Bankruptcy rules for individuals may be delayed due to workload of DRTs

Bankruptcy rules for individuals may be delayed
Bankruptcy provisions for individuals and proprietorship firms, among others, under the Insolvency and Bankruptcy Code (IBC), are unlikely to be put into effect anytime soon due to a heavy workload on debt recovery tribunals (DRTs). Also, the notification of the rules on cross-border insolvency could be delayed further in the absence of e-courts, according to official sources.

The government planned to notify the bankruptcy provisions last year itself.

Among the issues being examined by a high-power committee on the IBC is whether or not to notify the bankruptcy and cross-border insolvency regulations.

A senior official of the Ministry of Corporate Affairs told Business Standard the crucial issue was how DRTs would manage the load of bankruptcy petitions in addition to the cases already pending with it. “There are around 100,000 cases in various DRTs. We need to strengthen the tribunals before putting more load on them. The existing cases have to be disposed of timely,” the official said.

There was a need to strengthen DRTs before the proposed bankruptcy provisions could be notified, he added. 

While insolvency cases pertain to companies and are dealt with by the National Company Law Tribnual (NCLT), bankruptcy cases involve individuals, proprietorship firms and corporate guarantors and will be handled by DRTs. 

A draft of the bankruptcy rules has already been submitted to a working group dealing with the subject. The working group had recommended that the minimum threshold for cases to come under bankruptcy should be Rs 100,000. 

Currently, bankruptcy provisions come under the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920. These Acts will be repealed once new provisions are notified.

Another official said the committee was also evaluating whether the country needed the cross-border insolvency provisions. “We need to set up e-courts. The challenge for us would be to determine which of the NCLT benches should have e-courts. Only if India will benefit significantly, this part of the code will be notified,” the official said. 

A cross-border insolvency framework is a reciprocal arrangement between two governments having similar insolvency codes. It provides a mechanism to liquidate or recover from foreign assets of Indian companies undergoing insolvency or vice versa. 

If the cross-border insolvency provisions come into effect, these will be on the lines of the United Nations Commission of International Law model. Several of the big 12 companies undergoing resolution have foreign assets and creditors.

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