The Parliament\u2019s Standing Committee on Finance has sought a review of the design and implementation of the Insolvency and Bankruptcy Code (IBC) as it has deviated from the original intent and questioned the low recovery rates, long delays in the resolution process and the high number of vacancies in the National Company Law Tribunals (NCLTs).<\/p>\n
The panel, chaired by MP Jayant Sinha, stressed that the low recovery rates under the IBC \u2018with haircuts as much as 95% and the delay in resolution process with more than 71% cases pending with NCLT for more than 180 days, clearly point towards a deviation from the original objectives of the Code intended by Parliament\u2019.<\/p>\n
In a report tabled on Tuesday on the \u2018Implementation of IBC \u2014 pitfalls and solutions\u2019, the Committee noted that the Code has undergone six amendments since its introduction in 2016, but the operationalisation of these changes \u2018may have altered or even digressed from the basic design of the statute\u2019.<\/p>\n
Calling for a thorough evaluation of the extent of fulfilment of the Code\u2019s original aims, the panel said the fundamental aim of the statute was to secure creditor rights so as to reduce borrowing costs with the reduction of risks.<\/p>\n
\u201cGreater clarity in purpose is needed with regard to strengthening creditor rights through the mechanism devised in the Code, particularly considering the disproportionately large and unsustainable \u2018haircuts\u2019 taken by the financial creditors over the years,\u201d it observed, suggesting a benchmark be put in place for the quantum of such \u201chaircuts\u201d to be taken by creditors, in line with global standards.<\/p>\n
While the Corporate Affairs Ministry responded by saying that \u2018the commercial wisdom of the Committee of Creditors (COC) is supreme\u2019 in IBC cases, the Committee said there was an \u2018urgent need to have a professional code of conduct for the COC\u2019 to define and circumscribe their decisions.<\/p>\n
Expressing apprehensions over fresh graduates being appointed as Insolvency Resolution Professionals (RPs), the committee said it is doubtful about their competency in handling cases of huge and complex corporations and flagged \u2018numerous conduct issues\u2019 in their functioning. Disciplinary action has been taken in the case of 123 RPs out of 203 inspections conducted so far, it pointed out. <\/p>\n
On the functioning of NCLTs, the adjudicating authority under the IBC, the Committee said their tardy admission of cases and approvals of resolution plans were the main reasons for delays in insolvency resolution. Expressing \u2018deep concern\u2019 about the NCLT currently functioning without a regular President and 34 members short of its sanctioned strength of 62, the panel said this issue has plagued the tribunal for years and the vacancies must be filled \u2018without any further delay\u2019. <\/p>\n
Responding to these concerns, the Secretary, Corporate Affairs Ministry said that active steps were being taken to fill the more than 50% vacancies, which was attributed to \u2018a lot of retirements\u2019 happening in May and June this year. \u201cIn the National Company Law Appellate Tribunal, against the sanctioned Bench strength, we have vacancy of Chairperson and two Members only,\u201d the Secretary said. The NCLAT has two benches with an approved strength of a chairperson and 11 members.<\/p>\n