Back1,000 bankruptcy cases should be resolved every year, says MCA secretary
Manoj Govil said corporate rescues under the Insolvency and Bankruptcy Code is expected to increase to 300 cases in this financial year from around 180 cases in the previous one
PremiumNew Delhi: India's debt-resolution capacity under the Insolvency and Bankruptcy Code (IBC) should be increased more than three-fold to handle about 1,000 cases a year, said a senior government official.
Speaking at the seventh foundation day of the Insolvency and Bankruptcy Board of India (IBBI), the rule maker and regulator, ministry of corporate affairs secretary Manoj Govil said the pace of debt resolution under IBC was increasing steadily and that the number of corporate rescues was expected to increase to 300 cases in this financial year from around 180 cases in the previous one. Govil said while this is a large number, the question is whether it is sufficient, as a study showed that about 5,000 new bankruptcy cases are initiated every year.
Initially around 60% of new cases were withdrawn at the pre-admission stage itself, but after the government raised the payment default threshold for initiating bankruptcy action from ₹1 lakh to ₹1 crore in 2020, larger cases are coming in and fewer cases are expected to be withdrawn at an early stage. However, even if one-third of new cases are withdrawn at the pre-admission stage, and a few more subsequently, still there will be around 1,500 new cases to be resolved in a year, Govil explained.
He added that one could argue that in future, the number of new bankruptcy cases requiring resolution could fall as they are also a function of economic cycles. "I think we should have a capacity of at least 1000 cases (a year)," Govil added.
IBBI chairperson Ravi Mital said about 300 cases are expected to be resolved under IBC this financial year and that the regulator will release three to four discussion papers in a week on fresh proposals to reduce delays. Mital said all companies that have been salvaged under the IBC process are doing well. "This is a very big contribution of IBC and it has led to growth in the economy," said Mital.
He said that until August this year, 135 debt resolutions had taken place, which would have gone up by the end of September. "If that is correct, we will end this year with 300 (bankruptcy) resolutions," Mital said.
Manoj Govil explained that one way to increase capacity is to fill up the vacant positions in National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), which is being done. The government offered 15 member positions in November 2022 and another 21 earlier this year.
Improving the outcomes of debt resolution under IBC is a priority for the government as it helps to clean up the balance sheets of companies and banks and facilitates a fresh investment cycle. The government is currently working on further amendments to IBC to further improve the efficiency of the system.
Milestone Alert!Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.
