As a stakeholder in the Indian insolvency and bankruptcy ecosystem, you can now help bring about regulatory changes to enhance the overall efficiency of the IBC framework. 

Insolvency regulator IBBI has now undertaken an exercise of ‘crowdsourcing ideas’, inviting the public and stakeholders of IBC to suggest changes that may be required to the regulations already put in place to l date since the enactment of IBC in 2016.

The regulator has now resorted to crowdsourcing ideas to understand the important issues in the extant regulatory framework that hinder transactions and has sought alternative solutions to address them. 

This window will be open for comments from the public, including stakeholders, between May 6 and December 31. The regulator intends to notify the modified regulations by March 31 next year and bring them into force from April 1, 2023.

With crowdsourcing, the universe of ideas available to the regulator would be much larger and the possibility of a more conducive regulatory framework would be much higher. Therefore, IBBI has invited public comments on the regulations already notified under the Code.

It may be recalled that IBBI l introduced this concept of crowdsourcing ideas last year to get stakeholders’ views on the regulatory changes that may be needed.

Since it came into being in 2016, the Insolvency and Bankruptcy Board of India (IBBI) has effectively engaged stakeholders in the regulation-making process. The process factors in ground realities secure ownership of regulations and produces regulations robust and precise, relevant to the market needs at a particular time.

Sushmita Gandhi, Partner, IndusLaw, said that Crowdsourcing suggestions are a move in the right direction for a regulator to fill in the gaps on the ground. For instance, precisely delineating the power of RP to admit or reject a claim may reduce the overburdening of NCLTs with such matters and deter litigants from approaching NCLTs with challenges of rejection/classification of claims. Similarly, collective consultation will assist in tying the loose ends in the regulations such as providing a concrete basis for defining ‘class of creditors’., she said.

Hopefully, this will trigger other regulators to pour in efforts for public consultation, Gandhi added.

“Legislation and regulations are one thing and ground realities are another. Crowdsourcing suggestions can make any legislation more effective and pragmatic”, she said.

Asked as to which are the regulations that need some tweak, Siddharth Srivastava, Partner, Restructuring & Insolvency at Khaitan & Co, a law firm, said that the regulation relating to pre-packaged insolvency needs to be amended to ensure that it is available for all categories of corporate debtors (not just MSMEs). 

This is on account of Corporate Insolvency Resolution Process (CIRP) not yielding the desired results, and also because Pre-Packaged Insolvency Resolution Process (PPIRP) would only be an additional option available to the creditors which provides greater flexibility to all stakeholders on account of being a mix of a formal and informal process and also easing the burden on the already overburdened Adjudicating Authorities.

Further, the IBC may be amended to state that all proceeds generated on account of any fraudulent/preferential transaction shall at all times remain the asset of the Corporate Debtor and shall remain available for utilisation by the Corporate Debtor both while functioning under a Resolution Professional and/or under a successful resolution applicant, he said.

This amendment is required to obviate any ambiguity regarding the use of proceeds derived on account of any fraudulent/preferential transactions, Srivastava added.

In the recent years, several contentious issues in IBC have agitated industry and stakeholders, such as differential treatment under Sec 29A for defaulting promoters under different frameworks (restricted for CIRP/schemes of arrangements for corporate debtors in general but allowed for MSMEs under the pre-pack framework or otherwise); permissibility of group insolvency; withdrawal of insolvency proceedings through settlement process under blessings of the NCLT/NCLAT even post-submission of EOIs; and issues concerning multiple CIRP proceedings against the principal borrower and its corporate guarantor(s).