (IBBI), ‘the Insolvency and Bankruptcy Code is a market determined, time-bound mechanism for orderly resolution of insolvency, wherever possible, and ease of exit, wherever required’.
Authored by Ishwarya . R, Consultant