Source: The Hindu Business Line

Introduction

The Standing Committee's recent 'action taken' report on the functionality of the Insolvency and Bankruptcy Code (IBC) offers critical insights and recommendations on two fundamental levels. It addresses operational challenges within key agencies involved in the insolvency process, including the National Company Law Tribunal (NCLT), resolution professionals, and the Insolvency and Bankruptcy Board of India (IBBI). Moreover, it underscores the imperative to reevaluate the very structure of the code itself, albeit in a rather concise manner. This dual focus necessitates a comprehensive approach to enhance the efficiency and effectiveness of India's insolvency framework.

What is the Standing Committe’s Action Taken Report on IBC, 2024?

• Title of the Report:
  • The title of 67^th report is Action taken by the Government on the Observations/Recommendations contained in Thirty-second Report (17th Lok Sabha) on the subject ‘’Implementation of IBCA-Pitfalls and solutions’.
• Composition of Committee:
  • The committee was chaired by Shri Jayant Sinha and consisted of members of Lok Sabha, and Rajya Sabha and there was a Secretariat.

What was the Recommendations of Standing Committe’s Action Taken Report on IBC, 2024?

• Concerns Regarding Appointment of Fresh Graduates as Insolvency Professionals:
  • The Committee expressed concerns over appointing inexperienced graduates as Insolvency Professionals (IPs) or Resolution Professionals (RPs).
    • It doubted their competency in handling cases of large and complex corporations.
  • The Committee recommended implementing stricter criteria for appointing IPs and RPs to ensure competence in managing intricate corporate insolvency cases.
• Need for Professional Self-Regulator for Resolution Professionals:
  • Highlighting conduct issues among RPs, the Committee proposed establishing an Institute of Resolution Professionals to oversee and regulate their functioning.
  • This self-regulatory body would ensure adherence to standards and fair self-regulation, similar to the Institute of Chartered Accountants of India (ICAI).
• Enhancement of Entities Under IBC:
  • Recognizing the importance of entities like IPs, IP Agencies, and Information Utilities, the Committee suggested conducting capacity enhancement programs periodically to ensure their evolution over time.
• Need for Specialized Benches in NCLT for IBC and MSMEs:
  • The Committee advocated for dedicated benches in the NCLT specifically for matters related to the IBC and Micro, Small, and Medium Enterprises (MSMEs).
  • It emphasized the importance of institutional capacity enhancement for NCLT benches to handle sector-specific cases effectively.
• Addressing Vacancies and Training Needs in NCLT:
  • Expressing deep concern over vacancies in the NCLT and inadequate training for its members, the Committee recommended expeditious recruitment to fill sanctioned positions and collaboration with National Law Schools to enhance training and capacity-building efforts.
• Preventing Misuse and Abuse of Insolvency Processes:
  • To prevent delays and frivolous appeals in insolvency processes, the Committee recommended ensuring finality within statutorily stipulated periods.
  • It called for stricter adherence to timelines by all stakeholders involved, alongside amendments to streamline processes and remove bottlenecks.
• Reviewing the Design of the IBC:
  • Based on observed delays and shortcomings in the resolution process, the Committee suggested reviewing the design of the IBC.
  • It called for addressing lacunae and roadblocks to ensure the code's purpose of timely insolvency resolution and asset value maximization was upheld.
  • Additionally, the Committee sought clarification on steps taken to expedite claim admission processes.

What is the Issue in the IBC Procedure?

• The report's fleeting reference to revising the code's design prompts introspection into whether the persistent issues plaguing the IBC process, notably delays in resolution and suboptimal value realization, stem from inherent flaws within the legislation.
  • Despite numerous amendments since its inception in 2016, the core question remains: Does the IBC require structural modifications to address its inherent shortcomings adequately?
• While legislative amendments have been made, the primary emphasis should be on rectifying governance deficiencies, at least for the time being.

How is Report Strengthening the NCLT?

• Beyond addressing bench strength inadequacies, the NCLT's operational methodology warrants scrutiny.
• Members, both judicial and technical, would benefit from enhanced domain knowledge concerning bankruptcy matters, particularly in a dynamically evolving business landscape.
• A revamped recruitment process aimed at attracting young professionals with specialized expertise in bankruptcy could rejuvenate the NCLT, fostering contemporary approaches to adjudication.

How Action Taken Report is Looking Forward to Empower Resolution Professionals?

• The report aptly underscores the imperative to augment the competency of resolution professionals tasked with revitalizing distressed entities or overseeing liquidation proceedings.
• While the IBBI vigilantly monitors malpractices among RPs, the establishment of a capacity-building body for periodic assessments could enhance operational standards.
• These concerted efforts hold the potential to curtail resolution timelines, optimize valuations, and amplify revival prospects for ailing enterprises.

Conclusion

In navigating the intricate terrain of insolvency and bankruptcy, a multifaceted approach is imperative. While rectifying governance deficits remains paramount, concurrent efforts to refine the structural underpinnings of the IBC are indispensable. By synergizing operational enhancements with legislative reforms, India can strengthen insolvency ecosystem conducive to expeditious resolutions and sustainable economic revitalization.