Panel for strong corporate insolvency regime

A government appointed panel today suggested changes in different legislations including the Companies Act (CA) 2013 for development of an effective corporate insolvency regime to improve India's rank in ease of doing business index.

The Committee under T K Viswanathan, former Secretary General of Lok Sabha and former Union Law Secretary has submitted its interim report on the corporate bankruptcy legal framework in India to the government.

Finance Minster Jaitley in his Budget Speech of 2014-15 had announced that an entrepreneur friendly legal bankruptcy framework would be developed for SMEs to enable easy exit.

"Although the rescue and liquidation related provisions of the new CA 2013 make several improvements over the old regime, there are many areas where its provisions need further changes to ensure that the new regime works efficiently and produces the desired outcomes," the report said.

This, Bankruptcy Law Reform Committee (BLRC) report said not only requires some substantive changes to CA 2013, but also certain institutional and practice related changes.

It also identifies the amendments required to comply with the judgements of the Supreme Court in relation to the National Company Law Tribunal (NCLT).

"The BLRC is hopeful that most of the changes proposed in this Report will help in development of an effective corporate insolvency regime in India and may also help in improving India's ranking in the 'Resolving Insolvency' indicator of the Doing Business reports," the report added.

Given the multiplicity of laws and adjudicatory forums governing insolvency matters in India, the BLRC said it is of the opinion that developing an 'Insolvency Code' and its operationalisation will require more time.

"However, there are several measures for insolvency resolution of companies under financial distress that can be implemented sooner without undermining the long-term project of developing and implementing the Insolvency Code," it said.

The most recent Doing Business Report, a joint project of the World Bank and the International Finance Corporation, ranks India 137 out of the 189 economies for resolving insolvencies.

The report has suggested amendment in CA to specify that any secured creditor may initiate rescue proceedings if the debtor company fails to repay debt.

It has also recommended that the NCLT should be empowered to impose sanctions/costs/damages on a petitioner and disallow re-applications on the same grounds if it finds that a petition has been filed to abuse the process of law.

The panel suggested that Sections 253 to 258 of CA 2013 should be redrafted to ensure that the viability of a company is taken into account while determining its sickness and enabling the creditors to have a say in such determination.

The report, however, does not address issues relating to insolvency resolution of banks and other financial institutions.

The government has sought comments on the recommendations contained in the interim report.