Since the actcame into existence in 2016, not much action has been taken so far. Lenders have been using solvency processeshowever, these processes been used to resolve smaller cases and are yet to doit in any large corporate account. Another reason for lenders staying away is becausethe RBI hasn’t given any clarification as to how the provisioning on accountswould work when they are under the insolvency process.Anumber of companies had often filed their petitions before the National CompanyLaw Tribunal, but before the application was admitted, withdrew the case. This showedthat most of these companies preferred an out-of-court settlement due to theamount of time and resources involved.
Under the previous Civil Code, theissues remained unresolved for years.Statistics show that therecovery is only 20 per cent in India and in global ranking, the country isranked in the 136th position with respect to the time taken for resolvingdisputes. Before the IBC code came into existence, India hadnumerous acts to punish the defaulters1. Indian Contract Act, 1872This was thefirst law enacted by British India, and based on the principles of English commonLaw. The Indian Contract Act embodied the simple and elementary rules relating toSale of goods and partnership.2.
Presidency-Towns Insolvency Act, 1910During the colonial rule, theBritishers had divided India into Presidency towns for better administration.The PTI Act laid down provisions wherein High Court had the enormous powers todecide matters relating to insolvency and decided on all questions pertainingto insolvency3. Recovery of debts due to Banksand Financial Institution Act 1993TheRecoveries of Debts due to Banks and Financial Institutions Act, 1993 was setup to counter the ever-growing NPA problems in India. A special Debt RecoveryTribunal (‘DRT’) was set up for the same purpose.
Beforethe enactment of this act, banks and financial institutions were facing challengesin recovering debts from the borrowers. Since the courts were overburdened withlarge numbers of regular cases, they were neither able to prioritize the importantcases nor expedite the existing cases.4. The Securitizations and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002Eventhough the government had enacted the RDBFI act, it had it its fair share ofproblems. The government was unable speed up the recovery of the debtsand the balance sheet of the financial institutions continued to be red. Thesecuritization act aimed to solve this problem by securitising and reconstructingthe financial assets through two special purpose vehicles viz. ‘SecuritisationCompany (‘SCO’)’ and ‘Reconstruction Company (RCO). The aim of this act wasto make adequate provisions for the recovery of the loans and also to foreclosethe security.
5. The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA)The SICA act had 2 objectivesa. Determine sickness and b.
Expedite the revival of potentially viable units It was expected that through revival, idle investments will become productiveand by closure, the locked-up investments in unviable units would get released thatcould be used elsewhere. The government knew that timely detection of sick andpotential sick companies could lead to speedy determination and expeditiousenforcement of preventive measures. It set up a body of experts for thepreventive, ameliorative, remedial and other connected matters.