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Insolvency and Bankruptcy Code (IBC):

GS Paper 3

Topics Covered: Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

 

Context:

The Supreme Court has said “judicial delay” was the main reason for the failure of the insolvency regime in India prior to the 2016 Insolvency and Bankruptcy Code (IBC), as it urged company law tribunals to “strictly adhere” to the timelines under the new law and clear pending resolution plans.

 

What’s the issue?

The IBC mandates a 330-day outer limit for conclusion of the corporate insolvency resolution process (CIRP).

  • However, a parliamentary panel report published last month stated that more than 71% cases have been pending before the tribunals for over 180 days.

 

Reasons for delays:

  1. The national company law appellate tribunal taking considerable time in admitting CIRPs.
  2. Multiplicity of litigation.
  3. Appeals to the NCLAT and the Supreme Court.

 

Impacts of such delays:

  • Long delays in approving the resolution plan by the adjudicating authority (NCLT) affect the subsequent implementation of the plan.
  • These delays, if systemic and frequent, will have an undeniable impact on the commercial assessment that the parties undertake during the course of the negotiation.
  • Also, they cause commercial uncertainty, degradation in the value of the corporate debtor and makes the insolvency process inefficient and expensive.

 

About the IBC:

  • The IBC was enacted in 2016, replacing a host of laws, with the aim to streamline and speed up the resolution process of failed businesses.
  • The Code also consolidates provisions of the current legislative framework to form a common forum for debtors and creditors of all classes to resolve insolvency.

 

The Code creates various institutions to facilitate resolution of insolvency. These are as follows:

  1. Insolvency Professionals.
  2. Insolvency Professional Agencies.
  3. Information Utilities.
  4. Adjudicating authorities: The National Companies Law Tribunal (NCLT); and the Debt Recovery Tribunal (DRT).
  5. Insolvency and Bankruptcy Board.

 

Insta Curious:

The Insolvency and Bankruptcy Code (Amendment) Bill, 2021 proposed ‘pre-packs’ as an insolvency resolution mechanism for Micro, Small and Medium Enterprises (MSMEs). What are ‘pre-packs’? Reference

 

InstaLinks:

Prelims Link:

  1. What is insolvency and bankruptcy?
  2. Various institutions established under the IBC code.
  3. NCLT- composition and functions.
  4. What are debt recovery tribunals?
  5. Sections 7, 9 and 10 of IBC.

Mains Link:

Discuss how suspension of initiation of fresh insolvency proceedings will help shield companies impacted by the outbreak of Covid-19.

Sources: the Hindu.