Bankruptcy provisions for individuals may be delayed

The bankruptcy provisions for individuals and proprietorship firms under the Insolvency and Bankruptcy Code (IBC) are unlikely to be put into effect soon due to the heavy workload of debt recovery tribunals (DRTs). Also, the notification of rules on cross-border insolvency, could be delayed in the absence of e-courts, according to official sources.

The government had initially planned to notify these provisions last year. Now, a high-powered committee on the IBC is examining whether to notify bankruptcy and cross-border insolvency regulations.

A corporate affairs ministry official told Business Standard the issue was how DRTs would manage the additional load of bankruptcy petitions in addition to cases already pending. “There are around 100,000 cases in various DRTs. We need to strengthen the tribunals before putting more load. Existing cases have to be disposed in a timely fashion,” the official said.

While insolvency cases pertain to companies and are dealt with by the National Company Law Tribunal (NCLT), bankruptcy cases involve individuals, proprietorship firms and corporate guarantors, and are to be handled by the DRTs.

A draft of the bankruptcy rules has been submitted to a working group now dealing with the subject. The group had recommended the minimum threshold for bankruptcy be ~100,000. Bankruptcy provisions now are dealt in the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920. These Acts will be repealed once the new provisions are notified. Another official said the committee was evaluating whether the country needed cross-border insolvency provisions.

“We need to set up e-courts. The challenge is to determine which of the NCLT benches should have e-courts. Only if India benefits significantly, would this part of the code be notified,” the official said. A cross-border insolvency framework is a reciprocal arrangement between two governments having similar codes. It provides a mechanism to liquidate or recover from the foreign assets of Indian companies undergoing insolvency or vice versa.

If these provisions come into effect, these will be on the lines of the United Nations Commission on International Law. Several of the 12 big companies undergoing insolvency resolution have foreign assets and creditors.