Written by : Mahima Rai, LL.M DSNLU, Associate Fourfold Legal
1. Introduction
The Insolvency and Bankruptcy Code, 2016 (IBC), represented a significant change in India's legal and financial system. Its main goals were to protect the interests of all stakeholders, promote a more business-friendly climate, and expedite the insolvency and bankruptcy resolution process. The IBC has nevertheless undergone several adjustments since its creation to address new issues and maintain its effectiveness. This essay examines the fundamental causes of the IBC's ongoing changes and their effects on the Indian economy.
2. Adapting to Dynamic Economic Realities
The constantly changing economic environment is one of the main justifications for the IBC's ongoing revisions. The Indian economy has faced various difficulties, including the COVID-19 pandemic's disruptive effects, economic downturns, and the global financial crisis of 2008. To help struggling firms and individuals while maintaining the legitimacy of the settlement process, the IBC has had to be modified as a result of the economic turmoil.
3. Bridging Legal and Procedural Lacunae
Although the IBC was a ground-breaking piece of legislation, it had several flaws and ambiguities like any new law. To provide a more effective and predictable bankruptcy resolution process, further revisions attempt to close these gaps and clarify processes. To avoid disputes and improve coordination, these modifications also tried to harmonise the IBC with other current laws and regulations, such as the Goods and Services Tax (GST) and the Companies Act.
4. Addressing Judicial Construal
Judicial interpretations of the IBC started to affect its practical implementation when cases were decided by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). These interpretations usually resulted in unexpected results and perplexity. Aiming to address particular court decisions, provide uniformity and clarity, and reduce disparities, amendments have been made to the law.
5. Striking a Balance Among Stakeholder Interests
A balance between the interests of many stakeholders, including creditors, borrowers, and shareholders, is sought by the IBC. This balance is maintained by persistent adjustments, which are carefully designed. For instance, modifications have been made to strengthen homeowners' rights and protect their interests in situations where real estate enterprises face insolvency.
6. Fostering an Enabling Business Environment
The IBC is crucial to India's efforts to improve its position in the "Ease of Doing Business" index. Incorporating changes has sped up processes, reduced the time and expense of resolution, and attracted additional investment. India must make these changes if it wants to position itself as a desirable location for both domestic and global businesses.
7. Tackling Systemic Challenges
Numerous issues, most notably an abundance of non-performing assets (NPAs), have been plaguing the Indian banking industry. The IBC is intended to be a mechanism for addressing these systemic issues. The IBC's processes are being fine-tuned by the continuous changes, allowing it to deal with major corporate defaults and complex financial structures more efficiently and permitting a more expedited resolution process.
8. Aligning with Global Best Practices
International best practices for resolving insolvency and bankruptcy are always changing. The IBC is periodically updated to stay current with these worldwide standards and improve India's reputation in the world of business. By doing this, India keeps its competitive edge and appeals for international partnerships and investments.
9. Case Laws
· Innoventive Industries Ltd. v. ICICI Bank (2017): This case, one of the first under the IBC, set crucial guidelines for the start of the insolvency procedure. According to the Supreme Court, a financial creditor's application can be reviewed and approved by the National Company Law Tribunal (NCLT).
· Essar Steel India Ltd. v. ArcelorMittal (2019): This case dealt with how bankrupt company sales revenues should be divided up among creditors. The Supreme Court made it clear that operational and financial creditors should be paid off first when allocating assets.
· Swiss Ribbons Pvt. Ltd. v. Union of India (2019): The Supreme Court confirmed the IBC's constitutional legality in this momentous case. The NCLT and NCLAT's function in the insolvency resolution process was reinforced.
· Jaypee Infratech Ltd. v. NBCC (2020): The complexities of the dispute resolution process for real estate corporations were the subject of this lawsuit. It emphasised how crucial it is to safeguard homebuyers' interests throughout insolvency proceedings.
· Jet Airways (India) Ltd. Case (2020): The difficulties in managing insolvency in the aviation business were demonstrated by the Jet Airways case. It emphasised the demand for a thorough strategy to address the financial difficulty of businesses in particular industries.
· Lanco Infratech Ltd. Case (2020): The avoidance of favourable transactions under the IBC and the problem of fraudulent transactions were the subjects of this lawsuit.
10. Amendments
Since its establishment, the Insolvency and Bankruptcy Code, 2016 (IBC) has undergone several revisions to address different issues and enhance its efficiency. Here is a summary of the significant IBC revisions that have been made as of the knowledge cutoff date of September 2021:
· Ordinance to Suspend Insolvency Proceedings during COVID-19: In June 2020, the Indian government passed an order in reaction to the COVID-19 pandemic's negative economic effects. This decree offered assistance to companies experiencing financial hardship as a result of the epidemic by temporarily suspending the start of new insolvency procedures. Sections 7, 9, and 10 of the IBC were momentarily stopped, barring the start of insolvency procedures for defaults that happened during this time.
· Minimum Threshold for Initiating Corporate Insolvency: The minimum amount required to start corporate bankruptcy procedures was changed from Rs. 1 lakh to Rs. 1 crore in December 2019. This action was taken to stop small operating creditors from filing for bankruptcy protection against debtors for very slight defaults.
· Pre-packaged Insolvency Resolution Process (PPIRP): A framework for pre-packaged insolvency resolution processes (PPIRP) was added to the IBC in April 2021. Through this method, insolvency proceedings can be started by qualifying corporate debtors with a resolution plan that has already been authorised, expediting the process and perhaps cutting down on time and expenses.
· Cross-Border Insolvency: Insolvency cases with cross-border ramifications can now be handled more cooperatively with foreign jurisdictions thanks to the operationalization of the cross-border insolvency laws in 2019. With the use of this clause, the IBC is brought into compliance with global best practices and gives foreign creditors a way to take part in Indian bankruptcy procedures.
· Homebuyers as Financial Creditors: Homebuyers now have the status of financial creditors according to a 2018 legislation. As a result, their interests were better safeguarded during the insolvency resolution process for real estate enterprises.
· Suspension of Initiation of Insolvency Proceedings for Defaults during the Pandemic: The government declared a pause on the start of new bankruptcy procedures for defaults emerging from March 25, 2020, to March 24, 2021, because of the current COVID-19 epidemic. This action was intended to offer short-term assistance to the pandemic-affected firms.
· Threshold for Individual Insolvency: The minimal threshold for launching bankruptcy procedures against people was raised in 2020 from Rs 1,000 to Rs 1 lakh, making it more difficult to launch such actions for modest debts.
· Pre-packaged Insolvency for MSMEs: A unique framework for pre-packaged insolvency resolution proceedings for Micro, Small, and Medium-Sized Enterprises (MSMEs) was adopted by ordinance in June 2020. This was done to give these firms a quicker and more affordable settlement procedure.
11. Conclusion
The 2016 Insolvency and Bankruptcy Code has undergone constant revisions to keep up with the changing economic environment, address legal and procedural ambiguities, conform to judicial interpretations, maintain a balance between stakeholder interests, foster a business-friendly environment, address systemic issues, and follow international best practises. These modifications highlight the government of India's commitment to maintaining a strong and efficient system for the settlement of insolvency and bankruptcy while also demonstrating how sensitive the Indian government is to economic concerns. The IBC will continue to change and adapt as a living piece of law to meet the changing needs of the Indian economy and its stakeholders.
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