Bankruptcy Code to help India Ease of Doing Business

Bankruptcy Bill was introduced in the Parliament with an aim to help address the issue of bank debts and also to improve India's ranking for ease of doing business. Both the Houses of the Parliament passed it. It will become a law once President signs it.

Experts are of the opinion that the bankruptcy code will help lenders recover their money as they will be able to set a deadline of 180 days for companies to pay back the loan or go for liquidation.

The code is of prime importance to India as on the yardstick of resolving insolvency, India is ranked at lowly 136 among 189 countries. As per the World Bank currently it takes more than four years to resolve a case of bankruptcy in our country. Thanks to this code the time will be reduced to less than a year.

M R Umraji, the adviser to the Indian Bank's Association hailed the code by saying that this code will put company promoters on guard and they will now think twice before they default.

People expect that the bill will discourage big corporates from defaulting and banks also will not be in a pitiable condition while recovering loans from big businesses.

Some experts believe that the code can help unlock billions of dollars which are like dead investment in the sick business units. However, they also believe that as legal system of India is very cumbersome it may not be easy to implement the code once it becomes law.

Highlights of the Code:

The Code to create time-bound processes for insolvency resolution of companies and individuals. The processes to be completed within 180 days. Should insolvency not be resolved, the assets of the borrowers to be sold to repay creditors
The resolution processes to be conducted by licensed insolvency professionals (IPs). The IPs to be members of insolvency professional agencies (IPAs). IPAs to also furnish performance bonds equal to the assets of a company under insolvency resolution
Information utilities (IUs) to be established to collect, collate and disseminate financial information to facilitate insolvency resolution
The National Company Law Tribunal (NCLT) to adjudicate insolvency resolution for companies. The Debt Recovery Tribunal (DRT) to adjudicate insolvency resolution for individuals
The Insolvency and Bankruptcy Board of India to regulate functioning of IPs, IPAs and IUs