The Corporate Affairs Ministry (MCA) has invited public comments on seven specific rules prescribed by it under the Insolvency and Bankruptcy Code (IBC), which was enacted in 2016.

The seven rules which are now being reviewed include those related to insolvency application to NCLT; insolvency and liquidation of financial service providers (FSPs); insolvency resolution process and bankruptcy process of personal guarantors; pre-packaged insolvency process and form of annual report.

Stakeholders have been given thirty days to send in their comments on the proposed review of these seven Rules. The MCA notice inviting public comments have been published on the website of insolvency regulator Insolvency and Bankruptcy Board of India (IBBI).

The latest MCA move comes in the wake of new policy released by the Ministry in January this year for pre-legislative consultation and comprehensive review of existing rules and regulations prescribed under legislations administered by it, sources said. Comments have been invited through the e-consultation platform on the MCA website. In the first phase, rules relating to Companies Act 2013 and LLP Act were posted for comments/suggestions with effect from January 25.

Currently, MCA administers seven legislations for framing of rules. 

Norms for public consultations

MCA had with effect from January 1 this year framed a new comprehensive policy for public consultations both during the framing and review of rules and regulations as outlined in para 100 of Budget speech (2023-24). A separate policy has also been prescribed for the framing of rules by the ministry and by regulators.

Finance and Corporate Affairs Minister Nirmala Sitharaman had said in her Budget speech, “To simplify, ease and reduce cost of compliance, financial sector regulators will be requested to carry out a comprehensive review of existing regulations. For this they will consider suggestions from public and regulated entities. Time limits to decide the applications under various regulations will also be laid down.”

Experts’ take

Sushmita Gandhi, Partner, INDUSLAW, said that the rules governing the insolvency and liquidation of FSPs came into effect in November 2019 by a notification of the Central government. The said rules provide that the provisions for Company Insolvency Resolution Process ( CIRP) and liquidation process under the code would mutatis mutandis apply in case of financial service providers notified under IBC. Subsequently, the applicability of the rules were extended to NBFCs with asset size of over ₹500 crore.

“While the application of these rules provide for resolution of highly debt ridden financial service providers, whether the interest of small depositors/investors have really taken a hit, is something to be seen in times to come,” she said.

A case in point was the resolution of crisis ridden Dewan Housing Finance Corporation Ltd, where the small depositors were perceived to have got a raw deal from the entire resolution process.

Anoop Rawat, Partner, Shardul Amarchand Mangaldas & Co, said that MSMEs are as of today able to avail only limited benefit of pre-packaged insolvency resolution process (PPIRP) because of lengthy processes and costs involved.

“It is expected that the PPIRP would be extended to large cases who can absorb the costs lengthy processes associated with PPIRP. It would also be interesting to see the inter-play between the PPIRP and the creditors led resolution framework proposed to be introduced by MCA,” Rawat added.

On financial service providers (FSPs), Rawat said that the existing rules have been used for the identified FSPs.

However, a detailed mechanism (separate from a general process for corporate debtors) for insolvency resolution of banks is yet to be developed, he added.