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Friday, September 24, 2021

Smoothing out

Time taken under IBC continues to exceed prescribed timelines. Government must ensure swifter resolution process

By: Editorial |
Updated: March 18, 2020 12:10:29 pm
Insolvency bankruptcy code, World Bank IBC, Essar Steel Case, Express Editorial Among the measures that are reportedly being considered is allowing the use of information utilities (IUs) to verify claims by creditors.

One of the most appealing aspects of the insolvency and bankruptcy code (IBC) was the shift to a time-bound resolution process. Initially, the IBC had laid down an outer limit of 270 days for completion, failing which the companies would be pushed into liquidation. In a country where the resolution process typically drags out for years — it took 4.3 years to resolve insolvency in India before the IBC, according to the World Bank’s ease of doing business report 2018 — this was an aggressive deadline. But, in a substantial number of cases, the 270-day deadline was breached. In September 2019, this deadline was extended to 330 days (eased further after the Essar Steel case). Yet, cases continue to drag on. Of the 1,961 cases that are currently undergoing resolution, 635 (32 per cent) have crossed the 270-day deadline. Further, the average time taken by the 190 resolution processes stood at 394 days. As a time-bound resolution process was one of the key tenets of the IBC, delays reduce its attractiveness. Thus, reports that the government is set to undertake a review of the law to reduce the time taken are indeed welcome.

Among the measures that are reportedly being considered is allowing the use of information utilities (IUs) to verify claims by creditors. This will lead to faster admission of cases, and less ambiguity over claims of various creditors. Along with this, regular updates to the insolvency regulator, allowing it to monitor progress, can help point out gaps in the system which can be plugged. Moves to strengthen the institutional capacity to deal with the large number of cases that are going through the process, by setting up dedicated benches of the NCLT to deal with insolvency cases, can also help speed up the process.

It is undeniable that since the introduction of IBC, the time taken for the insolvency and bankruptcy process in India has come down dramatically. But more needs to be done as delays in either taking the company through the insolvency process, or in the process itself, destroy the value of assets, and lead to greater costs for both lenders and corporate bidders. The government has, since its introduction, taken several steps to ensure the code’s smooth functioning. It must continue to do so.

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