Bankruptcy rescues keep up faster pace in June quarter

India’s bankruptcy court approved the debt resolution plans of 57 companies in the June quarter, crossing an important milestone amid a government push for faster resolution of insolvency cases.

So far, 1,004 resolution plans have been approved under the Insolvency and Bankruptcy Code (IBC) since it was introduced in 2016. 

In the year-ago June quarter, the National Company Law Tribunal (NCLT) had approved the rescue of 42 companies; this improved to 56 in the latest March quarter, according to an official with direct knowledge of the matter.

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The companies that secured approval in the June quarter were predominantly in the manufacturing, real estate and trading sectors, this official said on condition of anonymity.

While a record 269 resolution plans were approved in 2023-24, it could take a long while for NCLT to clear all the cases before it. At the end of March, 1,920 bankruptcy cases were pending, way more than what can be cleared in a year with the present infrastructure.

Bankruptcy reforms 

Finance minister Nirmala Sitharaman, presenting the annual budget for 2024-25 last week, pledged to make “appropriate changes to the IBC” and reform and strengthen the tribunal and appellate tribunals to speed up insolvency resolution. 

Sitharaman, who also holds the corporate ministry portfolio, also said tribunals would be established exclusively for cases under the Companies Act. Currently, NCLT handles IBC as well as company law-related cases.

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Anoop Rawat, partner (insolvency and bankruptcy) at law firm Shardul Amarchand Mangaldas & Co. said the technology platform announced by Sitharaman for integrating all the pillars of the IBC ecosystem will improve efficiency and identify causes of delay.

“Additionally, the code is set for some key amendments to further improve its functioning,” said Rawat. 

“It is expected that some key changes including faster admission of cases, easing of burden on existing benches by introducing dedicated benches for company law matters, pre-pack scheme or creditors-led resolution framework for large cases, and increasing the look-back period will be introduced in the code,” he added.

The ministry of corporate affairs and the Insolvency and Bankruptcy Board of India did not reply to queries emailed on Monday.

More flexibility for rescues

A creditor-led or pre-pack scheme will allow a larger part of the debt resolution process to be handled out of court, giving more flexibility to stakeholders to stitch together a rescue plan. The government also plans to clarify the status of statutory dues in the debt resolution process.

An IBBI committee last year recommended a fast-track framework for debt resolution called the debtor in possession model, under which a corporate debtor would remain in control with a right to participate, challenge, or bid in the resolution process.

Strengthening the IBC institutional framework, setting up more court benches, appointing more judges, and promoting alternative dispute resolution systems would help enhance the bankruptcy code, Ranjeet Kumar Agarwal, president of the Institute of Chartered Accountants of India, had said at an event on 12 July.

Amendments to the IBC are expected to be taken up in Parliament in the winter session.