The Government introduced the Insolvency and Bankruptcy Bill, 2015 in Parliament on Monday (21/12/15). The current bankruptcy code in India and contains archaic laws and is spread out over multiple legislations. Due to this, India was ranked as the 136th best country for ease of conducting insolvency proceedings, as per the World Bank ranking earlier in 2015. Further, it is ranked as the 130th best country for ease of doing business, as per the same rankings (out of 180 countries). This Bill seeks to streamline the law according to global standards, making it easier to wind up or liquidate a company (both voluntarily and involuntarily), attract investment, promote entrepreneurship and push India higher in World Bank rankings. It has also been certified as a Money Bill, preventing the Rajya Sabha from stalling it, and providing for its quicker passage (a more detailed explanation of Money Bills is given at the end of the article). The important features of the Bankruptcy Code are as follows:
1.) It will amend and consolidate all bankruptcy laws and rules prevalent in other legislations (Companies Act, 2013, Sick Industrial Companies Act, 1985, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) to become the overarching bankruptcy law.
2.) It covers individuals, companies, limited liability partnerships and partnership firms.
3.) It lays down a time limit within which the proceedings must be completed – 180 days from the date of admission of the application. This period can be extended by 90 days by the relevant authority, if it determines that “the case is of such complexity that an orderly corporate insolvency resolution process cannot be completed within one hundred and eighty days.”
4.) This time limit can be cut down to 90 days through a fast-track procedure available for some key categories.
5.) It provides for insolvency professionals who will specialize in helping sick companies. It also provides for information utilities that will collate all information about debtors to prevent serial defaulters from misusing the system.
6.) It seeks to establish an Insolvency and Bankruptcy Fund.
7.) It also provides for the creation of an Insolvency and Bankruptcy Board (the Insolvency Regulator) for regulating insolvency professionals, insolvency professional agencies and information utilities.
8.) The above Regulator will be comprised of the following authorities:
- An Insolvency Adjudicating Authority, which will have the jurisdiction to hear and dispose of cases by or against the debtor;
- A Debt Recovery Tribunal, which will have jurisdiction over individuals and unlimited liability partnership firms; and
- A National Company Law Tribunal, formed under the Companies Act, 2013, which will have jurisdiction over companies and limited liability entities (Note: the SC in Madras Bar Association v. Union of India and Anr. (WP(C) No. 1072/2013), decided on May 14, 2015, upheld the constitutional validity of the NCLT and NCL Appellate Tribunal. These Tribunals will replace the Company Law Board, the Board of Industrial and Financial Reconstruction, the Appellate Authority for Industrial and Financial Reconstruction and the Company Courts in the jurisdictional High Courts. However, the NCLT and NCLAT are yet to be constituted).
9.) If any of the above forums fail to complete a process of insolvency before them within the stipulated timeline (clause 3 & 4), then the President of the forum is required to record in writing the reasons for the same.
10.) The “corporate insolvency resolution process” may be initiated by the following:
- A financial creditor, meaning a creditor for financial facility. In this case, the basis of filing is the fact of a default to any financial creditor. This drastically changes the basis of the current provisions of “sickness” under the Companies Act, which is based on default to a majority in value of the creditors;
- An operational creditor, meaning a creditor other than a financial creditor. Here, if there is no dispute as to a debt, and it isn’t paid within 10 days, the creditor can initiate an insolvency proves. This creates a level playing field between secured and unsecured creditors; and
- The corporate debtor himself – the company.
11.) The Code provides for a mandatory moratorium, preventing individual creditors from taking action or selling assets, giving the courts and the company time to attempt rehabilitation. This moratorium lasts for all 180 days of the process. Previously, the Company Law Tribunal could only grant a moratorium of 120 days if it so chose – it was not mandatory.
12.) During the insolvency process, if the creditors and members resolve to voluntarily liquidate the company, then the moratorium does not apply.
Art. 110 of the Constitution of India, 1949, defines a Money Bill. As per this article, a Bill is a Money Bill if it contains only provisions dealing with all or any of six specific matters (Article 110 (1)(a) to (1)(f)), which are broadly related to:
- Imposing, abolishing or regulating a tax;
- Regulating government borrowings;
- The Consolidated and Contingency Funds of India; and
- Any matter incidental to any of the matters specified in the previous sub-clauses (Article 110(1)(g)).
A Money Bill can be introduced only in the Lok Sabha (Art. 109(1)), and only with the prior permission of the President. In case any question arises as to whether a Bill is a Money Bill or not, the decision of the Speaker of the Lok Sabha on this matter is final (Art. 110(3)). Once it is passed in the Lok Sabha, the Money Bill goes to the Rajya Sabha for its recommendation (along with a certificate from Speaker stating that it is a Money Bill). Unlike regular/non-money bills, Money Bills are not subject to the approval of both houses. The Rajya Sabha cannot reject or stall the Money Bill, but can only give its recommendations and return the amended Money Bill to the Lok Sabha (Art. 109). Further, as per Art. 109 (5) if the Rajya Sabha does not return the Money Bill to the Lok Sabha within 14 (fourteen) days, it is considered as passed by both houses of Parliament. If the Money Bill returns on time, the Lok Sabha can either incorporate some or all of the changes proposed by the Rajya Sabha, or reject all of them. Once the Money Bill has gone through the Lok Sabha a second time, it is deemed to be passed by both houses. Lastly, the President cannot send the Money Bill back to the Lok Sabha for consideration, as it was initially introduced with his/her permission.