The Banking Law Reforms Committee (BLRC) which gave birth to Insolvency and Bankruptcy Code, 2016 (IBC) categorically stated that “speed is of essence for the working of IBC”. After seven years of implementation, the IBC is beset with a basic problem — absence of timeliness.

According to Crisil Ratings, recovery rates under IBC have fallen from 43 per cent to 32 per cent between March 2019 and September 2023, while the average resolution time has increased from 324 to 653 days versus the stipulated 330 days.

While the data regarding the timeliness are available post commencement of Corporate Insolvency resolution process (CIRP), similar data for pre-commencement of CIRP, i.e. the time taken from the date of filing application till the date of order commencing CIRP, are not available.

The latter is particularly critical, especially when the applications are filed by banks both under Section 7 (against the corporate debtor) and Section 95 (against the personal guarantor) of IBC.

Quicker admission into CIRP can check value erosion caused by the unscrupulous promoters during that period. Fearing the loss of control over their company, promoters resort to all sorts of unethical means which results in huge value erosion. Delays have far-reaching ramifications be it at the pre- or post-admission stage.

Three steps

Hence, strengthening each area concerned with CIRP is critical to reduce delays. In that pursuit, three major steps suggested are (i) strengthening the judicial system (ii) reducing the number of litigations and (iii) incorporating changes in IBC and other Statutes.

Strengthening the judicial system can be achieved by optimisation of workload. Currently, NCLTs handle matters pertaining to real estate companies and company law matters apart from IBC. Regarding real estate matters, the issues of home buyers in each case are different, complicated, and prone to numerous litigations; on the other hand, they demand quicker solutions as it affects the lives of innocent homebuyers.

At present, an exclusive regulator — Real Estate (Regulation and Development) Act, 2016 (RERA), deals with the problems of homebuyers. It should be explored whether RERA could be merged with an exclusive bench in the tribunal to deal with all real estate matters.

In the Budget 2024, it is proposed that the company law matters will be handled by exclusive an bench. These two steps will enable other NCLT Benches to focus on IBC matters exclusively and reduce delays.

Secondly, a subordinate structure under the Adjudicating Authorities (AA) consisting of professionals with expertise in the field of law, administration and finance should be constituted to handle all administrative and procedural matters to support the AAs so that the precious time of AAs is spent only on “adjudication of legal disputes”. Necessary amendments are to be brought clearly defining the role, responsibilities and powers of the subordinate structure. This is like an expanded version of “Court Master” in High Courts.

Another key area that demands major change is the ‘preparation and carry forward of the daily cause list’. If for any reason a particular case mentioned in the daily cause list could not be taken up or completed on the same day, then they must be taken on the very next day as a priority. One must also ensure that no item listed in the Cause list is deferred by more than one week.

Fourthly, most of the litigation in tribunals, appellant tribunal and Supreme Court are initiated by promoters to scuttle the entire process. If promoters fail to file the audited financial statements with the Registrar of Companies (till the last financial year prior to the commencement of Corporate Insolvency Resolution Process (CIRP)), to remit tax deducted at source and other statutory payments, they should not be allowed even to be a respondent to the initial applications filed under Section 7 of IBC. Nor should they be permitted to arrive at a settlement with the financial creditors under Section 12 A of IBC.

This single step would bring about a behavioural change among borrowers and reduce non- performing assets.

Besides, if directors, immediately after the initiation of CIRP, fail to handover the accounting records and systems, and statutory registers, they should not be permitted to participate in the meeting of Committee of Creditors, or submit their resolution plans. If these amendments are incorporated in IBC 2016, the number of litigations would drastically reduce as many promoters would be kept away from the resolution process. This will also improve statutory compliance by corporates.

Most often than not, promoters of companies initiate litigation immediately after the order initiating CIRP or liquidation of the corporate debtor to stay proceedings that frustrate the creditors. It is not uncommon that in many cases, the stay proceedings are not vacated for several months.

To combat this vexatious issue, it is recommended that any appeal against the order of CIRP or liquidation should get listed as a top priority item, either in the appellate tribunal or Supreme Court and be disposed of at the earliest.

No stone should be left unturned to have a robust IBC, where resolutions or recoveries are quicker. That alone will catapult India’s ambitious growth plans.

The writer is an insolvency professional