Parliamentary panel to recommend fresh set of changes to insolvency code

Mint

3 days ago

New Delhi: India's insolvency regime is set for further reform as the Parliamentary Standing Committee on Finance will likely recommend a set of measures aimed at speeding up decisions and boosting creditor recoveries under the Insolvency and Bankruptcy Code (IBC), two people familiar with the matter said. The suggestions will follow the committee's ongoing review of the Code.
The review comes amid growing demands for speeding up debt resolution and improving recovery rates, and legal complexities exposed by the recent Supreme Court ruling in the Bhushan Power & Steel resolution case.
Read this | House panel to scan IBC functioning after SC's Bhushan order
The House panel, led by lawmaker Bhartruhari Mahtab, met last week with officials from the ministry of corporate affairs and the Insolvency and Bankruptcy Board of India (IBBI), along with executives of three state-run banks, to assess the performance of the Code since its rollout in 2016.
In the meeting, officials told the panel that the IBC has become the principal recovery mechanism for banks and financial institutions, accounting for nearly half of all debt recoveries, and has also helped reduce borrowing costs for distressed companies, one of the persons quoted above said. However, the process continues to suffer from persistent delays and subpar recovery rates in many cases, often due to protracted litigation among stakeholders.
So far, creditors have realised ₹3.89 trillion from approved debt resolution plans and ₹9,330 crore from liquidated companies, according to data from the IBBI. Another ₹1 trillion was realised from cases settled directly between creditors and companies.
The committee is expected to meet more stakeholders, including insolvency professionals and industry representatives, before finalising its report, one of the people cited above said. Among the concerns raised in last week's meetings were the challenges faced by homebuyers in ongoing insolvency cases, the person added.
Queries emailed on Monday to the ministry, the Parliamentary committee and IBBI seeking comments for the story remained unanswered at the time of publication.
Experts say that resolving these bottlenecks will require strengthening the judicial infrastructure supporting IBC.
'To improve the IBC process, we need faster court decisions. This can be done by increasing the number of judges, reducing adjournments, and using better technology for case tracking. The process should stick to strict timelines to avoid long delays that reduce the value of assets," said Ritesh Kumar Adatiya, director, NPV Insolvency Professionals Pvt. Ltd.
Court ruling questions IBC operations
The Supreme Court last month rejected the five-year-old resolution plan for Bhushan Power & Steel Ltd (BPSL), citing jurisdictional issues and violations of IBC provisions. The ₹19,700 crore successful bid by JSW Steel Ltd was overturned, and the court ordered the liquidation of the company. It later granted JSW time to file a review petition.
In a landmark ruling, the apex court held that bankruptcy tribunals do not have powers of judicial review over statutory authorities such as the Enforcement Directorate (ED). It also struck down an earlier National Company Law Appellate Tribunal (NCLAT) order that had insulated BPSL's assets from ED attachment, saying the tribunal had exceeded its jurisdiction.
Read this | Mint Explainer: The Supreme Court's Bhushan Power ruling that has stunned India's insolvency ecosystem
That decision, along with other recent Supreme Court rulings on the priority of statutory dues and the Competition Commission of India's (CCI) clearance requirements for certain resolution plans, has introduced new legal complexities not originally anticipated in the Code.
The Ministry of Corporate Affairs is now working on a draft amendment bill to clarify some of these ambiguities and streamline the process. The bill is expected to be tabled in Parliament later this year.
Despite the recent judicial setbacks, the Code has a strong foundation and remains robust in ensuring debt resolution, though some glitches persist in areas where the law remains unclear, said the second person cited earlier.
NPV Insolvency Professionals' Adatiya added that outcomes under IBC can improve significantly if resolution plans are filed earlier and by credible applicants. 'Proper background checks, faster approvals, and fewer legal hurdles after plans are approved can go a long way in protecting lenders' interests," he said.
Also read | A series of court orders changed bankruptcy rules. Now, the govt is amending the law
'IBC has helped change the credit culture in India," he added. 'But to improve outcomes, we need quicker resolution, stronger checks on resolution applicants, and better coordination between regulators, courts, and professionals. This will boost confidence and improve returns for creditors."