Changes to IBC Finalised After PMO Approval
Insolvency and Bankruptcy Code
(IBC), following approval by the Prime Minister's Office (PMO), people with knowledge of the matter said.
This comes after months of deliberations and is aimed at expediting the resolution of bankrupt firms and bolstering recoveries by creditors.
The proposed amendments include a framework for each of the three types of bankruptcy resolutions under the IBC—creditor-led resolution,
cross-border insolvency
and corporate group bankruptcy.
These changes are the latest by the Centre since 2021 as it seeks to strengthen the code, said the people cited. Between its launch in May 2016 and 2021, the IBC had been amended six times to respond to emerging challenges in resolving bankrupt firms. The government had since then refrained from further tinkering to allow the bankruptcy ecosystem to take root.
In a meeting on June 6 chaired by Shaktikanta Das, principal secretary to Prime Minister Narendra Modi, the changes were discussed in detail, one of the people told ET. Accordingly, the ministry will move a cabinet note shortly following approval by finance and corporate affairs minister Nirmala Sitharaman, aiming to introduce the amendments in the upcoming monsoon session of parliament starting July 21, they said. Das is former governor of the Reserve Bank of India.
However, the amendments are unlikely to include any provision aimed at avoiding a repeat of the situation that arose after the Supreme Court, in May, scrapped JSW Steel's ₹19,700 crore acquisition of Bhushan Power and Steel four years ago, flagging violations of rules or processes.
This is because the apex court had upheld the integrity and intent of the IBC and underscored the need to abide by prescribed legal processes on the part of all stakeholders, said the people cited.
However, regulations could be changed to ensure IBC processes are followed in letter and spirit during acquisitions, they said. Changes in regulations won't require parliamentary approval.
Creditor-led resolution: The creditor-led resolution framework will largely involve out-of-court arrangements. This will lower the workload of the National Company Law Tribunal (NCLT) by enabling the committee of creditors to take on greater responsibility and expedite
stressed asset resolution
, ET has reported.
Cross-border insolvency: In a change of the earlier plan, the government now intends to introduce the cross-border insolvency framework under the IBC, the people said. This will be tailored around a model United Nations law and aim to ensure easier access for creditors to overseas assets of stressed companies. Such a framework would enable India to seek cooperation from foreign countries to bring defaulters' assets there under consideration for insolvency proceedings.
Group insolvency: The ministry will also introduce the 'voluntary' group insolvency framework that will facilitate a joint resolution of stressed entities of a domestic corporate group, given the interconnected nature of their operations.
ET had earlier reported that the framework could empower the committees of creditors of various bankrupt companies of a group to decide if they need to join hands to speed up resolution and maximise gains or pursue the processes separately. It will apply only to a group's bankrupt companies and won't extend to its solvent entities.
Currently, resolutions of individual entities of a group are pursued separately by their respective creditors.
A proper group insolvency framework was necessitated after the interconnected nature of group companies had delayed resolution in a few cases, such as those of Videocon, Era infrastructure, Lanco, Educomp, Amtek, Adel, Jaypee and Aircel.
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