New Delhi: Describing the Bankruptcy Code as comprehensive and systemic reform, the Finance Ministry on Thursday said the new law will give a big boost to ease of doing business in the country by ensuring a quantum leap for the functioning of the credit market.
The Insolvency and Bankruptcy Code, 2016, which was approved by Parliament on Wednesday, "would take India from among relatively weak insolvency regimes to becoming one of the world's best insolvency regimes", it said in a release.
"History was created on May 11, 2016 when the Rajya Sabha passed the Code. With the passing of this Bill, India has crossed an important milestone in becoming a world-class economy. The Lok Sabha had already passed the Bill on May 5, 2016," it said.
Hitherto, India was lacking the legal and institutional machinery for dealing with debt defaults as per global standards.
Recovery proceedings by creditors either through the Contract Act or special laws such as the Recovery of Debts due to Banks and Financial Institutions Act and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act have not had "desired outcomes".
Economic Affairs Secretary Shaktikanta Das maintained that the government's effort will be to create all structures regarding Bankruptcy Code as "early as possible".
"We are working on framing the rules and regulations and drawing guidelines (regarding bankruptcy code). We are also looking at administrative issues relating to the Bankruptcy Code," he said.
Commenting on the Code, Misha, Partner, Shardul Amarchand Mangaldas & Co said the new law has various positive features, including the fact that it consolidates bankruptcy and insolvency laws for both corporate and individuals within an effective framework for timely resolution.
"However, a major concern in the Code is the provision of handing over of entire management and affairs of the corporate to insolvency professionals during the corporate insolvency process... This would dis-incentivise corporate debtors to voluntarily invoke the insolvency process under the Code," she said.
The vision of the new law, according to the ministry's statement, is to encourage entrepreneurship and innovation.
"It is true that some business ventures will always fail, but such failures will be handled rapidly and swiftly. Entrepreneurs and lenders will be able to move on instead of being bogged down with decisions taken in the past," it said.