Insolvency and Bankruptcy Code: Two sides of the coin

The Insolvency and Bankruptcy Code, 2016 (IBC), is a watershed in the history of India’s banking credit culture. Replacing a plethora of legislation it provides for a single-window, time-bound process designed to revive a company or failing which to liquidate it. Based on equity, asset maximization and promotion of entrepreneurship, the IBC aims to balance the interests of all stakeholders. Government on its part demonstrated empathy by putting its dues at the bottom of the waterfall list.

A major reason for introducing the IBC was the ballooning of non-performing assets (NPAs) in the balance sheets of the top public sector banks. Total NPAs of the banking system stand at over ₹8 trillion (US$125 billion) of which ₹6 trillion are with public sector banks. The Reserve Bank of India (RBI) earlier this year identified 12 corporate accounts that accounted for about 25% of the gross NPAs of the banking system, and reports suggest that a second list of 35-40 defaulters has been drawn up. Directives have been issued to the banks to seek remedies under any of the existing schemes or to resort to the IBC.

By offering a time-bound resolution process aimed at maximizing the value of a distressed business, the IBC has benefited not just the creditor and debtor companies but has helped revive the overall economic sentiment in the country. There is a renewed effort to have the productive resources redeployed quickly. The involvement of an experienced resolution professional and monitoring of the corporate insolvency resolution process (CIRP) by the National Company Law Tribunal (NCLT) benefit all stakeholders.

Dhir & Dhir Associates is a leading full-service law firm in India. Alok Dhir is the managing partner at Dhir & Dhir Associates.