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Is it just another piece of legislation?

Why is there so much of noise around this new piece of law called the Insolvency and Bankruptcy Code 2016? Is it all because it tightens its noose, and aims at curbing the existing loopholes – a threat to the defaulters and a boon for the lenders? Let’s take it one by one.

The Insolvency and Bankruptcy Code’2016 (IB Code) came into effect from 1st December’2016 and has its affect on all banking laws amending the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act’ 2002,(SARFAESI) Recovery of Debts Due to Banks and Financial Institutions’1993,(RDDBFI), taking over the jurisdiction for winding up of companies under Sec. 434 of the Companies Act ‘2013 and repealed the Sick Industrial Companies (Special Provisions) Repeal Act’2003,(SICA) amongst many others to which there was a strong protest by the State Government of West Bengal. Almighty only knows why?

It’s a huge legislation with 255 sections to it, grabbing attention to insolvency, liquidation, voluntary liquidation and bankruptcy covering an individual to a company. It sounds like “kanoon ke haath bahut lambe hai” (the law has very long hands- emphasizing that it covers a vast area).

Sounds like a Superman!

The SICA being repealed under this Code has taken away the protection enjoyed by companies/borrowers or rightfully the loan-defaulters which apparently by playing with numbers in their Balance Sheet declaring their company’s net worth as eroded, keeping away all the lenders to grab them by their collars & enjoyed unjustifiable relief before the BIFR (a board constituted under SICA). It was a clear mockery of law, where the lenders sat helplessly until the final judgment was being passed by this Board. Even that was not the end; these companies shamelessly fought the matter till the Apex Court and died peacefully with the matters still lingering under the head - pending for final hearing. Alas!!! Are you reminded of “tareek pe tareek, tareek pe tareek” (matter being adjourned for days after days).

Hold on! Wake up and see, this Act exist no more, and these draconian companies who were enjoying this unwarranted protection can now move the National Company Law Tribunal, as prescribed. But I wonder, if they would take the plunge and we know it why (winks). It’s like who will bell the cat? I applaud for the Government of India and its agencies, for such an outstanding piece of legislation.

IB Code is a vast ocean

It’s interesting to note that SARFAESI overrides SICA, SICA overrode RDDBI and now IB Code repeals SICA. In the past SICA played like a Hitler in the field of law dominating & crusading others. However, IBC has acted just like the Maratha Warrior Bajirao and destroyed the ever engulfing Mughals, saving India, our motherland.

With the setup of the National Company Law Board and the coming up of the IB Code’2016 it now single handedly deals with the jurisdiction of Company Law Board under Companies Act, BIFR – and to appeal at AAIFR under SICA, and jurisdiction of the High Courts in winding up and restructuring of companies alongwith matters before the Debt Recovery Tribunals related to corporate – based on the size of consortium, case length and the size of exposure.

Vijay Mallya has no respite!

However, it’s interesting to watch this situation where now Vijay Mallya himself has filed an application for the insolvency of his company UB Engineering Ltd (UBEL), part of the UB Group. There are no takers of its assets, even after repeated public auctions. The application has been admitted and the Insolvency professional has been appointed. According to the procedure if there is a failure of the process called “Corporate insolvency resolution” within the prescribed time period of 180 days, the company would be liquidated.

Do you see the tables have turned? Instead of the lenders running from pillar to post to get hold of the defaulters, this amazing law is such that you can’t fool around – bend down on your knees and pray!

The hiccups!

The NCLT as of today has a strength of 11 benches and 62 judicial and technical members, whereas, according to a report some 25,000 cases are pending which may take 7 years to clear the backlog. Too much to handle! Isn’t it? On top of that the regular cases which would be filed on a daily basis, has to be dealt with too. Though the Government is aware of the situation and aims at increasing the administrative members for speedy disposal, sometimes I wonder why something wasn’t thought about it all these years. Law & judiciary are dynamic, and hence if the right support is given, we will be able to see wonders happening.

This article was submitted by Rachna Shroff.