A remarkable aspect of the implementation of the Indian insolvency reform has been the continuous attention to improvements in the law. The judiciary and the regulator have been at the helm of maintaining the malleability of the law in light of functional requirements arising from case to case under the Insolvency and Bankruptcy Code, 2016 (IBC). In the coming months, we are hopeful of a few more cracks in the framework being filled.
One of the main objectives of the insolvency reform was to ensure speedy resolution of firms. However, timelines under the IBC have acquired an unintended fluidity. With the rate at which judicial precedent is being set and clarifications are being provided by the regulator, these timelines must regain the intended stringency. One way of ensuring timely resolution of firms, especially in the retail sector, would be the introduction of pre-packs. Popular in jurisdictions such as the UK, the US and Singapore, a pre-pack is a restructuring agreement which is entered into between the debtor and its creditors before the initiation of insolvency proceedings under applicable laws. This agreement, thereafter, receives judicial sanction through an expeditious insolvency process. While not expressly prohibited, the introduction of pre-packs under the present prescriptive framework is unlikely. The Insolvency Law Committee has recognised this need and sought stakeholder comments on the issue.
A framework for group insolvency is another such change which is in the works, with a working group already being set up by the regulator. While the National Company Law Tribunals have done a phenomenal job of organically permitting coordinated proceedings for group companies without any statutory direction, an enabling framework on the issue will be beneficial in the long run.
Another spoke in the wheel is the introduction of cross-border insolvency provisions in India. News reports suggest that a Dutch court has ordered the bankruptcy of Jet Airways. It is only a well-defined cross-border insolvency law framework which can provide clarity on how such orders from foreign jurisdictions will apply to Indian assets and creditors of the bankrupt and vice versa.
But, one red flag must be raised, which is adding to the delays in proceedings. This is the judicial scrutiny of commercial decisions taken by the committee of creditors of a debtor. While the law is clear on this front and the Supreme Court has taken the view that the legislature has not empowered the tribunals to pass judgment on such decisions, we see continued judicial analysis of such decisions.
It is heartening to see that each of the above issues is being dealt with in some form or another. This is what fuels our hope in the IBC becoming the comprehensive law that the Bankruptcy Law Reforms Committee had envisioned.
Bahram N Vakil, Founding & Senior Partner