Page 3 - IBBI-JUNE-SEPTEMBER 2022

From Chairperson’s Desk

Leveraging Behavioural Change

The Insolvency and Bankruptcy Code, 2016 (IBC/Code) was enacted early as soon as default has occurred. They invariably have the
to provide for insolvency resolution of distressed entities in a time option to withdraw the application before it is admitted. Even where
bound manner. To keep the unprecedented reform abreast with the application has been admitted, in case they arrive at a satisfactory
the upcoming challenges, the Government has amended the Code settlement with the corporate debtor (CD), FCs still have the option
six times during the last six years. The Insolvency and Bankruptcy of withdrawal under section 12A of the Code.
Board of India (IBBI), the Regulator, has also made 84 amendments
Further, for the Adjudicating Authority (AA) to expeditiously verify
to its 18 regulations made under the Code, out of which around 22
the existence of such default, the Report of the Bankruptcy Law
amendments have been made in the past one year alone. The Code
Reforms Committee had envisaged that the CIRP application should
has led to behavioural change in the debtor-creditor relationship.
rely on information of default furnished by registered Information
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Utility (IU). This will allow for the speedy commencement of
insolvency resolution process (CIRP), is nudging debtors to settle
insolvency proceedings, owing to the undisputed information that
their dues with the creditors as soon as possible. Till September,
is made available by the IU. The provisions under section 7(3), inter
2022, 23,417 applications for initiation of CIRPs, having underlying
alia, obligates the FC to furnish a record of default of an IU as part
default of ` 7.31 lakh crore were resolved before their admission.
of their application for initiation of CIRP. Section 7(4) requires the
This is attributed to the behavioural change effectuated by the Code.
AA to ascertain the existence of a default from the records of an IU.
However, there is a concern that the Code is losing its sheen due However, it is observed that substantial time of the AA is consumed
to excessive delays and loss of value in the resolution process. in ascertaining ‘existence of debt’ and ‘occurrence of default’ due
The performance of the Code during the past six years has been to examination of voluminous and at times irrelevant documents.
better than the previous regimes, but there is a great scope for Therefore, it is necessary that the creditors must adapt to mandatory
improvement. We need to learn from our experience in the last submitting the record of default as a proof of existence of default so
six years and make the Code more effective in terms of processes WKDW WKH $$ FDQ DFFHSW WKH VDPH DV VXIÀFLHQW SURRI RI GHIDXOW
and more result oriented. The Government and the Regulator
Furthermore, it has also been observed that interlocutory applications
are working in tandem, to roll out next generation reforms in the
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insolvency space.
natural justice not being followed, the application being barred by
It has to be borne in mind that amendments in the Code and/or limitation, inaccuracy of default amount etc. There are numerous
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on the collective participation of all stakeholders in a non-adversarial restructuring/settlement etc. before taking a recourse under the
PDQQHU )URP HDUO\ LGHQWLÀFDWLRQ RI GLVWUHVV WR YDOXH PD[LPL]LQJ Code. The IU is also mandated to send at least three notices to
insolvency resolution, each stage and activity in the processes under the CD before issuing record of default. The CIRP application by
the Code needs constant engagement, willingness and commitment banks are generally within limitation period of three years and are
of all the stakeholders. There is a need to ensure that all stakeholders ÀOHG DIWHU VHYHUDO QRWLFHV H[WHQGHG E\ WKH FUHGLWRUV WR WKH GHEWRUV
keep their respective act for the successful implementation of the These documentary evidences establish that the principle of natural
Code. justice is inbuilt and rigorously followed to establish existence of
default. Additionally, there is no requirement of determination of
Let us take admission of a CIRP as an example to understand the
the exact amount of default or adjudication of dispute at admission
importance of behavioral aspects in the Code. Section 7 of the
stage provided that the threshold default amount of ` 1 crore is met.
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default has occurred. Banks declare an account as non-performing
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asset (NPA) in ninety days after occurrence of default in repayment
correspondences with debtor along with the CIRP application so
obligations/ persistent irregularities as per Income Recognition and
that the examination by AA is facilitated and thereby, time taken in
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admission is reduced. This requires behavioural change at all levels.
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default occurs. However, it is noticed that more than a year is being To sum up, mere amendments in the Code/regulations may not
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This delay leads to erosion in value of assets. Thus, the creditors a time bound manner in accordance with the spirit of the Code that
need to change their behaviour and submit the CIRP application reduces delays and maximises the value of the CD.
(Ravi Mital)

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11/15/2022 12:24:44 PM
IBBI newsletter.indd 3
IBBI newsletter.indd 3 11/15/2022 12:24:44 PM