Insolvency resolutions of companies and individuals will be completed within 180 days, as per a new law which has got the nod from President Pranab Mukherjee.
Insolvency is a situation where an individual or a company is unable to repay outstanding debt. The legislation has a provision for imposition by appropriate authority a minimum penalty of Rs one lakh and extendable up to Rs one crore on "any person initiating the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent".
The Insolvency and Bankruptcy Code, 2016, got the presidential assent on Saturday, according an official notification.
A Bill in this regard was passed by Rajya Sabha on May 11. Lok Sabha had given its nod to it on March 5.
The Finance Ministry had termed the bankruptcy code as the "biggest economic reform" that will also promote jobs, availability of credit and ensure timely resolution of financial distress of companies.
As per this law, information utilities would be created to provide creditors with information about borrowers such as how much money has been borrowed by the person or entity.
"The corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process," according to the legislation.
If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, the adjudicating authority may impose upon such person a penalty which shall not be less than Rs one lakh, but may extend to Rs one crore, it said.
The government expects that the new framework will help improve India's position in the World Bank's ease of doing business ranking.
The code specifies penalties for offences committed under corporate insolvency such as concealing property.
This penalty will be imprisonment of up to five years, or a fine of up to one crore rupees, or both. For offences committed under individual insolvency such as providing false information, the imprisonment will vary based on the offence.
For most of the offences, the penalty will be imprisonment of up to six months, or a fine of up to five lakh rupees, or both.
As per the law, the resolution processes will be conducted by licensed insolvency professionals (IPs) who will be members of insolvency professional agencies (IPAs). The agencies will have to furnish performance bonds equal to the assets of a company under insolvency resolution.
Besides, information utilities (IUs) will be established to collect, collate and disseminate financial information to facilitate insolvency resolution.
The law mandates establishment of an "Insolvency and Bankruptcy Board of India" to regulate functioning of IPs, IPAs and IUs.
The National Company Law Tribunal will adjudicate insolvency resolution for companies and the Debt Recovery Tribunal will adjudicate insolvency resolution for individuals, the law stipulates.