[Opinion] Interplay between Insolvency and Bankruptcy Code & other legislations

[2022] 140 taxmann.com 410 (Article)

Introduction

In Indian financial sector the law relating to creditor and debtor, realization of non-performing assists and robust mechanism to deal with unwanted and wanted insolvency is in nascent state. The legislations like, Code of Civil Procedure, Insolvency laws, Debt and Bankruptcy laws, SARFAESI act would not achieve their objects in relation to economic justices to both debtors and creditors in economic ecosystem in India and Global in general. Many institutions required for implementation of India and international insolvency is inadequate. Insolvency reforms in India took a concrete share with the enactment of Insolvency and Bankruptcy Code,2016(Code) on May 28,2016. In no time, it became a reform by the stakeholders, of the stakeholders and for the stakeholders. The code aims to promote entrepreneurship by providing an effective mechanism to liberate entrepreneurs from honest failure instead of penalising them. Now, we look at the timeline under IBC. Of the data on the 2170 ongoing CIRP’s published by IBBI, as on March 31,2020, 34 percent have taken 270 days or more, 22.8 percent have taken between 180 to 270 days, 25.8 percent haven taken between 90 and 180 days and close to 17.4 per cent haven taken under 90 days. These timelines need to be seen because under the previous regime, delay in proceedings was one of the major issues that led to huge erosion of assets of the companies.

Bankruptcy law has generally emerged as a purely economic legislation. For personal bankruptcy law, however, it is also, if not primarily, a social legislation. Bankruptcy law is not just economic legislation, but social legislation that establishes, ‘how far individuals should be expected to go on carrying responsibilities that have grown onerous. When individuals file for bankruptcy, they obtain a relief from debts incurred or have their debts entirely forgiven. Essentially, this process creates a system of legalised post-contractual opportunism, which is justified in large part by the moral judgement that an honest but unfortunate debtor should be entitled to a discharge of debts. The present paper tries to anysze the various legislations to protect the rights and liabilities of debtor and creditors and through some light on the overlapping jurisdictions.

I. Interrelation of IBC with other legislations

After scrutiny of IBC code, the code has application to micro, small and medium enterprises, and brought amendments to Indian Partnership Act, 1932, The Central Excise Act,1944,The Income Tax Act, 1961, The Customs Act, 1962, The Recovery of debts to Banks and Financial Institutions Act,1993, SARFAESI, SICA and Companies Act 2013. Also, DRT act became as Debts and Bankruptcy Law, through amendment and also Securitization and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 as ” The Securitisation and Reconstruction of financial Assets and Enforcement of Security Interest Act ,2002 and the Insolvency and Bankruptcy Code, 2016. It is submitted that, we have different Insolvency procedures in general and IBC Code, 2016, in particular as all laws brought under the domain of IBC Code, 2016. These legislations deal with the procedure, rights and liabilities of debtors and creditors.

I.A. Debt and Bankruptcy Law

As featured by the BLRC in 2015, perhaps the main wellsprings of postpones lie in the adjudicatory mechanisms. For beating something similar, the Committee suggested that the NCLT (for corporate account holders) and Debt Recovery Tribunals (for people and organization firms) be furnished with every one of the vital assets to help them in understanding the targets of the Code. Be that as it may, the said order was half carried out, similarly as with the rising number of cases; Tribunals are intensely overburdened smothering the speed and heartiness with which they began working as adjudicating authorities. Albeit the Indian Government has been intending to raise the quantity of the adjudicating authority benches in the economy, serviceable long-haul arrangements and exacting adherence to the legal courses of events specified in the Code are crucial for a perpetual arrangement.

According to the BLRC Report, the “Insolvency resolution structure an essential column whereupon rests the powerful, opportune working just as the believability of the whole building of the indebtedness and insolvency resolution measure.” considering the few difficulties being looked by the Insolvency Professionals and now and again the entire resolution measure, the IBBI is meaning to carry a solidified Charter to manage the lead of the Professionals and the Committee of Creditors. Regularization of the CIRP Costs has additionally been on the cards of the IBBI for a long time now.

According to the World Bank’s Ease of Doing Business report, India takes an average of 2-3 years for completion of insolvency process in India. India at 63rd position for ease doing business in the year 2019 October. Under the Code, adjudicating authorities, regulatory and the managers have responsibilities to complete the insolvency process within 180 days Bank Law Report Committee, 2015 held that there are insufficient coordination and synergy entire institutional hold up obligatory under four roles the Adjudicators authority, the regulatory authority, the managers and the depository. Ultimately, more adaptable and speculation cordial arrangements need to come set up to empower private Information Utilities to enter the market and bear the danger of data the board.

II. The securitisation and reconstruction of financial assets and enforcement of security interest

This legislation was enacted due to failure of DRT Act to regulate securitisation and reconstruction of financial assets and enforcement of security interest and to provide for a Central database of security interests created on property rights. However, it was not successful due to parallel remedies under DRT and SARFAESI Act. The legislation deals some important concepts like, borrower, debt, debt securities and default and financial Assets and reconstruction of financial assets through DRT, High Court and Supreme Court through appellate jurisdiction.

II.A. Acquisition of rights or interest in financial assets

As per Section 5 of SARFAESI Act, the acquisition of rights or interest in financial assets can realised as per the procedure given in Section 5 that any asset reconstruction company may acquire financial assets of any bank or financial institution—

(a) by issuing a debenture or bond or any other security in the nature of debenture, for consideration agreed upon between such company and the bank or financial institution, incorporating therein such terms and conditions as may be agreed upon between them; or

(b) by entering into an agreement with such bank or financial institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed upon between them. Also, Section of the SARFAESI lays down detailed procedure to acquire rights and financial assets in capital markets.

II.B. Transfer of pending applications to any one of Debts Recovery Tribunals in certain cases.—

(1) If any financial asset, of a borrower acquired by a asset reconstruction company, comprise of secured debts of more than one bank or financial institution for recovery of which such banks or financial institutions has filed applications before two or more Debts Recovery Tribunals the asset reconstruction company may file an application to the Appellate Tribunal having jurisdiction over any of such Tribunals in which such applications are pending for transfer of all pending applications to any one of the Debts Recovery Tribunals as it deems fit. On receipt of such application for transfer of all pending applications under sub-section (1), the Appellate Tribunal may, after giving the parties to the application an opportunity of being heard, pass an order for transfer of the pending applications to any one of the Debts Recovery Tribunals.

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