The Standing Committee on Finance headed by Jayant Sinha said the Insolvency and Bankruptcy Code ( IBC) has “deviated” from the original objectives intended by Parliament and there is a need to revisit its design and implementation as it has evolved over the last five years.

The actual implementation of the six amendments made so far to the legislation may have altered and even digressed from the basic design of the statute and given a different orientation to the Code not originally envisioned, the Panel said in its report titled “Implementation of Insolvency and Bankruptcy Code — Pitfalls and Solutions”, tabled in the Lok Sabha on Tuesday.

There is, therefore, a need for thorough evaluation of the extent of fulfilment of the original aims and objects in the course of the implementation of the Code over the years, the Panel said.

Need for benchmark

It has also highlighted that the insolvency process has fairly matured now and there may be an imperative to have a benchmark for the quantum of “hair-cuts” ( faced by financial creditors) comparable to global standards.

While taking into consideration the impact of the pandemic on the implementation of the IBC, the Standing Committee has held that the low recovery rate with haircuts of as much as 95 per cent and the delay in resolution process with more than 71 per cent cases pending for more than 180 days, clearly points towards a “deviation” from the original objectives of the Code intended by Parliament, the Standing Committee said.

The Panel has highlighted that the fundamental aim of this statute is to secure creditor rights which would lower borrowing costs as the risks decline. Therefore, greater clarity in purpose is needed with regard to strengthening creditor rights through the mechanism devised in the Code, particularly considering the disproportionately large and unsustainable “hair-cuts” taken by the financial creditors over the years.

Self regulator for RPs

The Standing Committee on Finance has also recommended that an Institute of Resolution Professionals may be established to oversee and regulate the functioning of RPs so that there are appropriate standards and fair self-regulation. The Panel felt that a professional self regulator for RPs that functions like the Institute of Chartered Accountants of India ( ICAI) should be put in place.

In its report, the Panel has expressed apprehensions about fresh graduates being appointed as Insolvency Professionals or Resolution Professionals, without any experience. It has expressed doubt about their competency in handling cases of huge and complex corporations.

Also, the rationale behind multiple Insolvency Professional Agency (IPA) overseeing the functioning of their member IPs instead of a single regulator is unclear and this current practice would lead to a conflict of interest between the regulatory and competitive goals of the IPA, the Parliamentary Panel said.