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. Thisshowed that most of these companies preferred an out-of-court settlement due tothe amount of time and resources involved. Under the previous Civil Code, theissues remained unresolved for years.According to statistics, recoveryis only 20 per cent in India and in global ranking, the country is ranked inthe 136th position with respect to the time taken for resolving disputes. 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 relatingto Sale of goods and partnership.2. Presidency-Towns Insolvency Act, 1910During the colonial rule, Indiahad been divided into Presidency towns for better administration. The PTI Actlaid down provisions wherein High Court had the powers to decide mattersrelating to insolvency and decided on all questions pertaining to 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 theimportant cases nor expedite the existing cases.4. The Securitizations and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002Even afterthe establishment of the RDBFI act, the government was unable speed up therecovery of debts and the balance sheet of the financial institutions continuedto be red. The securitization act aimed to solve this problem by securitisingand reconstructing the financial assets through two special purpose vehiclesviz. ‘Securitisation Company (‘SCO’)’ and ‘Reconstruction Company (RCO).
Theaim of this act was to make adequate provisions for the recovery of the loansand also to foreclose the security.5. The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA)The SICA act had 2objectivesa. Determining industrial companies in struggling financial conditions (sickunits) and b. Expedite the revival of potentially viable companiesThe government expected that through reviving these units, idle investmentswill become productive and by closure, the money that had been locked-up inunviable units would get released and be used elsewhere.
The government knewthat timely detection of sick and potential sick companies could lead to speedydetermination and expeditious enforcement of preventive measures. It set up abody of experts for the preventive, ameliorative, remedial and other connectedmatters.As far as IBC isconcerned, the following steps are currently under review · Existing casesare being transferred from Company Law Board(CLB) to the IBC where the NationalCompany Law Tribunal judicial members and technical members will review them.The cases amount to 4200 with every new year bringing in additional 4000 cases.The government is currently deciding on the capacity of the benches so that the180 days timeline can be efficiently met· Smoothtransitioning of cases from pre-IBC regime to the IBC regime so that there isno conflict