Is the insolvency and bankruptcy code going in the right direction?

Pranav Shroff
Advocate, High Court of Mumbai


Abstract

The Insolvency and Bankruptcy Code (IBC) was enacted keeping in mind the following prima facie objectives; (a) Consolidate and amend laws relating to relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner; (b) To maximize the value of assets of such persons as aforesaid; (c) To promote entrepreneurship; (d) Make available credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues; and (e) Finally to establish an Insolvency and Bankruptcy Board of India and for other matters connected therewith and incidental thereto. One must also shrewdly observe that the Bankruptcy Law Reforms Committee (BLRC) Report has very clearly and expressly stated that speed is of essence for the smooth and efficient working of the bankruptcy code, for two reasons.

Firstly while the calm period can help keep an organization afloat but without the full clarity of ownership and control, significant decisions cannot be made. Therefore what could probably happen is that the organization would exist as a result only on paper as it would not be able to perform any essential functions or operations needed to add value to itself and the economy, and thus as a result the firm will tend to atrophy and fail resulting in liquidation of the firm in the near future. Secondly the liquidation value tends to go down significantly with time as many assets suffer from a high economic rate of depreciation. Another fundamental thing to understand from the BLRC report is the theory of requirement of a new bankruptcy law. The essence of the IBC can be derived from this theory of the BLRC report.

A new bankruptcy law was needed in the present Indian context for the sake of avoiding destruction of value of the assets, improving the handling of conflicts between creditors and debtors and lastly and most importantly drawing the line between malfeasance and business failure so that certain disgruntled stakeholders cannot bring the downfall of a going concern. Now further it is essential for us to analyse the trends in the precedents laid down by the respectable courts and adjudicating authorities of our country in order to understand whether the raison d’être and objects of the code are being adhered to or not from the time of its inception till date.

They are Neelkanth Township & Construction Pvt. Ltd vs Urban Infrastructure Trustees Ltd & Surendra Trading Company vs. J.K. Jute Mills Company Limited and others. There are many more cases pertaining to the IBC 2016 where in courts have given peculiarly uncanny interpretations of the code thereby disturbing other laws in force and also destructing its own enactment purposes and values. One may argue that the IBC code is still in its nascent stages and that these are teething problems faced by the code in its implementation, however what we need to note or take cognizance of in that case is that these teething problems need to be eradicated and/or prevented altogether at the earliest stage possible so that the IBC 2016 does not lose its rudimentary and unique charm of insolvency and bankruptcy resolutions and other purposes as seen in the preamble of the code.

Keywords: Insolvency and Bankruptcy Code, IBC, Bankruptcy Law Reforms

Preferred Citation

Pranav Shroff, Is the Insolvency and Bankruptcy Code going in the right direction? The Lex-Warrier: Online Law Journal (2018) 2, pp. 57 – 69, ISSN (O): 2319-8338

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