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How Did The Insolvency Law Evolve In India

How Did The Insolvency Law Evolve In India

The enactment of the 2016 IBC law or bankruptcy and insolvency act seems to be a new part of legal system of India. This code has proven to be a game-changing experience for this country, mainly in ways the Indian promoters and even the companies approach and handle debt and borrowing. The Indian government was the one to start its reform in the early 1990s and after dismantling of CCI and removing various forms of restrictions and controls on timing, pricing and design of the capital based issues, the Indian sector witnessed a proficient rise in the present fundraising activity.

Focusing on the companies and their options:

Even though most of the Indian companies were doing quite well, they were further reporting some losses one year after another, which can lead to any erosion of the present net worth. Most of these firms were involved with the industrial branches. In accordance with the provisions of the SICA or Sick Industrial Companies Act, the industries have to be referred to Board for Industrial & Financial Reconstruction, which is a quasi-judicial body, mandatorily. 

  • Under the SICA section 22, whenever any reference was made to the BIFR and if the inquiry was pending, or any of the scheme was mainly under implementation, then the board was mainly empowered to just grant any stay on the legalized proceedings. 
  • This section will include a proceeding for this present winding up or even for execution, distress or any other similar issue, which will be against any of the properties of the said company or even with the appointment of the said receiver.

Understanding the value of lawsuit and more:

It is mandatory for you to know that no lawsuit for the monetary recovery or for any kind of enforcement of any security against any such company, or of any of the guarantee respective of the loans or any advance will be granted to the company might proceed, which is excepted with some consent of the said board. 

  • While majority of the companies mainly suffer from genuine forms of industrial crises and weaknesses and those get revised, saving some jobs and even focusing on debts mainly because of the creditors are provided under this section 22.
  • Even this section 22 of SICA comprises of options where the ingenious promoters might misuse the protection.
  • Under the SICA category, even after delays and some defaults in payments of the loans and interest, the management and the promoter or promoters would continue to own some assets and then run business just like they have wished for.

Examine and make further recommendations:

There was a committee, which was headed by reputed economist, which will set up a proper way to just examine and then make way for some recommendations, associated with multiple aspects of corporate restructuring and industrial sickness. The primary focus of the report will be on insolvency law in India over here.

According to the reports over here, there are multiple sick banks and companies, and even   there are some unpaid workers and ailing financial firms in this Indian market. But, it is really hard to ever come across any sick promoter over here. 

Addressing the issue right now and well in advance:

For addressing issue of just recovery of money by the financial institutions and banks, the government is here with an Act in 1993, known as Recovery of Debts Due to Banks and Financial Institutions Act. This act was later replaced with another one in 2002, which was known as Securitization and Reconstruction of Financial Assets & enforcement of Securities Interest Act.

  • However, this amended act failed to address the current need for the restructuring of the loans, debt and even non-performing accounts in a proper and timely manner.
  • The Supreme Court in India later concluded that in some of their previous experiments where the legislation might have failed, there has been more trial leading to repeated errors. It gave rise to enactment of the current bankruptcy and Insolvency Code in India.

This Bankruptcy Code is important and can always guide you through the best stages, especially if you are associated with the Indian business sector. This law is here to stay for a longer period of time now.