One of the key proposals is the introduction

In a significant address at the annual meeting of the Insolvency and Bankruptcy Board of India (IBBI), Amitabh Kant, the former CEO of NITI Aayog and G20 Sherpa, made a compelling case for reforming India’s insolvency proceedings. He proposed that the management of court processes for insolvency cases be outsourced to private entities, aiming to reduce the delays currently plaguing the system. Kant’s insights underscore the need for a comprehensive review of the Insolvency and Bankruptcy Code (IBC) and suggest innovative solutions to enhance creditor recovery.

The Current State of Insolvency Proceedings

Kant’s remarks came amidst growing concerns about the efficiency of the IBC. Recent data from the IBBI highlighted alarming trends in insolvency resolution times. In the fiscal year 2024, the average duration for insolvency resolutions at the National Company Law Tribunal (NCLT) extended to 716 days, an increase from 654 days the previous year. More troubling is the time taken for admitting cases, which rose from 468 days in FY21 to 650 days in FY22.

Kant pointed out that these delays have a direct negative impact on creditor recoveries. The recovery rate for creditors has significantly declined, dropping from 36% in FY23 to just 27% in FY24. This stark statistic highlights the urgent need for reforms to ensure that creditors can recover their dues in a timely manner.

A Call for Private Sector Involvement

To address these challenges, Kant proposed that the management of insolvency court processes be outsourced to private players, similar to the successful model used in the operation of Passport Seva Kendras by Tata Consultancy Services. By minimizing judicial bandwidth on administrative matters, this approach could lead to faster resolution times and improved outcomes for creditors.

Kant emphasized that private management could streamline processes, allowing judges and legal professionals to focus on substantive legal issues rather than administrative hurdles. This shift could lead to a more efficient and responsive insolvency framework, ultimately benefiting all stakeholders involved.

The Need for Second Generation Reforms

Kant also called for a “second generation” of reforms to strengthen the IBC. He noted that while the initial implementation of the IBC was a crucial step in addressing corporate insolvency, there remains significant room for improvement. The proposed amendments to the IBC are aimed at clarifying legal principles and enhancing the framework’s effectiveness.

One of the key proposals is the introduction of a cross-border insolvency framework. As Indian companies increasingly participate in global value chains, it is imperative to establish a robust mechanism for handling insolvency cases that span multiple jurisdictions. This framework would facilitate smoother resolutions for companies operating internationally, ensuring that creditor rights are protected across borders.

Conclusion

Amitabh Kant’s recommendations at the IBBI annual meeting highlight the critical need for reform in India’s insolvency management. By considering the outsourcing of court management to private players and implementing a cross-border insolvency framework, India can enhance its insolvency processes, reduce delays, and improve creditor recovery rates. As the government contemplates these proposed amendments to the IBC, stakeholders in the business and legal communities must engage in a constructive dialogue to ensure the reforms are effective and beneficial for all parties involved.