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  • The Insolvency and Bankruptcy Code: All you need to know
Legislation

The Insolvency and Bankruptcy Code: All you need to know

Aravind Gayam - May 10, 2016

The Insolvency and Bankruptcy Code, 2016 is listed for passage in Rajya Sabha today.  Last week, Lok Sabha passed the Code with changes recommended by the Joint Parliamentary Committee that examined the Code.[1],[2]  We present answers to some of the frequently asked questions in relation to the Insolvency and Bankruptcy Code, 2016. Why do we need a new law?Time resolve insolvency1 As of 2015, insolvency resolution in India took 4.3 years on an average.  This is higher when compared to other countries such as United Kingdom (1 year) and United States of America (1.5 years).  Figure 1 provides a comparison of the time to resolve insolvency for various countries.  These delays are caused due to time taken to resolve cases in courts, and confusion due to a lack of clarity about the current bankruptcy framework. What does the current Code aim to do? The 2016 Code applies to companies and individuals.  It provides for a time-bound process to resolve insolvency.  When a default in repayment occurs, creditors gain control over debtor’s assets and must take decisions to resolve insolvency within a 180-day period.  To ensure an uninterrupted resolution process, the Code also provides immunity to debtors from resolution claims of creditors during this period. The Code also consolidates provisions of the current legislative framework to form a common forum for debtors and creditors of all classes to resolve insolvency. Who facilitates the insolvency resolution under the Code? The Code creates various institutions to facilitate resolution of insolvency.  These are as follows:

  • Insolvency Professionals: A specialised cadre of licensed professionals is proposed to be created. These professionals will administer the resolution process, manage the assets of the debtor, and provide information for creditors to assist them in decision making.
  • Insolvency Professional Agencies: The insolvency professionals will be registered with insolvency professional agencies. The agencies conduct examinations to certify the insolvency professionals and enforce a code of conduct for their performance.
  • Information Utilities: Creditors will report financial information of the debt owed to them by the debtor. Such information will include records of debt, liabilities and defaults.
  • Adjudicating authorities: The proceedings of the resolution process will be adjudicated by the National Companies Law Tribunal (NCLT), for companies; and the Debt Recovery Tribunal (DRT), for individuals. The duties of the authorities will include approval to initiate the resolution process, appoint the insolvency professional, and approve the final decision of creditors.
  • Insolvency and Bankruptcy Board: The Board will regulate insolvency professionals, insolvency professional agencies and information utilities set up under the Code.  The Board will consist of representatives of Reserve Bank of India, and the Ministries of Finance, Corporate Affairs and Law.

What is the procedure to resolve insolvency in the Code? The Code proposes the following steps to resolve insolvency:

  • Initiation: When a default occurs, the resolution process may be initiated by the debtor or creditor. The insolvency professional administers the process.  The professional provides financial information of the debtor from the information utilities to the creditor and manage the debtor’s assets.  This process lasts for 180 days and any legal action against the debtor is prohibited during this period.
  • Decision to resolve insolvency: A committee consisting of the financial creditors who lent money to the debtor will be formed by the insolvency professional. The creditors committee will take a decision regarding the future of the outstanding debt owed to them.  They may choose to revive the debt owed to them by changing the repayment schedule, or sell (liquidate) the assets of the debtor to repay the debts owed to them.  If a decision is not taken in 180 days, the debtor’s assets go into liquidation.
  • Liquidation: If the debtor goes into liquidation, an insolvency professional administers the liquidation process. Proceeds from the sale of the debtor’s assets are distributed in the following order of precedence: i) insolvency resolution costs, including the remuneration to the insolvency professional, ii) secured creditors, whose loans are backed by collateral, dues to workers, other employees, iii) unsecured creditors, iv) dues to government, v) priority shareholders and vi) equity shareholders.

What are some issues in the Code that require consideration?

  • The Bankruptcy Board (regulator) will regulate insolvency professional agencies (IPAs), which will further regulate insolvency professionals (IPs).  The rationale behind multiple IPAs overseeing the functioning of their member IPs, instead of a single regulator is unclear. The presence of multiple IPAs  operating simultaneously could enable competition in the sector. However, this may also lead to a conflict of interest between the regulatory and competitive goals of the IPAs.  This structure of regulation varies from the current practice where the regulator directly regulates its registered professionals.  For example, the Institute of Chartered Accountants of India (which regulates chartered accountants) is directly responsible for regulating its registered members.
  • The Code provides an order of priority to distribute assets during liquidation. It is unclear why: (i) secured creditors will receive their entire outstanding amount, rather than up to their collateral value, (ii) unsecured creditors have priority over trade creditors, and (iii) government dues will be repaid after unsecured creditors.
  • The smooth functioning of the Code depends on the functioning of new entities such as insolvency professionals, insolvency professional agencies and information utilities.  These entities will have to evolve over time for the proper functioning of the system.  In addition, the NCLT, which will adjudicate corporate insolvency has not been constituted as yet, and the DRTs are overloaded with pending cases.

 

 

  1. The Insolvency and Bankruptcy Code, 2016, http://www.prsindia.org/administrator/uploads/media/Bankruptcy/Bankruptcy%20Code%20as%20passed%20by%20LS.pdf.
  2. Report of the Joint Committee on the Insolvency and Bankruptcy Code, 2015, April 28, 2016, http://164.100.47.134/lsscommittee/Joint%20Committee%20on%20Insolvency%20and%20Bankruptcy%20Code,%202015/16_Joint_Committee_o n_Insolvency_and_Bankruptcy_Code_2015_1.pdf

A version of this blog appeared in the Business Standard on May 7, 2016.

Legislation

Malnutrition in India: The National Nutrition Strategy explained

Nivedita Rao - September 8, 2017

In the recent past, there has been a renewed discussion around nutrition in India.  A few months ago, the Ministry of Health and Family Welfare had released the National Health Policy, 2017.[1]  It highlighted the negative impact of malnutrition on the population’s productivity, and its contribution to mortality rates in the country.  In light of the long term effects of malnutrition, across generations, the NITI Aayog released the National Nutrition Strategy this week.  This post presents the current status of malnutrition in India and measures proposed by this Strategy.

What is malnutrition?

Malnutrition indicates that children are either too short for their age or too thin.[2]  Children whose height is below the average for their age are considered to be stunted.  Similarly, children whose weight is below the average for their age are considered thin for their height or wasted.  Together, the stunted and wasted children are considered to be underweight – indicating a lack of proper nutritional intake and inadequate care post childbirth.

What is the extent of malnutrition in India?

India’s performance on key malnutrition indicators is poor according to national and international studies.  According to UNICEF, India was at the 10th spot among countries with the highest number of underweight children, and at the 17th spot for the highest number of stunted children in the world.[3]

Malnutrition affects chances of survival for children, increases their susceptibility to illness, reduces their ability to learn, and makes them less productive in later life.[4]   It is estimated that malnutrition is a contributing factor in about one-third of all deaths of children under the age of 5.[5]  Figure 1 looks at the key statistics on malnutrition for children in India.

Figure 1: Malnutrition in children under 5 years (2005-06 and 2015-16)

NFHS Survey

Sources: National Family Health Survey 3 & 4; PRS.

Over the decade between 2005 and 2015, there has been an overall reduction in the proportion of underweight children in India, mainly on account of an improvement in stunting.  While the percentage of stunted children under 5 reduced from 48% in 2005-06 to 38.4% in 2015-16, there has been a rise in the percentage of children who are wasted from 19.8% to 21% during this period.[6],[7]  A high increase in the incidence of wasting was noted in Punjab, Goa, Maharashtra, Karnataka, and Sikkim.[8]

The prevalence of underweight children was found to be higher in rural areas (38%) than urban areas (29%). According to WHO, infants weighing less than 2.5 Kg are 20 times more likely to die than heavier babies.2  In India, the national average weight at birth is less than 2.5 Kg for 19% of the children.  The incidence of low birth-weight babies varied across different states, with Madhya Pradesh, Rajasthan and Uttar Pradesh witnessing the highest number of underweight childbirths at 23%.[9]

Further, more than half of India’s children are anaemic (58%), indicating an inadequate amount of haemoglobin in the blood.  This is caused by a nutritional deficiency of iron and other essential minerals, and vitamins in the body.2

Is malnutrition witnessed only among children?

No.  Among adults, 23% of women and 20% of men are considered undernourished in India.  On the other hand, 21% of women and 19% of men are overweight or obese.  The simultaneous occurrence of over nutrition and under-nutrition indicates that adults in India are suffering from a dual burden of malnutrition (abnormal thinness and obesity).  This implies that about 56% of women and 61% of men are at normal weight for their height.

What does the National Nutrition Strategy propose?

Various government initiatives have been launched over the years which seek to improve the nutrition status in the country.  These include the Integrated Child Development Services (ICDS), the National Health Mission, the Janani Suraksha Yojana, the Matritva Sahyog Yojana, the Mid-Day Meal Scheme, and the National Food Security Mission, among others.  However, concerns regarding malnutrition have persisted despite improvements over the years.  It is in this context that the National Nutrition Strategy has been released.  Key features of the Strategy include:8

  • The Strategy aims to reduce all forms of malnutrition by 2030, with a focus on the most vulnerable and critical age groups. The Strategy also aims to assist in achieving the targets identified as part of the Sustainable Development Goals related to nutrition and health.
  • The Strategy aims to launch a National Nutrition Mission, similar to the National Health Mission. This is to enable integration of nutrition-related interventions cutting across sectors like women and child development, health, food and public distribution, sanitation, drinking water, and rural development.
  • A decentralised approach will be promoted with greater flexibility and decision making at the state, district and local levels. Further, the Strategy aims to strengthen the ownership of Panchayati Raj institutions and urban local bodies over nutrition initiatives.  This is to enable decentralised planning and local innovation along with accountability for nutrition outcomes.
  • The Strategy proposes to launch interventions with a focus on improving healthcare and nutrition among children. These interventions will include: (i) promotion of breastfeeding for the first six months after birth, (ii) universal access to infant and young child care (including ICDS and crèches), (iii) enhanced care, referrals and management of severely undernourished and sick children, (iv) bi-annual vitamin A supplements for children in the age group of 9 months to 5 years, and (v) micro-nutrient supplements and bi-annual de-worming for children.
  • Measures to improve maternal care and nutrition include: (i) supplementary nutritional support during pregnancy and lactation, (ii) health and nutrition counselling, (iii) adequate consumption of iodised salt and screening of severe anaemia, and (iv) institutional childbirth, lactation management and improved post-natal care.
  • Governance reforms envisaged in the Strategy include: (i) convergence of state and district implementation plans for ICDS, NHM and Swachh Bharat, (ii) focus on the most vulnerable communities in districts with the highest levels of child malnutrition, and (iii) service delivery models based on evidence of impact.

[1] National Health Policy, 2017, Ministry of Health and Family Welfare, March 16, 2017, http://mohfw.nic.in/showfile.php?lid=4275

[2] Nutrition in India, Ministry of Health and Family Welfare, 2005-06, http://rchiips.org/nfhs/nutrition_report_for_website_18sep09.pdf

[3] Unstarred Question No. 2759, Lok Sabha, Answered on March 17, 2017, http://164.100.47.190/loksabhaquestions/annex/11/AU2759.pdf

[4] Helping India Combat Persistently High Rates of Malnutrition, The World Bank, May 13, 2013, http://www.worldbank.org/en/news/feature/2013/05/13/helping-india-combat-persistently-high-rates-of-malnutrition

[5] Unstarred Question No. 4902, Lok Sabha, Answered on December 16, 2016, http://164.100.47.190/loksabhaquestions/annex/10/AU4902.pdf

[6] National Family Health Survey – 3, 2005-6, Ministry of Health and Family Welfare http://rchiips.org/nfhs/pdf/India.pdf

[7] National Family Health Survey – 4 , 2015-16, Ministry of Health and Family Welfare, http://rchiips.org/NFHS/pdf/NFHS4/India.pdf

[8] National Nutrition Strategy, 2017, NITI Aayog, September 2017, http://niti.gov.in/writereaddata/files/document_publication/Nutrition_Strategy_Booklet.pdf

[9] Rapid Survey On Children, Ministry of Women and Child Development, 2013-14, http://wcd.nic.in/sites/default/files/RSOC%20National%20Report%202013-14%20Final.pdf

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