The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted to consolidate and amend the laws relating to the reorganisation and insolvency resolution of corporate debtors in a time-bound manner for the maximisation of the value of assets of such debtors. Its primary function is to provide a solution to companies in financial distress. However, the delay in insolvency and bankruptcy law has led to an increase in pending insolvency cases before the National Company Law Tribunal (NCLT), meaning that the IBC’s end goal of ensuring efficient and timely resolutions is not being fulfilled.
Current Challenges in the IBC Framework
The IBC faces several challenges due to the complexity of insolvency cases, such as judicial delays, procedural complexities, and institutional limitations.
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Judicial Delays:
The NCLT is overburdened with cases due to the intricacy of insolvency cases which delays resolutions beyond the prescribed timelines. These delays reduce the overall value of assets discourage potential investors and adversely affect the economy.Â
Procedural Complexities:
There are many cases where there is involvement of IBC and other legislations, such as the Real Estate (Regulation and Development) Act, 2016. This further adds to the complexity of cases and extends the resolution time. At each stage of insolvency, there are multiple documents that need to be submitted within a prescribed time period, causing confusion. The disorganisation documentation often leads to delays in filing claims and verifying information.
Institutional Limitations:
The significant backlogs at the NCLT often lead to extended timelines. The limited infrastructure and resources at NCLT and the National Company Law Tribunal (NCLAT) make it difficult for sufficient adjudication of insolvency cases. The lack of trained insolvency professionals to handle complex cases effectively means that there are increases in applications to extend the process. Financial and operational creditors often lack clarity on their roles, further slowing down proceedings.
Key Insights from Experts on Evolving the IBC
According to experts, evolving the IBC includes prioritising creditor rights, strengthening the NCLT, implementing pre-packaged insolvency for larger firms, and simplifying the process by reducing the documents to be submitted, etc.
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Strengthening Institutional Capacity:
Improving the capacity and efficiency of the NCLT is essential to reduce pendency in insolvency cases. The NCLT and NCLAT can also be expanded by appointing more judges and staff to improve the procedural irregularities and judicial delays. The Insolvency and Bankruptcy Board of India (IBBI) should also focus on equipping insolvency professionals with the necessary skills to manage large-scale insolvency cases.
Simplifying Compliance:
The IBBI can review duplicative and redundant compliance requirements to streamline processes. The utilisation of technology, such as digital platforms for claim verification and communication can reduce delays significantly. Automated reporting processes and blockchain technology facilitate easy access to information for stakeholders and enable real-time tracking of insolvency proceedings.
Reducing Timeline Uncertainty:
It is important for stakeholders, insolvency professionals, and the NCLT or NCLAT mandates to the 330-day timeline under section 12 of the IBC. The resolution process should not be delayed, except with limited exceptions for genuine delays. It has also been suggested to introduce specialised insolvency benches to tackle pending cases, such as for real estate matters, companies in the power industry, etc.
Recommendations for Strengthening the IBC
To strengthen the IBC, there are several recommendations to reduce the burden on the NCLT and NCLAT, improve the efficiency of the resolution process, and adhere to the time limit under section 12. For instance:
Leveraging Technology:
Insolvency professionals and other professionals, can increase the competence of case management systems by using artificial intelligence (AI) for automated documentation, claim verifications, and tracking compliance. Digital portals can be used to make the filing process under the IBC more time-efficient, having a centralised platform can simplify creditor filings and improve transparency. The IBBI could conduct awareness campaigns for creditors, operational stakeholders, and small businesses on the IBC framework through webinars, and other resources.
Pre-Packaged Insolvency Framework:
By using the pre-packaged insolvency under IBC, that are generally for micro, small, and medium enterprises, large companies may reduce delays in the insolvency process. Opting for faster resolution processes will reduce procedural costs, which means that there will be a reduction in litigation costs and similar costs.Â
 Strengthening IBBI Oversight:
The IBBI has the responsibility to oversee the insolvency proceedings before the NCLT, hence they should ensure compliance with the IBC through period audits. By aligning the IBBI processes with the Securities Exchange Bank of India, the Reserve Bank of India, and other regulatory bodies may reduce legislative overlaps.
Case Studies on Delays in Resolution
- Essar Steel Case: The Essar Steel case involved a company that owed banks Rs. 43, 000 crores and suppliers and vendors Rs. 11, 000 crores. The resolution, in this case, allowed ArcelorMittal, the world’s largest steel-maker, to enter the Indian steel market. However, this is high profile case where multiple rounds of litigation led to delays of over two years, and the resolution process took 835 days to conclude. However, the takeover by ArcelorMittal showcased the potential of IBC despite challenges.
- Jaypee Infratech Case: The insolvency process in this case was delayed due to complex legal batters between the homebuyers, lenders, and the company. There is involved of a large number of stakeholders, including banks, financial institutions, government agencies, and individual homebuyers, making it difficult to reach a successful resolution plan. The intervention of the Supreme Court expedited the process, highlighting the importance of judicial reforms.
Recent Reforms to Mitigate Delays
IBBI’s Review of Compliance:
The IBBI has initiated an exercise to remove redundant compliance requirements, making processes more efficient.
Increased Appointments in NCLT:
The government is considering adding up to 100 members to the NCLT’s current sanctioned strength. This expansion is intended to improve the NCLT’s functioning, further streamline the insolvency process, and dispose of matters that do not fall, specifically, under the IBC.
Proposed Amendments: Â
Experts recommend amendments to the IBC to strictly enforce timeframes for each stage of the insolvency process, reduce delays, and implement stricter regulations to ensure that the 330 days limit is followed. Further, IBBI has notified the Insolvency and Bankruptcy Board of India (Liquidation Process) Amendment Regulations, 2024 provide that now liquidator can go for compromise and arrangements only in cases where the Committee of Creditors has such recommendation.
The Way Forward
Building synergies between the Adjudicating Authorities and the IBBI improves case management and reduces delays by fostering better coordination, streamlining the insolvency process, and ensuring consistent application of insolvency laws. This promotes transparency throughout the process and leads to quicker and more efficient outcomes for insolvency cases under IBC. India could implement a more detailed insolvency regime for cross-border matters, and the current framework is not sufficient to handle complex cross-border insolvency challenges more effectively. India can learn from Chapter 11 in the United States Bankruptcy Code to improve the insolvency framework, such as early intervention to deal with insolvent companies can increase the chances of saving the company.
Conclusion : Issue of delay in insolvency and bankruptcy law
The IBC has been a transformative reform in India’s economic landscape, but its effectiveness is hindered by delays and institutional challenges. The IBC has increased the recovery rate for creditors and reduced the time to resolve insolvency cases in comparison to the previous insolvency laws. On the other hand, its efficiency is undermined by procedural delays because of numerous documents that have to be submitted at different stages of the insolvency process, and institutional challenges, like shortage of personnel at the NCLT, lack of insolvency professionals, etc. The backlog of insolvency cases can be resolved through amendments to the IBC, leveraging technology in the proceedings, increasing the number of NCLT benches, and establishing programs for capacity building and awareness campaigns for stakeholders.