Bankruptcy law

In the Bank’s latest report, Doing Business 2016, India has has moved only one place in terms of ranking for resolving insolvencies — from 137 to 136.  The average time taken for insolvency proceedings in India (according to the report) is about 4.3 years, while it is only 1.7 years in the high-income OECD member countries.

Having a robust[row'búst(strong,मजबूत)] insolvency resolution mechanism can help creditors recover a larger part of their investment faster allowing them to re-invest in other businesses.

A strong bankruptcy law, therefore, becomes a critical requirement.

For banks and lending institutions, a more comprehensive bankruptcy law would help protect their rights, promote predictability, clarify the risks associated with lending, and make the collection of debt through bankruptcy proceedings more attractive.

While there is no comprehensive and integrated policy on corporate bankruptcy in India, like in the US, along with the Companies Act, 2013, there are three major legislative Acts and several special provisions which render[ren-du(provide,देंना)] procedural guidance on liquidation or reorganisation.

As a consequence[kón-si-kwun(t)s(result,परिणाम)], four different agencies (High Courts, Company Law Board, the Board for Industrial and Financial Reconstruction, and the Debt Recovery Tribunals) have overlapping jurisdiction, which can create systemic delays and ramifications[ra-mu-fu'key-shun(complexities,जटिलता)] in the process.

Along with other benefits that a strong bankruptcy law would also help to give banks teeth to tackle the problem of stressed assets. So the draft report submitted by the Bankruptcy Law Reform Committee (BLRC) to the Finance Minister on November 4, 2015), is a positive step towards suggesting immediate reforms to the existing legal regimes governing bankruptcy in the country.

Whilst the BLRC recommendations seem to address most of the aspects relating to bankruptcy in India, there are a couple of areas where the recommendations could have been reinforced[ree-in'forst(strengthened,मजबूत)].

Additionally, given that in developing countries such as India, the litigation[li-tu'gey-shun(judicial process,क़ानूनी प्रक्रिया)] process may be used to cause delays, it is advisable to include a provision which will empower the regulator to levy fines in case frivolous[fri-vu-lus(less serious,trivial,मामूली)] adjournments[u'jurn-munt(postpone,स्थगित)] are sought.

While the recommendations by the BLRC, if accepted, shall help in reviving the economy as creditors along with the debtor company shall be assured of a speedy rehabilitation/ liquidation procedure.

It is also believed that the recommendations would ease the investment opportunity in the country.

This will help banks/ financial institutions recover dues with a fair degree of certainty as well as within a select time frame.

This in turn will help banks avoid the perils[perils(risk,जोखिम)] of a time-consuming litigation process which tend to work to the benefit of a corporate house/ promoter since it delays a bank from taking control of assets post default.

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