Litmus tests passed by IBC continues to create greater Strikes

Unable to close many insolvency cases successfully in 270 days has resulted in passing many Litmus tests by IBC. This has created a symbol of the dark storm and greater strikes over the Insolvency and Bankruptcy Code (IBC).

Several causes are involved behind the missing of timelines according to the drafted IBC legislation report. Gaps were identified, resulting in operationalization in December 2016, motivating stakeholders to approach the National Company Law Tribunal (NCLT) frequently to seek clarifications.

A dozen of NPAs that comprises of 25%, were pushed into IBC by RBI at the budding stage of the law. The stakes were high in these cases as they apprehended the mindscape of the economy. However, the success of IBC was not to be measured only from the outcome of these 12 cases.

Nevertheless the odds, IBC has proceeded leaps and bounds. In two years period, over 14,000 cases have been filed, of which the NCLT ordered commencing of resolution process in 1,858 cases, 91 were withdrawn, 152 were closed on appeal. Also, under section 12A, 378 resulted in liquidation and 94 yielded resolutions. Till the end of March 31, 2019, 1,143 cases were undergoing resolution process.

Considering the notable slow pace of cases in Pre-IBC regime, the progress resulted to be a sprint in 27 months made by IBC. In 2014, India ranked at 134 number from a total of 189 countries in ‘closing a business index’, which raised with many notches up to 108 after IBC.

Analyzing the complete prism of failed timelines IBC from the prism of failed timelines as an instance of a few initial cases gives a narrow view of Law. A good insolvency law allows market participants to perfectly manage & control corporate failure, default risks, and boost sound credit practice. It improves access to credit by reducing its cost. In fact, exit law indorses responsible corporate behavior by promising higher standards of financial discipline and corporate governance to avoid the outcome of insolvency.

With the outline of IBC, the defaulter’s paradise is lost and a behavioral change can be seen amongst borrowers. Default is now taken seriously and debtors are cuffing out money to clear their dues. Setting a 180-day timeline is enormously aspirational and commendable. However, IBC has passed many litmus tests which might make the situation crucial with greater strides.