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Richa Mishra

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New Delhi, May 10 Efficient Exit Scheme (EES) is the new concept proposed by the Corporate Affairs Ministry for quick disposal of liquidation cases. In order to overcome delays in resolving insolvency issues, the Ministry has initiated administrative steps to prepare itself for the scheme, while legislative changes are awaited.

A senior official of the Corporate Affairs Ministry told Business Line that “initiatives have been taken to strengthen and modernise the offices of official liquidators (OLs), capacity building of existing OLs, computerisation of OLs operations to increase effectiveness, and introduction of e-governance in winding-up process.”

The Ministry is in consultation with the Planning Commission for the implementation of the EES project. “The computerisation and infrastructure development will require approximately Rs 100 crore. The number of companies involved are about 10,000,” he said. The Ministry proposes to undertake a comprehensive study through an IT consultant selected through bidding process. The consultant will prepare a project blueprint, which is expected to provide the foundation for the e-governance solution, he added.

According to the World Bank report on doing business in India, the average time taken for disposal of winding-up cases in the High Courts is 10 years and the recovery rate is very low. Delays in resolving insolvency issues result in loss in value of the physical, financial and human assets of the company over time, he said.

“Besides, the delays increase investment risks, as mobility of capital is impeded,” the official explained.

Reasons for delay also include inadequate administrative and infrastructural support. To strengthen the legislative framework, the Ministry has enacted amendments to the Companies Act in 2002 which envisage establishment of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT).

However, NCLT and its appellate authority are yet to be set up due to legal challenges. The matter is pending with the Constitution bench of the Supreme Court.

At present, against 28 Benches of High Courts in the country, only 16 offices of OLs exist to assist the courts, the official said. Infrastructural inadequacies, staff shortage, dual control over OLs (High Courts and Central Government), and poor record and process management by OLs are some of the hindrances for quick disposal of such cases.

On the legislative front, apart from amendments to the Companies Act, some interim measures are also required, he pointed out. These include consolidation of fora for insolvency by transferring the jurisdiction of BIFR to CLB and winding up BIFR, notifying SICA Repeal Act, and review of the Companies (Court) Rules, 1959 to identify and remove bottlenecks, if any, for quick liquidation proceedings by High Courts, he said.

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