MUMBAI
:
Union finance minister Nirmala Sitharaman on Tuesday stressed on the importance of strengthening the insolvency tribunals and increasing their numbers to speed up the insolvency resolution process.
“Appropriate changes to the Insolvency and Bankruptcy Code (IBC), reforms and strengthening of tribunals and the appellate tribunal will be initiated to speed up insolvency resolution. Additional tribunals will be established. Out of those, some will be notified to decide cases exclusively under the Companies Act,” Sitharaman said while presenting the Union Budget 2024-25.
While experts welcomed the move, they pointed out several challenges to improving the effectiveness of the insolvency resolution process in the country.
Smriti Tiwari, partner at Khaitan Legal Associates, said judicial fora in India was burdened with a massive caseload in the IBC with multiple litigations in every resolution clogging the tribunal’s time. “Any reforms aimed at speeding up resolution would be a welcome change,” the lawyer said.
Alok Dhir, founder and managing partner at Dhir & Dhir Associates, said such changes in the insolvency regime are welcome considering the delay in the IBC is primarily due to the information asymmetry problem faced by creditors and resolution professionals.
“As of date, tribunals are burdened with complex insolvency matters involving multiple legal issues. Therefore, increasing the number of tribunals is a step in the right direction. Apart from increasing the number of tribunals, we also need to ensure quality infrastructure to ensure the smooth working of such tribunals,” Dhir said.
However, Mukesh Chand, partner at Economic Law Practice, highlighted the challenges that should be addressed for effectiveness of the insolvency resolution process in India.
“One of the primary concerns is the varying approach among tribunal members. Expertise in finance, market dynamics and economic sensitivity is crucial to adjudicating complex insolvency matters effectively. There is a pressing need to appoint individuals with the appropriate experience and knowledge to handle these intricate cases,” said Chand.
Moreover, the misuse of the IBC as a recovery tool rather than a resolution mechanism is detrimental to the industry, he added.
“Genuine cases of business disputes are being admitted, which not only discourages entrepreneurship but also stifles innovation. The IBC must be fine-tuned to distinguish between genuine insolvency cases and those being filed for recovery purposes,” he said.
The budget also provided an extension of services of the Centre for Processing Accelerated Corporate Exit (C-PACE) to voluntary closure of Limited Liability Partnerships (LLPs) to reduce the closure time. LLPs in India can opt for closure by way of striking off under the Limited Liability Partnership Act, 2008 (LLP Act); or voluntary winding up by the NCLT under the LLP (Winding up and Dissolution Rules) 2012; or voluntary liquidation under the IBC.
“The Government has announced measures to reduce timelines for such voluntary closures and will promote LLP as a form of setting up a commercial presence,” said Moin Laddha, partner at Khaitan & Co.
