Critical analysis of the insolvency and bankruptcy code, 2016

Abstract

Companies in India have leveraged the easy credit and banking facilities due to the progressive and liberalized policies of the government for promoting industrialization, trade, and commerce in the country. But this soon became a serious trouble for the banking sector and credit market in the country when the non-performing assets (NPA) reached almost Rs 3,41,6411 crore in September 2015. (Kadam, 2016) It was a major concern for the Reserve Bank India (RBI), Government and judiciary, to address the escalating NPAs and resolve the bankruptcy demands and claims. Further, inadequate resolution mechanism, lack of a unified legal framework and multiplicity of legislations have prevented the banks from recovering the legitimate dues in a timely manner. To address these issues the Insolvency and Bankruptcy Code, 2016 was passed on 5th Aug 2016. The Code addresses the problems faced by the banks both public and private, local and foreign creditors and the suffering debtors in the context of insolvency and bankruptcy. The new law is in its infancy and is facing a number of challenges and the defaulters and creditors are finding grey areas to misuse it to their advantage. This policy paper illustrates the problem of NPAs in India and critically analyses the Insolvency and Bankruptcy Code, 2016 and the challenges faced under the new law. The paper also takes up a case study to examine the issues in detail. The paper provides for a few policy suggestions for making law more stable and robust in solving the problems of bad loans and insolvency resolution.