India’s insolvency regime needs to address chinks in its armour

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₹2.8 trillion. It has been a rare law to have seen unanimity of policy goals across government agencies. A series of amendments have strengthened the law.

However, in the recent past, several chinks have appeared. There are delays in the admission of cases and approval of resolution plans. A series of judgements have compromised the rights of secured creditors and eroded the primacy of security interest.

Contrary to legislative intent, the Supreme Court suggested that government dues deserve priority over bank dues. It also held that the admission of an IBC case even if a payment default to a bank is clearly established is at the discretion of the National Company Law Tribunal (NCLT). There have been complications in the resolution of real estate projects.

Further, an inflexible definition of a ‘resolution plan’ has meant that discrete assets of an insolvent company are not being sold even if they are deteriorating in value or could separately fetch more. The ministry of corporate affairs (MCA) released a public consultation paper in January, seeking comments on a slew of proposed amendments. Extensive debate ensued among banks, insolvency professionals and regulators as well as bidders, and detailed submissions have been made to the MCA by industry bodies on some important reforms.

As per the consultation paper, real estate insolvencies could be conducted on a project-wise basis rather than imperilling the entire corporate entity, which could also be operating healthy projects. Further, universally recognized principles of the sanctity of secured debt must be restored. A push is being made for the introduction of technology in establishing a payment defaults via information utilities to overcome the need of lengthy