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FEATURES:
- To speedily identify financially distressed companies and its resolution, if the
underlying business is viable. The Code will also ensure time-bound settlement of
insolvency and create a database of serial defaultersall critical in resolving Indias
bad debt problem which has crippled bank lending. This will make it easier for
financial institutions to deal with Non-Performing Assets (NPAs) arising out of
failed ventures.
- To consolidate existing laws relating to insolvency and reorganization of
companies.
- To facilitate the easy exit of companies, an issue which has been plaguing the
industry for long.
- To addresses cross-border insolvency.
- To promote entrepreneurship and availability of credit to all stakeholders in a
time-bound manner.
- To maximize the value of assets concerned.
ISSUES:
- Market Slump: Several Non-Performing Assets (NPAs) are in sectors where market
conditions are in a slump, such as steel, power and textiles. In this environment, it is
difficult for banks to find suitable buyers of distressed assets at desired
valuations.
- Ambiguous Provision: Although there is a provision in the Code that no legal
proceedings can be permitted against insolvency professionals or concerned officials
for anything done in good faith, they find it difficult to prove if a particular act was
done in good faith or not.
- Flexibility and Autonomy: The tight resolution timelines envisaged under the
code cannot be achieved if bankers do not have the flexibility and the autonomy to
sell distressed assets.
- Promoters Ignored: Role Promoters play in delaying NPA resolutions has been
ignored. Majority of businesses in India remain under the control of their
Promoters. In order to resolve the issue of NPAs, the involvement of Promoters is
paramount for bankers to make significant management changes.
- No Scope for Settlement: It is alarming that the Code prohibits withdrawal of the
application once the same has been admitted. This means that there is no scope
whatsoever for settlement.
- Creditors Over Debtors: The debtor is not given any opportunity to put forth
his/her case or representation in the entire process. In this manner, the Code
ignores rights enshrined in the Constitution.
- Capacity Concerns: The severe capacity constraints of the NCLT and DRT in
handling the present and past backlog of cases are yet to be resolved. Insufficient
technical expertise and infrastructure could also hinder the smooth functioning of
the process.
- Selection of IPs: Regarding IPs (Insolvency Professionals), it is critical to develop a
robust way to select the most qualified, and to ensure that they are independent
and do not allow Promoters or other stakeholders to manipulate the resolution
process in any unfair manner. This is crucial for the successful implementation of
the IBC.
MODEL QUESTION
1. The Insolvency and Bankruptcy Code, 2016 is said to increase the ease of doing
business in India. How does it propose to do so? Discuss the issues involved in the
code, if any.