What is this all about?
India is proposing a new insolvency and bankruptcy code. It’s all part of the “Make In India” campaign by the Modi government who are trying to attract businesses to India. There has been a move away from retrospective taxation too (although not abolished it yet I don’t think).
It does not appear that there has been a single separate law for bankruptcy legislation in the country’s history. Currently / historically the following have been used for insolvency purposes:
· Presidency Towns Insolvency Act 1909
· Provincial Insolvency Act 1920
· Sick Industrial Companies (Special Provisions) Act 1985
· Recovery of Debts due to Banks and Financial Institutions Act 1993
· Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002
· Companies Act 2013 (also proposes a National Company Law Tribunal but is not yet in force)
There are also the Debts Recovery Tribunal.
There have been 7 committee and commissions since 1964 recommending consolidation of laws (nothing moves quickly here!). Interestingly, it looks like there will be a system of regulation of some sorts for the first time as under the code, “insolvency resolution professionals” must be registered with the Insolvency and Bankruptcy Board of India.
In November 2015 the Bankruptcy Law Reforms Committee recommended the Insolvency and Bankruptcy Code 2015 and in December 2015 the Finance Minister tabled the code at the lower house of the Indian Parliament (the Lok Sabha). The code will repeal the two Insolvency Acts of 1909 and 1920 and will amend the others listed above, if it gets passed. So far it is stuck in Parliament and was not passed in the winter session. The current session (Feb-May) is expected to pass it (as it was well received) – but has not done so yet. The papers reported it was stuck in parliament after Modi’s budget speech last week.
Is it needed?
The banking system is under stress too with 29 state owned banks (consolidation anyone?!) writing off 1.14 lakh crore INR between 2013 and 2015. So the bankruptcy code will assist this by regulatory changes to speed up dispute resolution and renegotiation of contracts in Public Private Partnerships as well as assisting in addressing asset quality issues in the banking system long term.
It will be interesting to see if / when it does get passed. India is very different from the UK. Politics really is the cult of personality here (there are posters of local politicians everywhere); corruption and bribery are big issues to be tackled still and the politicians are focussing on other issues, including alleviating the poverty of farmers at the moment (strikes last week brought the north of the city to a standstill).
It is interesting being an observer and not being directly involved. I wonder how much time insolvency professionals in India will be given to prepare for the change?
Lakh = 100,000
Crore = 10,000,000
INR 100= £1 (roughly)