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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?
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:
What is the procedure to resolve insolvency in the Code? The Code proposes the following steps to resolve insolvency:
What are some issues in the Code that require consideration?
A version of this blog appeared in the Business Standard on May 7, 2016.
A recent case before the Supreme Court has once again highlighted the issue of judicial decisions potentially replacing/ amending legislation enacted by Parliament. The case importantly pertains to the judiciary’s interpretation of existing law concerning itself. The eventual outcome of the case would presumably have important implications for the way the higher judiciary interprets laws, which according to some amounts to the judiciary “legislating” rather than interpreting laws. This assertion has often been substantiated by citing cases such as Vishaka v. State of Rajasthan (1997) where the Supreme Court actually laid down the law pertaining to sexual discrimination at workplaces in the absence of a law governing the same. In numerous other cases, courts have laid down policy guidelines, or have issued administrative directions to governmental departments. In the recent case of Suraz India Trust v. Union of India, a petition has been filed asking the court to reconsider its own judgements regarding the manner of appointment and transfer of judges. It has been contended that through its judgements in 1994 and 1998 (Advocate on Record Association v. Union of India and Special Reference No. 1 of 1998) the Supreme Court has virtually amended Constitutional provisions, even though amendments to the Constitution can only be done by Parliament. This question arises since the Constitution provides for the appointment and transfer of judges by the government in consultation with the Chief Justice of India. The two Supreme Court judgements however gave the primary power of appointment and transfer of judges to the judiciary itself. Importantly, one specific question which has been raised is whether the judgements referred to above really amount to amending the relevant provisions of the Constitution. Another question raised which is relevant to this discussion is whether the interpretation by courts can actually make provisions in the Constitution redundant. In its judgement on the 4th of April, the Supreme Court referred this case to the Chief Justice of India for further directions. The outcome of this judgement could potentially require the Supreme Court to define the circumstances when it interprets law, and when it “legislates”. An indication of the Supreme Court's attitude concerning this issue may be gleaned from the recent speech of the Chief Justice of India, Justice S.H. Kapadia at the M.C. Setalvad lecture. The CJI unambiguously stated that: "...In many PILs, the courts freely decree rules of conduct for government and public authorities which are akin to legislation. Such exercises have little judicial function in them. Its justification is that the other branches of government have failed or are indifferent to the solution of the problem. In such matters, I am of the opinion that the courts should be circumspect in understanding the thin line between law and governance..."
