IBC Revisit Proposed For Quicker Insolvency Resolution Process
A standing committee on finance headed by Member of Parliament Jayant Sinha has called for a relook at the design of the Insolvency and Bankruptcy Code so that the very purpose behind its enactment is not defeated.
This observation comes against the backdrop of various roadblocks that have plagued the IBC regime, such as inordinate delays in the resolution process, resulting in the erosion of the value of stressed assets, and infrastructural and capacity gaps in NCLTs, among other reasons.
Gaps At Tribunal Level
The committee has acknowledged that for the first time since inception, the strength of NCLTs would be more than 90% of the sanctioned limit. The total strength is soon expected to reach 57 of the sanctioned limit of 62 members.
However, the authorised strength of NCLTs needs to be increased in order to deal with the huge backlog of more than 20,000 cases at the end of each year, according to the committee.
It observed that its recommendations regarding the analysis of capacity requirements vis-Ã -vis projected cases in the NCLTs have not been heeded.
NCLTs have been functioning with poor infrastructural set-up and the ministry should prioritise addressing the requirements of the tribunals urgently by filling the infrastructural and human capacity gaps without further delay, the committee said.
Undue Delays And Role Of Resolution Professionals
It is a matter of grave concern that the insolvency process has been stymied by long delays, which are far beyond the statutory limits, the committee said.
It is disconcerting that even admission of cases in NCLT has been taking an unduly long time, which thus defeats the very purpose of the Code. There have also been instances of frivolous appeals, which further drag on the resolution and recovery process, leading to severe erosion of asset value.Standing Committee On Finance
Actual recoveries on the ground are roughly between 25% and 30% of the admitted claims, and some cases take as long as two years for resolution, which is far beyond the time limit envisaged in the Code, the committee said.
As a corollary, the committee has proposed that the process of admitting claims needs a revisit, as huge delays occur at this stage, creating a domino effect on the whole resolution process, which leads to a degeneration of asset value.
It has also been observed that most of the fines that the Insolvency and Bankruptcy Board of India imposes on RPs are due to their unawareness and misinformation regarding the resolution process.
Therefore, it has been recommended that IBBI undertake capacity-building exercises for RPs, as they directly aid in quicker resolutions without compromising the asset values.
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