Proposed Changes to IBC

The government proposes to amend the Insolvency and Bankruptcy Code (IBC).  A key change is to set a deadline of 330 days for the resolution process.

The IBC, in its current form, provides a time-line of 180 days, which can be extended by 90 days.  Thus, there is a 270 day deadline. The time taken in judicial proceedings in courts is excluded from the 270-day calculation.  This is proposed to be extended to 330 days, including time consumed in judicial proceedings.

There are two reasons why the current 270-day deadline has been rendered ineffective:

  1. Opportunistic and litigous corporate debtors keep trying to postpone the inevitable.  Issues keep getting raised in courts.
  2. National Company Law Tribunal (NCLT) itself is short-staffed.

 

The problem is serious because faith in the IBC is getting eroded.  Beyond changing laws,  what is in the government’s control is the number of NCLT benches and their size.  This needs to be increased.  However, the government can do nothing to keep litigous corporate debtors out of court.

Judicial proceedings in court take time, because of shortage of judges etc.  A genuine debtor will have a right to reason that he / she cannot be penalized for judicial delays.  It is not inconceivable that the Supreme Court will support such genuine debtors.  Can we expect the Supreme Court to knock down the attempt to include judicial proceedings time in the 330-day deadline?

Ultimately, the moot issue is whether this new 330-day deadline does anything to restore faith in the IBC process.

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