India’s Corporate Affairs Regulator Seeks Public Feedback on 7 Regulations Under Insolvency and Bankruptcy Code

Posted by Written by Archana Rao Reading Time: 3 minutes

India’s Ministry of Corporate Affairs has issued a circular inviting public comment on seven regulations associated with the Insolvency and Bankruptcy Code (IBC). Public feedback will be sought for a period of 30 days.

India’s corporate affairs ministry (MCA) has proposed regulatory changes on various aspects of the Insolvency and Bankruptcy Code (IBC), including insolvency proceedings at the National Company Law Tribunal (NCLT), the insolvency and liquidation process for financial service providers (FSPs), the resolution process for personal guarantors, pre-packaged insolvency procedures, and the format of annual reports.

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Only selected stakeholders have been invited to submit responses with respect to framing and reviewing the rules and regulations of the IBC, issued under legislation administered by the MCA. The stakeholders will have 30 days to provide their input on the proposed changes.

For providing comments, the MCA has prescribed the below process:
“a. Visit MCA’s website, www.mca.gov.in; E-consultation Tab
b. Select “Public Comments”;
c. From the drop-down menu, select “comments on Rules”;
d. Provide your Name, and Email ID;
e. Select the stakeholder category.”

READ: India’s Corporate Governance Reforms in 2023

IBC rules and regulations under review

The MCA is seeking revisions to the IBBI’s regulations concerning the annual report, the annual statement of accounts, and the application to the adjudicating authority. This initiative aligns with their latest policy revision, unveiled in January, advocating for comprehensive assessments of various existing laws alongside pre-legislative discussions.

The specific stakeholders invited to submit comments on the review of the rules prescribed under the Insolvency and Bankruptcy Code, 2016 are stated below:

  • Corporate Debtor
  • Creditor to a Corporate Debtor
  • Insolvency Professional
  • Insolvency Professional Agency
  • Insolvency Professional Entity
  • Personal Guarantor to a Corporate Debtor
  • Proprietorship firms
  • Partnership firms
  • Academics
  • Investors
  • Others

Current insolvency rules and regulations under review are:

  1. The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
  2. The IBBI (Form of Annual Statement of Accounts) Rules, 2018
  3. The IBBI (Annual Report) Rules, 2018
  4. The Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019
  5. The Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019
  6. The Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantor to Corporate Debtor) Rules, 2019
  7. The Insolvency and Bankruptcy (Pre-packaged Insolvency Resolution Process) Rules, 2021

The call for public participation can be viewed as India’s broader effort to streamline regulatory processes and reduce compliance costs. Ahead of the interim budget in 2024, Finance and Corporate Affairs Minister Nirmala Sitharaman emphasized the need for financial sector regulators to review existing regulations based on inputs from the public and regulated entities.

Regulatory amendments under the IBC can be accessed here: Insolvency and Bankruptcy Board of India (ibbi.gov.in)

Establishing a robust framework for corporate governance

India is working toward establishing a strong corporate governance framework to facilitate business operations and improve compliance. The need to streamline compliance, bureaucracy, and adjudication procedures is crucial.

The Insolvency and Bankruptcy Code, 2016 was launched to provide a time-bound, market mechanism for reorganization and insolvency resolution of persons (companies, limited liability partnerships, partnership and proprietorship firms, and individuals) in financial distress.

During the pandemic period, the IBBI considered it expedient to provide an efficient alternative insolvency resolution process under the IBC Code for corporate MSMEs that would result in quicker, cost-effective, and value-maximizing outcomes for all stakeholders in a manner that is least disruptive to their business continuity.

The Pre-packaged Insolvency Resolution Process (PPIRP) has been made available for corporate MSMEs. For resolving stress where the default is at least INR 1o million (US$119,792), the Corporate Insolvency Resolution Process (CIRP) is available.

The current PPIRP scheme for MSMEs allows only the debtor to trigger its own bankruptcy process, subject to the approval of financial creditors having at least 66 percent of voting power.

The latest IBC review also includes adjustments in thresholds for different categories of companies regarding mandatory governance and compliance obligations. Legal pronouncements from various judicial bodies and ongoing technological advancements worldwide have influenced the review process.

To enhance efficiency within the insolvency and bankruptcy regulatory ecosystem, the MCA has proposed to introduce an electronic platform that would streamline tasks, such as case management, automated filings, notice delivery, and record storage for the institutions involved.

Outlook

Industry insiders suggest that the PPIRP scheme‘s long procedures and associated costs have limited the scope of benefits for MSMEs. On the other hand, bankruptcy experts hope that large enterprises that have the financial capacity to bear the expenses of drawn-out procedures will be added to the PPIRP scheme.

(US$1 = INR83.48)

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