Need to review design of IBC, suggests Standing Committee on Finance

Standing Committee on Finance headed by BJP MP Jayant Sinha has called for a review of the design of the Insolvency and Bankruptcy Code (IBC), which was enacted in May 2016.

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This must be done taking into account the lacunae and roadblocks that surfaced in implementing the Code so far, so that the very purpose behind the enactment is not defeated, this Parliamentary Panel said in an action taken report titled ‘Implementation of Insolvency and Bankruptcy Code —Pitfalls and Solutions’, tabled in Parliament on Tuesday.

Inordinate delays

Standing Committee on Finance, has, in the report highlighted the inordinate delays in the resolution process resulting in value erosion of stressed assets.

The Panel during their discourse on the IBC process found that the actual recoveries on the ground are roughly between 25 to 30 per cent and some cases take as long as two years for resolution, far beyond the limit envisaged.

The process of admitting claims also needs to be revisited as huge delays occur at this stage creating a domino effect on the whole resolution process, most critically degeneration of asset value, Panel report suggested. The Committee may be apprised of the steps taken in this regard, it added.

Recommendations

The Parliamentary Panel has further recommended that the Insolvency and Bankruptcy Board of India (IBBI) should undertake capacity building exercise of resolution professionals (RPs) and insolvency professional entities (IPEs) that function as RPs, as they directly aid in swifter resolutions without compromising the value of the assets. 

With regard to staffing of NCLT, the Panel noted that the tribunal had total strength of 57 members out of the sanctioned strength of 62 members. 

“The Committee acknowledge that for the first time since its inception, the strength of NCLT would be more than 90 per cent of the sanctioned strength. However the committee feels that in order to tackle the huge pendency of more than 20,000 cases in NCLT at the end of every year, the sanctioned strength of NCLT needs to be enhanced,” the Panel said. 

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NCLT should have dedicated Benches for IBC and in addition to such Benches, there should be specialised Benches for sectors such as MSMEs with requisite domain expertise, Standing Committee report said.

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