Background
The Insolvency & Bankruptcy Code, 2016 (the “Code”) consolidated the archaic insolvency laws, provided a consolidated legislation and revolutionised the insolvency regime in India. Undoubtedly, the Code has had a significant impact on the way corporate India functions. It has been almost two years since the Code came into effect and in the year 2017 some significant amendments have been made to the Code based on inputs received from various market participants.
Introduction:
Key points
Debt recovery in India has been a challenge with creditors and debtors disputing rights and obligations in legal wrangles under various provisions under applicable laws making the process time consuming and costly.
The Insolvency and Bankruptcy Board of India (IBBI) has notified Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 and Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
Liquidation Process Regulations
The National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal were established in June 2016 to adjudicate upon company law matters in India. The Central Government by Notification No. S.O.1936 (E) dated 1st June, 2016, appointed 1st June, 2016 as the date on which all proceedings pending before the Company Law Board would stand transferred to the NCLT. Now, the Ministry of Corporate Affairs has notified the Rules on 7th December, 2016, by Notification No. G.S.R 1119(E), to provide for transfer of matters pending before the Company Law Board to the NCLT.
Preamble
Background and need
From the Justice Eradi Committee report of 1999 to the Department of Financial Services’ indicator of October 2015, the pendency of winding-up cases in India has been piling up to reach an alarmingly high level of backlog [see end note 1]. The World Bank has ranked India on the 130th position among 189 economies as it takes more than four years on an average to resolve insolvency in India [see end note 2].
The Supreme Court of India, with respect to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (“SARFAESI Act”), has held that powers under the Companies Act cannot be wielded by the Company courts to interfere with proceedings by a secured creditor to realize its secured interests in terms of the provisions of the SARFAESI Act
Delhi High Court has rejected the plea that the Company Court must exercise its jurisdiction to supervise the Scheme of Arrangements, to evict tenants of premises which are not owned by the company. Winding up proceedings were initiated against the company and with a view to realize assets Scheme of Arrangements was accepted by the court. During the pendency of the winding up proceedings and before the sanctioning of the Scheme by the Court, dues of all creditors were settled.