HOW HAS IBC IMPROVED BUSINESS OF ENTREPRENEURS AND RESCUED THEM IN PANDEMIC: VISHAL SHARMA
Introduction
The
Insolvency and Bankruptcy Code (IBC) was introduced in the year 2016 by the
government to tackle the problem of insolvent companies. Since, its inception
the code has brought in a revolution and made sure priority debt is paid
primarily. With IBC coming into picture the problem of bad loan got solved,
whereby the corporate/companies were unable to repay the loan undertaken by
them and due to which the banking sector suffered huge losses. Earlier banks
used to be really sceptical about granting such huge loans but with the
introduction of IBC things have gotten simpler for them.
Before 2016, there was no concrete or
particular law relating to insolvency of corporates and this caused a huge loss
and delay. Although there were various acts to govern the working of the
company such as the liquidation and winding up process was looked after by the
Companies Act, 2013, debt recovery by Recovery of Debt Due to Banks and
Financial Institutions Act, 1993 and SARFESI Act looked after security
enforcement but overlapping laws made way for Bankruptcy Law Reform Committee
draft and introduced the bill which further got the assent and approval in the
same year of 2016.
Objective
of the Code
The code simplified a lot of aspects for
the corporate/companies, banking sector and creditors:[1]
a)
Simplify
the Insolvency code in the country.
b)
Protect
the interest of creditors and stakeholders in the company.
c)
Promote
entrepreneurship and business and revive them in a timely manner.
d)
Insolvency
and Bankruptcy Board of India (IBBI) was setup.
e)
Credit
supply in the economy to be maintained and that the creditors do not suffer.
f)
The
Insolvency Professional Agency (IPA) has the professionals enrolled with the
Board to conduct resolution process.
Usually, appointed by the creditors and help in conducting resolution
process.
Under the code, the National Company Law
Tribunal (NCLT) would be the adjudicatory authority over companies and limited
liability entities. While, Debt Recovery Tribunal (DRT) would look after
individuals and partnership firms apart from Limited Liability entity. The IBBI
would be the apex body for promoting transparency and the act in the country.
The members of the Board shall include people from Ministry of Finance, Law
Department and Reserve Bank of India.
The code makes sure that the process is
carried out in a timely manner and the evaluation and viability under 180 days.
For start-ups and small entrepreneurs the moratorium period is 90 days and
shall be extended by 45 days.
IBC
in pandemic
The government via a notification dated 24th
March, increased the threshold for invoking the provisions of IBC from Rs. 1
Lakh to Rs. 1 crore. This step mainly helped the small and micro industries
during the pandemic and helped in preventing the triggering of provisions of
the code.
Thereafter, on June 5 section 10A was
inserted after the president promulgated to the ordinance which called for
suspension of initiation of Corporate Insolvency Resolution Process (CIRP). The
reading of the amendments done by the government called for no application
under section 7,9 and 10 for a period of 6 months from 25th March
and can be extended to 1 year.[2]
This came after the government had already hinted to make the provisions of
this act suspended if the situation prevailed post 30th April 2020.
The basic question that still remains is
how has this helped the business of small entrepreneurs during this time? So,
the notification of 24th March helped them in the initial stage by
laying out that an operational creditor of the corporate debtor can initiate
the process of Corporate Insolvency Resolution Process (CIRP) only on the
occurrence of debt exceeding Rs. 1 crore. Which was earlier Rs. 1 Lakh under
section 4 to initiate the CIRP process.[3]
This practice shall come into picture for the cases who have still not been
admitted and the small business cannot be called upon just because of a debt of
1 Lakh.
These small businesses have been rescued
in such a way that no debt process or insolvency procedure can be initiated
against them for regular amount and thus giving them a relief in such a
distressful time
[1] In-Depth
– Insolvency and Bankruptcy Code Act on 15th January 2019
[2] Amendments to IBC in times of Pandemic: Whether
self-defeating? On June 7 2020
https://www.barandbench.com/columns/amendments-to-ibc-in-times-of-pandemic-whether-self-defeating
[3] Indian Insolvency Law
responds to the COVID-19 Pandemic by Cyril Shroff on March 25 2020
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