The Bankruptcy Law Reform Committee headed by former Law secretary T. K. Viswanathan has recommended the establishment of an insolvency regulator to exercise regulatory oversight over insolvency professionals, insolvency professional agencies and informational utilities.
The committee has also prepared a draft Bill to consolidate the existing laws relating to insolvency of companies, limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals which are presently scattered in a number of legislations, into a single legislation.
The major recommendations of the Committee Report are as follows:
Insolvency Regulator: The Bill proposes to establish an Insolvency Regulator to exercise regulatory oversight over insolvency professionals, insolvency professional agencies and informational utilities.
Insolvency Adjudicating Authority: The Adjudicating Authority will have the jurisdiction to hear and dispose of cases by or against the debtor.
The Debt Recovery Tribunal (“DRT”) shall be the Adjudicating Authority with jurisdiction over individuals and unlimited liability partnership firms. Appeals from the order of DRT shall lie to the Debt Recovery Appellate Tribunal (“DRAT”).
The National Company Law Tribunal (“NCLT”) shall be the Adjudicating Authority with jurisdiction over companies, limited liability entities. Appeals from the order of NCLT shall lie to the National Company Law Appellate Tribunal (“NCLAT”).
NCLAT shall be the appellate authority to hear appeals arising out of the orders passed by the Regulator in respect of insolvency professionals or information utilities
Bankruptcy and Insolvency Processes for Companies and Limited Liability Entities: The draft Bill proposes to revamp the revival/re-organisation regime applicable to financially distressed companies and limited liability entities; and the insolvency related liquidation regime applicable to companies and limited liability entities.
The draft Bill lays down a clear, coherent and speedy process for early identification of financial distress and revival of the companies and limited liability entities if the underlying business is found to be viable.
The bankruptcy of an individual can be initiated only after the failure of the resolution process. The bankruptcy trustee is responsible for administration of the estate of the bankrupt and for distribution of the proceeds on the basis of the priority.
Budget 2015 recognises the need for legal reforms to stimulate business and growth. Economic policies overwhelmingly focus on fiscal measures, monetary interventions and welfare programmes to aid businesses, but the legal processes that underlie commerce are often ignored.
Laws that are concerned with starting businesses, enforcing contracts, ensuring debt repayments and exiting businesses, play a critical role and can thwart growth, rendering even good policies ineffective.
It is in such a spirit of broadening the approach that Finance Minister Arun Jaitley has identified reform in bankruptcy laws as a key priority, envisaging legal clarity and speedy processes that will ultimately ease doing business in India.
As per the recent Doing Business, 2015 Report, India is ranked 142 on the ease of doing business and at 137 for resolving insolvencies.
The average time taken for insolvency proceedings in India is about 4.3 years, while it is only 1.7 years in high-income OECD countries. The recovery rate (cents on the dollar) is 71.9 in high-income OECD countries as opposed to 25.7 in India.