Govern­ment ex­pands scope of in­sol­vency reg­u­la­tions to in­clude in­di­vid­ual busi­nesses

Mint Asia ST - - News - B Y KO MAL G UP TA & P RIYANKA M I T TA L


govern­ment on Tues­day, 10 Oc­to­ber, ex­panded the scope of the new in­sol­vency rules to bring in­di­vid­ual busi­nesses un­der its purview.

On Tues­day, the In­sol­vency and Bankruptcy Board of In­dia (IBBI) pub­lished the draft rules deal­ing with in­sol­vency res­o­lu­tion process of in­di­vid­u­als and firms on its web­site (; pub­lic com­ments can be sub­mit­ted till 31 Oc­to­ber.

Once no­ti­fied, even in­di­vid­ual busi­nesses such as pro­pri­etor­ships will come un­der the bankruptcy regime. This will en­able an or­derly bankruptcy res­o­lu­tion within the purview of a trans­par­ent rules-based regime. Cur­rently, the ex­ist­ing code ap­plies only to cor­po­rate de­fault­ers.

“Th­ese rules shall ap­ply to mat­ters re­lat­ing to the in­sol­vency res­o­lu­tion process for in­di­vid­u­als and firms un­der Part III of the code,” said the draft rules is­sued by IBBI.

Part III of the In­sol­vency and Bankruptcy Code, 2016, deals with in­sol­vency and bankruptcy of in­di­vid­u­als and part­ner­ship firms.

Ac­cord­ing to a state­ment is­sued by IBBI on Tues­day, the draft rules and reg­u­la­tions have been sub­mit­ted by a work­ing group which was formed to rec­om­mend the strat­egy and ap­proach for im­ple­men­ta­tion of the pro­vi­sions of the In­sol­vency and Bankruptcy Code, 2016, deal­ing with in­sol­vency and bankruptcy in re­spect of guar­an­tors to cor­po­rate debtors, i.e., per­sonal guar­an­tors, and in­di­vid­u­als hav­ing busi­nesses.

“So far, the rules were only in re­spect of the Cor­po­rate In­sol­vency Res­o­lu­tion Process (CIRP) and the rules con­cern­ing in­di­vid­u­als and part­ner­ship firms were yet to come,” said Satwinder Singh, part­ner at Vaish As­so­ci­ates, a law firm. “The ju­ris­dic­tion for cor­po­rate, com­pa­nies, lim­ited li­a­bil­ity part­ner­ship (Llp) lies be­fore the Na­tional Com­pany Law Tri­bunal (NCLT) and with the Debt Re­cov­ery Tri­bunal (DRT) for in­di­vid­u­als and firms. The pro­vi­sions re­lat­ing to in­sol­vency and bankruptcy of in­di­vid­u­als and firms had not been no­ti­fied ear­lier, so now the IBBI has come out with the draft rules.”

Harsh Pais, part­ner at law firm Tri­le­gal, said, “It is a pos­i­tive step to­wards con­sol­i­dat­ing the bankruptcy regime for in­di­vid­u­als, for whom there was no sys­tem­atic ap­proach pre­vi­ously. For com­pa­nies, at least there was re­course to the Com­pa­nies Act, whereas for in­di­vid­u­als there were only some ar­chaic laws from the early 1900s, which were hardly re­lied upon in prac­tice.”

Most of the small and medium en­ter­prises (SMES) take the le­gal form of ei­ther part­ner­ship or pro­pri­etor­ship firms. Though the loans are smaller in value, SME bor­row­ers far out­num­ber com­pa­nies, re­sult­ing in their bor­row­ings ex­ert­ing a sig­nif­i­cant in­flu­ence in the fi­nan­cial sec­tor’s sta­bil­ity.

Bankruptcy res­o­lu­tion is high on the agenda of the cen­tral govern­ment, which is keen to im­prove the ease of do­ing busi­ness in In­dia and at­tract more pri­vate in­vest­ments from do­mes­tic and over­seas sources. An ef­fi­cient exit route from failed projects is an es­sen­tial fac­tor that lenders con­sider be­fore par­tic­i­pat­ing in projects.



Draft rules: In­sol­vency and Bankruptcy Board of In­dia chair­man M.S. Sa­hoo.

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