Legal infrastructure key for success of bankruptcy law

Legal infrastructure key for success of bankruptcy law

Even as the Bankruptcy Bill, India’s own Chapter Eleven, has been approved by both Houses of the Parliament, it is still early for banks to hope for a faster settlement of the bad-loan mess, since supporting infrastructure will be key to the implementation of the new legislation.

The Insolvency and Bankruptcy Code 2016 will be a historic banking reform once the President gives his assent for the code to become law, but various enabling supports are vital for its success, according to bank officials and legal experts. The new law is expected to address such issues of company failures and debt, protecting interests of all stakeholders and enable banks and financial institutions to clean bad loans worth over ` 7 lakh crore.

“The challenge is in the implementation,” said Kumar Saurabh Singh, a partner with legal firm Khaitan & Company. “It is a mammoth task in terms of creating multiple utilities needing legislative acts, with a stronger legal infrastructure. If over three years we can upgrade our justice delivery system, staff insolvency resolution professionals and ensure liquidators follow the strict time processes, only then will this Bill resolve problems.”

India is notorious for the lengthy time taken in resolving litigations, unlike other countries. In fact, the recovery time in jurisdictions of advanced countries, such as, the US, UK and Singapore, is one-fifth of that of India. This has discouraged new investors, and the learning from the SARFEASI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act and debt recovery tribunals (DRTs) hasn’t also been much.

In the now infamous case of Vijay Mallya-promoted Kingfisher Airlines, the SBI-led consortium of 17 banks are fighting over 20 cases in courts. There have been more than 500 hearings and 180 adjournments so far since the airline was shut down in 2012.

Former SBI deputy managing director PK Malhotra, who handled stressed assets management, said: “Bankruptcy Code requires an elaborate institutional set-up to work. DRTs have been abused and there is no platform for banks to complain…there are many roadblocks to possession of borrowers’ assets. We have seen over 100 adjournments in some cases.

There will be lot more teeth in resolution mechanisms after the Bankruptcy Code comes into force,” Bank of Baroda MD and CEO PS Jayakumar said.

Hindustan Times New Delhi,17th May 2016