Bankruptcy Code is good news for investors in India

One of the biggest predicaments facing the banking and finance market in India in the past few years has been the alarming levels of increase in non-performing assets. While the spurt in stressed assets has largely been a result of a slowdown in the economy, financial indiscipline has also been incentivized by factors including multiplicity of laws, protection against legal action by virtue of the regime under the Sick Industrial Companies (Special Provisions) Act, 1985, and indefinite delays in recovery proceedings.

To tackle these issues, the Government of India has been working towards a simplified regime on insolvency resolution that can ease the burden on courts, as well as speed up the recovery process and boost the lending market. With this objective in mind, the Insolvency and Bankruptcy Code, 2016 was approved by the parliament on 28 May 2016. The code was notified in stages and has amended and repealed several other pieces of legislation that were overlapping in nature.

With India ranked at 136 on the World Bank’s ease of resolving insolvency index, the code is a timely and comprehensive piece of legislation consolidating the laws relating to insolvency, reorganization and liquidation/ bankruptcy of all classes of legal persons under one umbrella, pertaining not just to companies and limited liability partnerships but also to individuals and partnerships.

KUMAR SAURABH SINGH is a partner and DHWANI SHAH is an associate at Khaitan & Co’s Mumbai office