Bankruptcy Law Reform

How does the Indian legal system deal with business failure? An effective legal framework for insolvency that gives both entrepreneurs and creditors confidence that the path for exit is predictable and relatively quick is essential to spur entrepreneurship, develop stronger credit markets and, in general, ease the cost of doing business in India. In August 2014, the Ministry of Finance constituted the Bankruptcy Law Reform Committee (BLRC) headed by T.K. Viswanathan to look into reform in this area. The BLRC recently submitted its report on the recommendations for insolvency and bankruptcy law reform together with a draft insolvency and bankruptcy bill. The draft bill envisages a unified insolvency and bankruptcy bill for both firms and individuals and proposes a new institutional architecture for insolvency resolution. This includes the establishment of a regulator, an industry of insolvency professionals and the creation of systems known as information utilities designed to provide timely and accurate information on defaults.

Here are links to the BLRC’s report and draft bill as well as research papers and commentaries by members of the BLRC and others working on these issues.

Aparna Ravi draws on an analysis of insolvency related cases in the High Courts and Debt Recovery Tribunals to identify the bottlenecks in the existing legal framework and the major causes of delay in resolving insolvency for firms. Her analysis suggests that the fragmented legal framework which includes different laws for different actors and different legal fora for resolving them has been a major contributing factor to the uncertainties and delays that plague insolvency related proceedings today.

Rajeswari Sengupta looks into how the proposed law will improve India’s Ease of Doing Business rankings and also warns of the dangers of undue focus on rankings instead of developing a strong and well implemented law in practice.

Susan Thomas discusses the key characteristics of the proposed law and how these would lead to a linear and predictable insolvency resolution process. She also emphasises the need for strong enabling infrastructure – regulator, insolvency professionals, information utilities and the tribunal – to ensure that the law is well implemented.