Vital suggestions to strengthen IBC

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Vital suggestions to strengthen IBC

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A column in this newspaper by Amitabh Kant, CEO, NITI Aayog, and Richa Roy, a lawyer, rightly underscored the need to strengthen the working of the Insolvency and Bankruptcy Code (IBC) for effective resolution of corporate distress. It assumes significance following the Supreme Court’s decision to quash RBI’s February 12 circular that directed banks to initiate bankruptcy proceedings against defaults above a specified amount. Banks must now, on their own volition, put the code to use. It is the real cure to tackle corporate sickness. But more can, and should be, done for the IBC to deliver better outcomes. For one, the government should provide more human and financial resources to the National Company Law Tribunal. Its appellate tribunals have interpreted the law, for example, on the share of different classes of creditors on the resolution proceeds. This must be corrected.

To minimise delays, the need is to vastly enhance capacity and induct experts. More benches — also specialised benches — of the adjudicating authority must be set up. And bankers must be given the leeway to take haircuts without inviting a witch-hunt by enforcement agencies. Changes are also warranted to the Banking Regulation Act (Section 35AA) to dispense with the precondition that the Centre must authorise RBI to issue directions in the case of specific defaults. RBI should be fully empowered to issue directions to banks initiate bankruptcy proceedings, if needed.

The column’s suggestion to introduce pre-packed insolvency arrangements, subject to proper regulation by the Insolvency and Bankruptcy Board of India, makes eminent sense, as well as the suggestion to allow for contingent assessments, subject to later revisions, that allow the proceedings to continue without waiting to resolve all disputes along the way.

It is widely acknowledged that the IBC has helped to bring about a behavioural change in debtors who want to settle defaults to avoid losing their companies. Innovation and course-correction will help banks make more rapid progress in resolving the bad loan problem.

Source- Economic Times.