The Union Budget 2022 has met some expectations and has left certain questions unanswered. One such question that is yet to be worked on is the possibility of a further amendment to the Insolvency and Bankruptcy Code. According to the disclosure about the intention to make the IBC more effective, the finance minister has indicated possible changes in three areas, namely—the adoption of UNCITRAL Model Law on Cross-Border Insolvency, voluntary winding up of companies under the IBC and certain amendments relating to avoidance transactions. The disclosure had also emphasised the role played by information utilities in the debt resolution of companies.
These three areas where amendments have been proposed will play a critical role at least in the speedy redressal of a struggling company. There are some important considerations that should be borne in mind because the IBC already has gone through a series of amendments. Therefore it is only prudent to make amendments as efficiently as possible. For instance, the UNCITRAL Model Law is widely accepted across jurisdictions, but it is very much possible to make provisions-wise exceptions to the same. It should be assumed that once adopted, it will be extensively used and will have wide-ranging and serious implications. Take, for example, the public policy article in the Model Law. It states that ‘Nothing in this Law prevents the court from refusing to take an action governed by this Law if the action would be manifestly contrary to the public policy of this State’. Courts have repeatedly interpreted this as a narrow exception because of the usage of the word ‘manifestly’. This means only the most fundamental national policies would be able to interfere with the enforcement of any judgment made by a foreign court. However, countries such as Singapore that do want their domestic policy to prevail in most cases drop the word manifestly from this article. India does value its domestic public policy, therefore the adoption of the Model Law on an as-is basis would not yield the desired result. Another area that should be looked at is the definition of the Centre of Main Interests (COMI) of the business undertaking because complex issues with regard to main insolvency proceedings, non-main insolvency proceedings, shifting/temporary COMI may also arise. This is essential because then the confusion faced by the adjudicating authority while deciding cases such as the resolution of Jet Airways with regard to the assets and the foreign administrator could have been avoided.
Voluntary winding-up was dealt with under the Companies Act, 2013, Section 304, Chapter XX, Part II. Now it is proposed to be covered under the IBC to have a speedy remedy before the dissolution of companies. Hopefully the procedure for the same will also be efficient. Avoidance transactions have recently gained traction since the inception of the proceedings being instituted under the IBC. But there was a lot of debate regarding the technicalities of the same such as the lookback period and counting. Therefore, further clarity is much needed at this point. Reference might be taken from the procedures in developed countries like the United Kingdom that have extensive laws and commentaries on the same.
The unique commercial setup in India should also be taken into consideration before passing any amendments. Different economies are at various stages of development and we should also consider the pandemic’s differential impact on the many sectors. For instance, the MSME sector has played a key role in the development of the Indian economy. So no amendment should be passed without taking into consideration the impact of the changes on this sector, especially considering Covid and its effect on the industry. Only after a careful consideration of various regulations and model laws in many countries should the one best suited for India be taken forward.
The statements with regard to the proposed amendments during the Budget speech are promising because we have seen that the government is attempting a lot of endeavours in the development of very stable and strong laws with regard to insolvency and bankruptcy of distressed companies. This is evident from the fact that it has enacted back-to-back amendments such as the pre-packaged resolution process, and that problems with respect to prolonged timelines have not been lost sight of.
Kavya Lalchandani
(lalchandani.kavya@gmail.com)
A legal scholar based out of UK