Impact of insolvency and bankruptcy code in India

Abstract

Well-functioning, robust institutions are necessary for businesses to thrive. One such institution is the resolution of bankruptcy. Until recently, India’s framework for resolving such issues was highly fragmented with overlapping laws like the Contract Act, Sick Industrial Companies Act, Companies Act, Recovery of Debts Due to Banks and Financial Institution Act, etc. In addition, the process of recovery was uncertain and never-ending. To tackle this problem, India introduced the Insolvency and Bankruptcy Code (IBC) in 2016. After GST, this is one the biggest reforms in Indian economy. The IBC was passed in the Lok Sabha on 5th May 2016 and got ratified by the President on 28th May 2016. The IBC aims to provide a one-stop solution for resolving insolvency through a time-bound process where the cost and time required in liquidation are reduced. It also plays an important part in fixing the Rs. 10 Lakh crore bad loans problem of India. The IBC code is continuously undergoing multiple amendments as it picks up the pace in resolving the pending bankruptcy issues of large firms. The steps taken by the government is refining the code will be crucial for gaining the trust of various stakeholder and future of various business.