The IUP Journal of Law Review
Revolutionary Inroads into the Insolvency and Bankruptcy Law in India

Article Details
Pub. Date : April, 2019
Product Name : The IUP Law Review
Product Type : Article
Product Code : IUPLR31904
Author Name : Dayananda Murthy C P
Availability : YES
Subject/Domain : Law
Download Format : PDF Format
No. of Pages : 14

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Abstract

The insolvency laws enable lenders to petition for liquidation. The debtor's failure in managing business makes recovery a daunting task. Companies may fail to recover from their financial distress. The defaults by companies result in the accumulation of Non-Performing Assets (NPAs) with banks. The insolvency laws, across the globe, offer a process of a 'fresh start' or 'encourage business rescue', in a 'time-bound' manner. If and only if the resolution process fails, the question of liquidation arises. The financial environment led to the adoption of the Insolvency and Bankruptcy Code, 2016 (IBC), which has provided impetus to the stakeholders. Under IBC regime, players are expected to adopt a new game plan. The participatory role of the 'Committee of Creditors' is significant. This paper analyzes the impact of IBC in a 'defaulter's paradise' situation and how far the implementation of this code would help in making India an efficient economy.


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The Reserve Bank of India (RBI) referred to 12 accounts, which approximately accounted for about 25% of the gross Non-Performing Assets (NPA), for resolution under the Insolvency and Bankruptcy Code, 2016 (The Code).1 The NPA increases because a corporate debtor2 fails to repay the debts or commits certain serious banking frauds or does not comply with the banking norms, which is an ailment to the banking system. The Prompt Corrective Action (PCA) of the RBI scheme applicable to public sector banks has restricted the banking operations.3 The consequence was that banks were not able to lend on the retail side or raise even short-term deposits. Post 2008 financial crisis, Indian banks had to face major NPAs. Being the leading lenders for development works, they faced difficulty in recovering the dues, as the corporate debtor's investment became dormant, as projects were either incomplete or being underutilized.

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