Background
The partly liberalized Indian economy has been aptly referred to in the Economic Survey of India 2015-16 as one that had transitioned from ‘socialism with limited entry to “marketism” without exit.
Given the vexed ‘twin balance sheet’ problem chafing both banks and corporates in India, the Insolvency and Bankruptcy Code, 2016 (IBC/Code) was a critical structural reform. Many issues have surfaced since the Code was operationalised and the courts and the Central Government have stepped in to iron out such issues in the last one year.
Introduction
The term ‘dispute’ assumes great importance under the Insolvency and Bankruptcy Code, 2016 (Code). This is because under Section 9(5)(ii)(d) of the Code, an operational creditor’s application for initiating corporate insolvency is liable to be rejected if a ‘notice of dispute’ in relation to ‘existence of a dispute’ is received by such an operational creditor from a corporate debtor. The term ‘dispute’ is defined in Section 5(6) and referred to in Section 8(2) of the Code in the following manner:
The Insolvency and Bankruptcy Code passed by the Parliament is a welcome overhaul of the existing framework dealing with insolvency of corporates, individuals, partnerships and other entities. It paves the way for much needed reforms while focussing on creditor driven insolvency resolution.
BACKGROUND
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 ("SC") has held that in the event of liquidation of a company, claims of employees have to be considered by the Official Liquidator of the company and not by the Debt Recovery Tribunal ("DRT"). The SC made this decision in the case of Bank of Maharashtra v. Pandurang Keshav Gorwardkar & Ors.1, and laid down certain rules for deciding employee claims.
FACTS
Section 530 under the Chapter V of Part VII of the Companies Act, 1956 provides for the sequence of the payments which shall be made in the course of winding up of a company. However, Section 529A is an exception to Section 530 which starts with a notwithstanding clause providing for the overriding preferential payments. Section 529A was introduced in the Companies Act, 1956 by the Companies (Amendment) Act, 1985 in order to provide a protection to the workmen and the secured lenders of the Companies.
Proposed Swiss International Insolvency Law Reforms
In October 2015, the Swiss Federal Department of Justice and Police (Eidgenössisches Justiz- und Polizeidepartement) published a preliminary draft of reforms to title 11 of the Swiss Private International Law Act (“SPILA”), which governs insolvency proceedings and compensation proceedings (Articles 166–175 rev-SPILA), together with an explanatory report. The consultation procedure for the proposed reforms culminated on February 5, 2016.
In Heince Tombak Simanjuntak & Ors v Paulus Tannos & Ors (2019), the Singapore High Court granted recognition of Indonesian bankruptcy orders made against the four respondents, each of whom is an Indonesian citizen. This allows the applicants to administer the respondents’ property in Singapore. The case provides banks with the assurance that bankruptcy orders obtained in Indonesia may be enforced in Singapore.
Six days into 2020, the Indonesian Constitutional Court (“Constitutional Court”) began the New Year with a bang, issuing a decision that is not likely to be received well in loan markets.
The Constitutional Court has decided in favour of two petitioners (a married couple) and effectively changed the interpretation of Article 15(2) and (3) of the Fiducia Law (Law No. 42 of 1999), striking at the core principles of that law (“Constitutional Court Decision”).
Indonesia has had a bankruptcy law since 1905, when Staatsblad 1905 No. 217 juncto Staatsblad 1906 No. 348 Concerning Bankruptcy was enacted. In response to the 1997-98 Asian financial crisis, and the view that the 1905 bankruptcy law was out of date and irrelevant to modern commercial needs, the Government on April 22, 1998, issued Government Regulation in Lieu of Law No. 1 of 1998 regarding Amendments to the Bankruptcy Law. GR 1/1998 was adopted as Law No. 4 of 1998 on September 9, 1998. Law No. 4 of 1998 was eventually revoked by Law No.