What is it?

  • The Parliamentary Standing Committee on Finance reviewed the Insolvency and Bankruptcy Code 2016 and highlighted the achievements of the code.

Insolvency and Bankruptcy Code 2016

  • Aim: It was enacted to modernize India’s business distress resolution process and to unify previously existing regulations into a comprehensive time-bound mechanism.
  • Features
    • The Code strives to encourage entrepreneurship, increase credit availability, and balance the interests of all stakeholders. When the IBC declares insolvency, there are two options: resolution or liquidation. 
    • Under the IBC, companies must complete the full insolvency process within 180 days. If creditors do not object to the extension, the deadline may be extended. 
    • Smaller enterprises, including startups, with yearly sales of Rs 1 crore must complete the insolvency process within 90 days.
  • Associated Challenges
    • Implementation Challenges:
      • Overburdened National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), which also handle Companies Act cases.
      • Average time for insolvency resolutions increased to 716 days in FY 2023-24.
    • Structural Issues:
      • NCLT’s design reflects outdated economic realities and lacks adequate members (63 sanctioned positions).
      • Delays due to part-time operation of benches and bureaucratic inefficiencies in urgent case listings.
    • Need for Expertise:
      • Appointed members often lack domain-specific knowledge, as highlighted in the Jet Airways case by the Supreme Court.
      • This lack of expertise hampers resolution of complex cases.
    • Procedural Inefficiencies:
      • Mandatory hearings for all applications, including progress reports, contribute to delays.
      • Limited adoption of alternative dispute resolution mechanisms further strains the system.
    • Judicial Oversight Concerns:
      • Instances of NCLT/NCLAT members ignoring or defying Supreme Court directives threaten judicial hierarchy and institutional integrity.
  • Proposed Reforms:
    • Implement mandatory mediation before filing insolvency applications.
    • Establish specialized benches for specific case types to enhance efficiency.
    • Ensure infrastructure development, including adequate courtrooms and permanent support staff.

Source: The Hindu