Rules for individual bankruptcy might take still longer to come.
A key official involved in framing it, says: “While insolvency provisions for companies would not create a direct social impact, individual bankruptcy provisions will directly have social fallouts.”
The Insolvency and Bankruptcy Code (IBC) is in force since 2016 for corporate entities. The government has also issued a draft set of rules for cross-border insolvency. Norms for corporate guarantors, proprietorship and partnership firms are likely soon. Officials say bankruptcy is still seen in India in a derogatory sense and could affect families. Hence the caution in finalising rules for individual insolvency.
Once all the rules are notified, the existing Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920, would be replaced. Petitions were filed before high courts that all matters dealt with by these laws be governed by the IBC. To which the government clarified that Section 243 of the Code which provides for repeal of the earlier enactments had not been notified till date. Also noting that provisions related to bankruptcy for individuals were yet to be notified. Hence, it was advised that stakeholders approach the appropriate authority under the existing enactments, instead of going to debt recovery tribunals. Before notifying the bankruptcy provisions, the government also wants to strengthen the DRTs, which had 85,730 pending cases as on end-November 2017. As many as 20,048 new cases were filed with DRTs between April and November 2017.
The government had set a committee to consider rules for individual bankruptcy. The panel recommended that low-level defaulters could be exempt from being subject to a committee of creditors, unlike in corporate insolvency. The minimum threshold for filing of bankruptcy was suggested at Rs 100,000.
Cross-border insolvency rules are needed to be able to access the foreign assets of companies, via agreements with other jurisdictions.
Under the IBC, a little more than 700 cases of corporate insolvency have been filed at various National Company Law Tribunal (NCLT) benches. The Code came to much limelight after the Reserve Bank of India directed banks to take a specified list of cases to the NCLT.