The current structure of Bankruptcy law in India is outdated and not efficient for a fast track exit for ailing companies. The government on 28^th march introduced in the parliament “Insolvency and Bankruptcy Code, 2015” that would provide for speedier delivery of insolvency cases. Recently there has been a boom in the number of startups in India thanks to the Start up India Action Plan and government recognizing the contribution of budding entrepreneurs in India for the growth and development of the country.

Insolvency and Bankruptcy code should make start as well as exit easy for startup companies as emphasized by Commerce and Industry Minister Nirmala Sitharaman in the India Today Conclave  where she said if “a startup is not doing well there should not be a taboo, there should not be a hitch. They should be able to get out faster”.

 

India is the third largest country in terms of number of startup after USA and UK and it could be seen that entrepreneurs are growing at a rapid rate in India recognizing the need of better Insolvency code for easy start and exit.

 

Salient features of the proposed Bill

 

• The Bill aims at promoting investments, freeing up bank resources, boosting credit markets and improving ease of doing business in India.

 

• The most important feature of the proposed legislation is that the corporate insolvency has to be resolved within 180 days, extendable by 90 days. It also proposes fast track resolution for corporate insolvency within 90 days.

 

• The Code seeks to provide for designating NCLT (National Company Law Tribunal) and Debt Recovery Tribunal (DRT) as the adjudicating authority for corporate persons and firms and individuals, respectively for resolution of insolvency.

 

• It also provides for monetary penalty and jail term of five years for Concealment of property, Defrauding creditors and furnishing false information.

 

• The bill also provides for priority for distribution proceeds for Liquidation Companies where the first charge will be created on insolvency resolution process and liquidation costs to be paid in full and then the liquidation proceeds will be used to clear secured creditors, then pay for workmen’s due for 12 months, unpaid due to employees other than workmen, and financial dues owed to unsecured creditors.

 

 

As per the current law, there is no single law dealing with insolvency and bankruptcy in India. Liquidation of companies is dealt by the high court while individual cases are dealt with Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920.

 

Other laws which deal deals with insolvency are SICA(Sick Industrial Companies Act),1985,Recovery of Debts due to Banks and financial Institution Act,1993,SARFAESI(Securitization and reconstruction of financial assets and Enforcement of security Interest)Act,2002 and Companies Act,2013.

 

As a result of different laws governing Insolvency and Bankruptcy laws there is overlapping jurisdiction of  the High Court, The Company Law Board, Debt Recovery Tribunals and BIFR(board for Industrial and Financial  Reconstruction)  leading to delay in the final verdict. A single Insolvency Code which is proposed could relieve the above complex process.

 

 

The ease of starting up and fast track exit can lead to more business growth as one may give it a try to one of its own business idea with less compliance and risk of failure not weighing much on mind. Further as the exit option becomes quicker and cost associated with liquidation also comes down considerably providing an opportunity for more risk taking ventures among the entrepreneurs.

 

Insolvency Code is a welcome move for the lackluster laws prevailing in India. The contribution of young enterprising entrepreneurs has been recognized but it is to seen whether there would be delay in effecting of the act. NDA government may find it difficult to pass the bill in both houses of the parliament in a short possible time owing due to political tension between NDA and UPA and the code being a reform in the entrepreneurial development. It has to seen whether the new Bankruptcy laws would rejuvenate easy of doing business in India which can lead to more growth of Startups in turn lead to job creation and overall development of the country.

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