The Insolvency and Bankruptcy Code (IBC) Review
The Insolvency and Bankruptcy Code (IBC) has made significant contributions to improving India's ease of doing business. Despite its achievements, it faces "persistent and systemic challenges" that hinder its optimal performance, as reported by the Parliamentary Standing Committee on Finance.
Achievements and Challenges of IBC
- Since its inception, the IBC has successfully resolved 1,194 companies.
- Creditors have recovered over 170% of the liquidation value and more than 93% of the fair value of these companies.
- Challenges faced include:
- Protracted delays in proceedings.
- Excessive litigation burden on adjudicating authorities.
- Issues surrounding excessive haircuts for creditors.
- Incomplete implementation of key frameworks such as the individual insolvency framework and pre-packaged mechanisms for MSMEs.
Delays in the CIRP Process
- The average time for completing the Corporate Insolvency Resolution Process (CIRP) is 713 days, exceeding the mandated 330-day timeline.
- Delays are primarily caused by:
- Shortage of NCLT benches.
- Vacant positions for judicial and administrative staff.
- Frivolous litigation and appeals by promoters or unsuccessful applicants.
Recommendations by the Committee
- Expedite the establishment of additional National Company Law Tribunal benches.
- Accelerate the operationalization of the proposed Integrated Technology Platform (iPIE) for centralized case management.
- Impose a mandatory upfront threshold deposit for unsuccessful resolution applicants filing appeals.
- Substantially raise the minimum penalty for frivolous applications.
Issues with Recovery and Valuation
- Overall recovery is only 32.8% of the total admitted claims.
- This shortfall is due to firms entering the IBC with heavily stressed assets.
- Valuation issues arise from:
- Valuation based on liquidation potential rather than enterprise value.
- Limited pool of quality resolution applicants.
- Lack of transparency and accountability in the process.
