THE ROLE OF INSOLVENCY BANKRUPTCY CODE, 2016 IN BOOSTING THE DOING BUSINESS RANKING OF INDIA PUBLISHED BY THE WORLD BANK. BY - MEGHNA BUCHASIA
THE ROLE OF INSOLVENCY BANKRUPTCY
CODE, 2016 IN BOOSTING THE DOING BUSINESS RANKING OF INDIA PUBLISHED BY THE
WORLD BANK.
AUTHORED BY - MEGHNA BUCHASIA
ABSTRACT
The World Bank is a global financial
organization that offers zero-interest loans to nations in the process of
development. Apart from that it supports various other issues by
investing in projects such as alienating poverty, development of agriculture,
private sector, and environmental changes. It also draws and publishes various
reports for the knowledge and improvement of the countries' economies. One such
report is Doing Business where 190 countries of the world are ranked by
analyzing the business environment strengths and economic performance based on
twelve indicating areas. This aids not only in comparing the various economies
of the world with each other but also provides insight to them individually
about the regulatory performances of their economy.
The scores for individual indicators
depict how far each economy is from achieving optimal regulatory performance. Scoring a good rank in such a report becomes essential for any country
because it highlights the economic health and performance on a worldwide
platform. It indicates whether the environment of the country is apt for doing
business and investing. India has seen an enlarged improvement in its ranking
in this report. It recorded a 63rd rank in the year 2021 that has been the
highest from all the other years where it has improved “by 53 positions in the
last two years and 65 positions in the last four years.”[1] The significant improvement can be
attributed to the adoption of the Insolvency and Bankruptcy Code, 2016, which
has established a robust framework for handling insolvency and bankruptcy cases
involving individuals, corporations, and businesses.
For this dissertation, I intend to cover the
importance of the Doing Business Rankings for the upliftment of the world
economies and assert the fact that it can help developing countries to come to
par with the developed countries if the focus is drawn on the lacunas. Further,
I would draw an analysis of the ranks of India in the different years, specific
focus on the data before and after 2016. It shall highlight the improvement of
the business environment that was brought about by the enactment of the
Insolvency and Bankruptcy Code, 2016. It intrinsically takes on all those
provisions of the Code that have eased the process of doing business. It shall
not only cover the importance of the code but also identify the lacunae in the
code that can be rectified for better performance. The successes and failures
that it brought to India shall be mentioned and finally, I shall provide
recommendations that can advance and upgrade the business environment with the
help of the code in India.
KEYWORDS: Doing Business Ranking, Insolvency and Bankruptcy
Code, 2016, World Bank, India, Business.
1.
INTRODUCTION
In this globalized world, every
country thrives on the competition in the market by delivering the best
products and services to the consumers including satisfying cross-border
demands. One of the most important features of being able to survive in this rugged
market is to create such an environment in their national economy that not only
the national companies’ lodges there but also attracts international players to
set up their businesses. To enable such an economy, one needs to provide a
healthy platform that captivates the enterprises. One such healthy incentive is
the ease of doing business in an economy. ‘Ease
of doing business’ means the ability to work in an economy effortlessly and
positively without much interference, regulations, and restrictions. Having
said that, it is crucial to develop a healthy environment through an economy
because:
·
Access to economic opportunity: More products and services in the
market shall bring with it more economic opportunities such as minimum
transaction costs, opportunity costs, contract options, viable gains,
incentives, etc;
·
Diversification of the market: Products and services from all over
the world shall expand the market size and innovation that shall provide a
diversified course of action to undertake;
·
Attracts investments: The wealth creation of an economy
can expand by easing the business environment as more international enterprises
would prefer such an economy to start their pursuit. An economy with trade
barriers retracts business enterprises;
·
Exchange of cultural ideas at a macro
and micro level:
Cultural ethnicity reaches from the macro level ie from the international
habitat to the micro level ie the lowest markets of other national economies;
and
·
Increases the entrepreneurship
climate: The
competition from the international players motivates national entrepreneurs to
compete and come up with innovative and better products.
The importance of creating ease of
doing business environment does not stop with the above-mentioned pointers. It
is a long list of creation of new supply and demand, a decrease of corruption
level, removal of middlemen, increase in consumer protection, upliftment of the
national economy, decrease in taxes, etc. Therefore, ease of doing business
regulations builds an efficient, coherent, and productive market where all the
market players wish to survive and contribute.
In 2016, India embarked on a
transformative journey by enacting the Insolvency and Bankruptcy Code (IBC), a
landmark legislation aimed at addressing long-standing issues related to
insolvency and bankruptcy. This ambitious legal framework marked a pivotal
moment in the country's efforts to improve its business climate and enhance the
ease of doing business.
The IBC sought to revolutionize the
insolvency landscape in India by introducing a modern and efficient insolvency
resolution process, making it easier for creditors to recover their dues and
for businesses to restructure and recover from financial distress. Its
enactment promised to streamline the often complex and protracted insolvency
proceedings that had plagued India's business environment for decades. India's
performance in this global assessment was closely scrutinized, and the IBC's
impact on its ranking became a subject of significant interest.
1.1.
WHAT IS DOING BUSINESS RANKING BY THE WORLD BANK?
The World
Bank publishes the Doing Business Ranking Index every year since 2005 for 190 countries.
It was discontinued in the year 2021. But it has left a crucial impact on the
major economies of the world. Basically, the Index evaluates the ramifications
of the economic policies implemented by the government for their national
economy to either promote or obstruct business growth. The report is published
after the evaluation of all the countries under the following 12 parameters of
the life of a business:
1. “Ease of
starting a business;
2. Dealing
with construction permits;
3. Getting
electricity;
4. Registering
property;
5. Getting
credit;
6. Protecting
minority investors;
7. Paying
taxes;
8. Trading
across borders;
9. Enforcing
contracts;
10. Resolving
insolvency;
11. Employing
workers; and
12. Contracting
with the government.”[2]
The scores for each of these
parameters are determined by considering various associated factors such as
“time and cost”[3], which
can either facilitate or hinder business activities.[4] It
is expressed on a scale ranging from 0 to 100, with a score of 100 indicating
the highest level of performance.[5] The
rankings are established by arranging the combined scores of 12 parameters, and
economies are positioned in terms of their “ease of doing business”[6] on
a scale from 1 to 190, with 1 signifying a favourable regulatory environment
that greatly facilitates doing business.[7]
The rankings and scores have an inverse relationship, with the country holding
the first rank regarded as the top-performing economy for conducting business
“(The World Bank Group, 2020).”[8]
It's worth noting that the Doing
Business ranking faced heavy criticism and controversy over the years,
particularly regarding the accuracy of its measurements and the potential for
countries to manipulate their rankings through policy changes designed solely
to improve their scores. In response to these concerns, the World Bank
temporarily suspended the publication of the report in 2021 and initiated an
independent review of its methodology and data.
1.2.
WHAT IS THE INSOLVENCY AND BANKRUPTCY CODE, 2016?
Before the implementation of the
Insolvency and Bankruptcy Code, 2016 (hereinafter IBC, 2016) this arena was
dealt with by various other Acts such as “The Sick Industrial Companies (Special Provisions) Act, 1985;
The Companies Second Amendment Act, 2002; The Recovery of Debts due to Banks
and Financial Institutions Act, 1993, etc.”[9]
The IBC, 2016 became “the umbrella legislation for insolvency resolution
of all entities in India—both corporate and individuals.”[10]
It has unified the provisions related to stressed assets and has put the
creditors in an advantageous position to smoothly conduct the entire recovery
process. It aimed to create a more transparent, time-bound, and
creditor-friendly system that would encourage entrepreneurship, enhance the
ease of doing business, and promote economic growth by efficiently resolving
distressed businesses and managing insolvency cases. Since its enactment, the
IBC has played a crucial role in improving India's business environment and
resolving complex insolvency issues.
CHAPTER OVERVIEW
The dissertation is divided into four
parts. The first part titled ‘Analysis of the Rankings of India’ throws light
on the different ranks that India has bagged before and after the
implementation of the code ie 2016. It mentions the reasons why the rank rose
over the years. It highlights the initiatives undertaken by the Indian
Government to improve the rankings of India. It shall mention the details of
the report ie what the World Bank says about the performance of India.
The second part titled ‘How the
Insolvency and Bankruptcy Code, 2016 improved the rankings?’ asserts how the
code improved the rankings of India. It mentions in pointers how advantageous
this code has been to the Indian economy. “The Union Minister of Commerce and
Industry, Consumer Affairs and Food and Public Distribution and Textiles, Shri
Piyush Goyal mentioned”[11] “Since
the enactment of IBC, India’s rank in ‘Resolving Insolvency’ indicator in World
Bank’s Ease of Doing Business Report has seen a meteoric rise of 84 places! Our
recovery rate has also dramatically improved from 26 (cents on the dollar) to
71.6 (cents on the dollar).”[12]
The third
part titled ‘Lacunae in the Insolvency and Bankruptcy Code, 2016’ throws light on some of the drawbacks
of the code. It certainly does come with certain disadvantages that can
sometimes be a big log in the functioning of the industries, for example, there
are no voting rights for the insolvent; the waterfall mechanism is given the
least priority; the amendment of the minimum threshold in 2020 has bought
arduous to the defaulters. Apart from this, it shall also cover the challenges
associated with the code.
In the fourth part titled
‘Recommendation’ I have attempted to come up with resourceful recommendations
on how the code can be improved. Creative solutions specifically to the
drawbacks that have been mentioned in Chap IV. It discusses how the business environment
of India can be boosted with the help of other means too like improving trade
policies, improving judiciary delays, promoting start-ups, and providing
funding and incentives.
RESEARCH QUESTIONS
1.
How has the Insolvency and Bankruptcy Code, 2016 improved
the Doing Business Rank of India?
2.
How the Insolvency and Bankruptcy Code, 2016 is
essential for strengthening the Indian business environment?
3. Whether there is any insufficiency in
the Insolvency and Bankruptcy Code, 2016?
2.
ANALYSIS OF THE RANKINGS OF INDIA
India made notable improvements in
its rankings after the implementation of the IBC, which aimed to streamline
business-related processes, including those related to insolvency and
bankruptcy. Prior to the enactment of significant economic reforms and the
introduction of the Insolvency and Bankruptcy Code in 2016, India's ranking was
often relatively low, indicating challenges in its business environment. While
there were improvements, India's ranking has also experienced fluctuations due
to various factors, including changes in methodology, policy reforms, and
global economic conditions.
The
rankings are discontinued from the year 2021, hence, the latest rankings that
are available are of Doing Business 2020 observing the 190 economies in their
2019 performance. The below table provides an overview of India’s performance
in the last 10 years in the 10 parameters of the rankings:
Documenting India's Ten-Year
Evolution in The Doing Business Rankings.
|
PARAMETERS
|
2010
|
2011
|
2012
|
2013
|
2014
|
2015
|
2016
|
2017
|
2018
|
2019
|
|
Ease of starting a business
|
165
|
166
|
173
|
179
|
158
|
155
|
155
|
156
|
137
|
136
|
|
Dealing with construction permits
|
177
|
181
|
182
|
182
|
184
|
183
|
185
|
181
|
52
|
27
|
|
Getting electricity
|
-
|
98
|
105
|
111
|
137
|
70
|
26
|
29
|
24
|
22
|
|
Registering property
|
94
|
97
|
94
|
92
|
121
|
138
|
138
|
154
|
166
|
154
|
|
Getting credit for your business
|
33
|
40
|
23
|
28
|
36
|
42
|
44
|
29
|
22
|
25
|
|
Protecting minority investors
|
44
|
46
|
49
|
34
|
7
|
8
|
13
|
4
|
7
|
13
|
|
Paying taxes
|
164
|
147
|
152
|
158
|
156
|
157
|
172
|
119
|
121
|
115
|
|
Trading across borders
|
100
|
109
|
127
|
132
|
126
|
133
|
143
|
146
|
80
|
68
|
|
Enforcing contracts
|
182
|
182
|
184
|
186
|
186
|
178
|
172
|
164
|
163
|
163
|
|
Resolving insolvency
|
134
|
128
|
116
|
121
|
137
|
136
|
136
|
103
|
108
|
52
|
|
OVERALL RANK
|
134
|
132
|
132
|
134
|
142
|
130
|
130
|
100
|
77
|
63
|
SOURCE: Doing
Business database, World Bank.[13]
From the
above table, it can be very ascertained the major progress undertaken by India
in improving its rank. There are major challenges that the enterprises face in
India in building their business but the improvement in the rank clearly shows
the effort of the Indian government. Some of the hurdles through the year 2010
that India has faced are:
1.
“According
to the National Restaurants Association of India (NRAI), a total of 36
approvals are required to open a restaurant in Bengaluru, Delhi requires 26,
and Mumbai 22.”[14]
“Moreover, Delhi and Kolkata also require a ‘Police Eating House License’.”[15]
The Delhi Police demands a total of 45 documents for obtaining this license,
which is significantly higher than the 19 documents needed for acquiring a new
firearms license and the 12 documents necessary for obtaining a major fireworks
license.[16]
2.
In
contrast to Bangladesh, China, and Vietnam, where over 80 per cent of the
export market value is attributed to large enterprises, India relies on small
enterprises for 80 per cent of its market value. Additionally, while it takes
7-10 days to reach a port in India, countries like China, Bangladesh, and
Vietnam have much shorter transit times, typically less than a day.
Consequently, the Indian supply chain often involves numerous small shipments
that congest already inefficient logistics routes.
3.
Heavy electricity shortages in India, impact the
input choices, production level, and revenue earnings of the manufacturing
plants. The study
reveals that electrical shortages lead to a “6-8% decrease”[17]
in the average plant's revenue, resulting in a “10% decline in producer
surplus”[18], with
approximately half of this reduction attributable to the expenses associated
with backup generators.
4.
There are stringent, restricted, and rigid labour
laws in India that increase the compliance of the firm which in turn increases
the unit labour costs.
5.
In
2013, Ahsan conducted a study utilizing firm-level data in India to explore the
interplay between the promptness of contract enforcement and tariff
liberalization.[19] His
results indicate that the increase in productivity resulting from a reduction
in input tariffs is most pronounced for firms located in economies with highly
efficient court systems.[20] A
cautious approximation indicates that an enhancement of “10% in judicial
quality boosts firm sales by approximately 1% to 2%.1–2%.”[21]
India's rankings in the Doing
Business report have reflected a mix of improvements and challenges in its
business environment. These rankings serve as valuable indicators for
policymakers and businesses, helping to identify areas where reforms are needed
to further enhance the ease of doing business. India's commitment to ongoing
reforms and its ability to address challenges will continue to play a crucial
role in its performance in the Doing Business report and its attractiveness to
investors and entrepreneurs.
The
following initiatives by the Indian Government aided in improving the ranks of
India:
1.
Prime
Minister Narendra Modi's "Make in India" initiative centred on
attracting foreign investments, promoting the private sector, with a specific
emphasis on the manufacturing sector, and improving the overall competitiveness
of the country.[22] The
government utilized the Doing Business indicators to showcase India's
dedication to reform to potential investors and to illustrate tangible
advancements in the country's business environment.[23]
2.
The
“License Raj” Reform in India has come to a halt because of which the small
firms increased in the industry sector with simple and smooth regulations to
follow. This has also resulted in a rise in the productivity level of the economy.
- “The Central Board of Excise and Customs
(CBEC) has implemented the ‘Indian Customs Single Window Project’ to
facilitate trade.”[24]
Importers and
exporters have the option to digitally submit their Customs clearance
documents through a centralized platform.
- “The
Permanent Account Number (PAN), Tax Deduction & Collection Account
Number (TAN), and Director Identification Number (DIN)”[25]
have been consolidated into a unified form called “SPICe”[26]
for the purpose of company incorporation.
- “The
Central Board of Excise and Customs (CBEC) has introduced the 'Indian
Customs Single Window Project' to streamline trade operations.”[27]
Importers and exporters now have the capability to electronically submit
their Customs clearance documents through a centralized platform.
- Initiatives
to improve access to credit for businesses, particularly small and
medium-sized enterprises (SMEs), have been implemented. Credit information
bureaus and collateral registries have been strengthened to facilitate
lending.
- The
implementation of the GST in July 2017 was a significant milestone. It
replaced a complex system of indirect taxes with a unified, nationwide tax
regime. The GST has simplified tax compliance, reduced logistics costs,
and improved the ease of doing business, particularly in the area of
paying taxes.
- The
"Startup India" initiative, launched in 2016, focuses on
fostering a conducive environment for startups. It includes various
incentives, tax benefits, and simplifications in compliance procedures,
making it easier for entrepreneurs to start and operate businesses.
- Simplifying
and digitizing customs procedures, reducing trade barriers, and
implementing the "Single Window Interface for Trade" (SWIFT)
have made it easier to trade across borders.
- Several
states in India have initiated their own reforms to improve the business
environment, leading to competition among states to attract investment.
These initiatives represent a
concerted effort by the Indian government to make the business environment more
attractive, efficient, and competitive. Among all the
initiatives undertaken by the Indian Government, the most significant
initiative has been the enactment of the IBC, 2016. The effect of the code on
the rankings has been explained in detail in the next chapter.
3.
HOW INSOLVENCY
AND BANKRUPTCY CODE, 2016
IMPROVED
THE RANKINGS?
According to the IBC, 2016, it was
introduced to, "consolidate and amend the laws relating to reorganization
and insolvency resolution of corporate persons, partnership firms and
individuals in a time bound manner."[28]
Before this Act, it caused severe distress to the secured creditors to seize
the companies that defaulted. It was a long and tedious process to recover the
debt. In a 2020 report on 'Business Reforms in India,' the Doing Business Index
emphasized that India has taken steps to simplify the process of resolving
insolvency by actively encouraging reorganization proceedings.[29]
Since the introduction of the IBC,
approximately “21,000
cases”[30]
have been submitted to “the National Company Law Tribunal (NCLT), which is the
adjudicating authority under the code.”[31]
“Out of these, 8,500 cases were settled before admission and 1,500 companies
were ordered to be liquidated.”[32]
“The recovery rate has risen from 26.5% in 2018 to 71.6% in 2019.”[33]
Furthermore, there has been an enhancement in the average duration required for
a corporate insolvency resolution process, “decreasing from 4.3 years in 2018
to 1.6 years in 2019.”[34] A
publication by the Reserve Bank of India (RBI) concerning the Insolvency and
Bankruptcy Code and Bank Recapitalization examines the retrieval of
Non-Performing Assets (NPA) and asserts that the recovery rates of banks have
experienced enhancements following the implementation of the IBC.[35]
Through the availability of
reorganization procedures, companies now possess effective instruments for
revitalizing their financial health, and creditors have access to improved
mechanisms for productive negotiation, thereby increasing their likelihood of
recovering the borrowed funds at the conclusion of insolvency proceedings.
Since its enactment, “over 2,000 companies have made use of the new
legislation.”[36] Among
them, “approximately 470 have initiated liquidation proceedings, and over 120
have sanctioned reorganization plans, while the remaining cases are still
awaiting resolution.”[37]
Within India's microfinance sector, lenders have witnessed a “50% decrease in
default rates alongside increased operational efficiencies.”[38]
Hence, here's how the IBC has
contributed to the improvement in India's rankings:
1.
Streamlined Insolvency Resolution
Process: The IBC
introduced a structured and time-bound insolvency resolution process for both
corporate entities and individuals.
2.
Transparency and Predictability: The role of insolvency professionals
and the formation of creditor committees have made the process more organized
and efficient. This transparency is valued by the World Bank when assessing the
business environment.
3.
Cross-Border Insolvency Framework: The IBC incorporates provisions for
dealing with cross-border insolvency cases. It aligns with international best
practices and enhances cooperation and coordination with foreign jurisdictions,
which is viewed favourably by the World Bank.
4.
Reduction in Non-Performing Assets
(NPAs): Before the
IBC, India faced a significant challenge with non-performing assets in the
banking sector. The IBC has provided a mechanism to address NPAs more
efficiently, contributing to a healthier banking sector and improving the
overall business climate.
5.
Improved Recovery Rates: The IBC has improved recovery rates
for creditors. This is a crucial factor in the World Bank's evaluation of the
ease of doing business, as it directly affects the willingness of creditors to
invest in or lend to businesses in India.
Overall, the implementation of the
Insolvency and Bankruptcy Code, 2016, has significantly improved India's
rankings in the "Resolving Insolvency" category of the Doing Business
report.
4.
LACUNAE IN THE
INSOLVENCY AND
BANKRUPTCY
CODE, 2016
The IBC, 2016 being an efficient and
wholesome Act for the stressed asset does lack in certain areas, discussed
below:
1.
One
of the shortfalls of the former insolvency regime was the failure to Harmonize
the Liquidation and Reorganisation process.[39]
2.
Operational
creditors, such as suppliers and service providers, have often expressed
concerns about their treatment under the IBC. Some argue that they should have
more influence in the resolution process, especially when their dues are
substantial.
3.
There
is a certain tendency to favour liquidation under the current IBC regime.[40]
By September 2018, while 80% of the cases admitted ended up in liquidation,
only 20% were successfully resolved.[41]
4.
The
Act provides the utmost control to the creditors in recovering the stressed
asset which could sometimes lead to a crumble of profitable business
enterprises for their benefit.
5.
IBC,
2016 is silent as to the instance of the non-defaulting promoters taking part
in the resolution process.[42]
This remains an area of uncertainty, as highlighted in the “RBL Bank Ltd. v.
MBL Infrastructure Ltd. Case”[43], where the non-defaulting promoters
were ultimately permitted to propose a resolution plan following intervention
by the NCLT.
6.
Valuation
of assets can be a contentious issue in insolvency cases. There is a need for
clearer guidelines on valuation methods to prevent disputes and delays.
7.
There
should be a difference between economically and financially stressed companies
in the IBC, 2016. Economically distressed means "When the present value of
the expected profits of a company is less than the total value of the assets of
the company."[44]
Conversely, when a company is incapable of meeting its debt obligations due to
various factors such as elevated fixed expenses, assets that are difficult to
convert to cash, or revenue streams susceptible to economic downturns, it is
characterized as being in a state of financial distress.[45]
8.
There
can be excessive regulatory overlap between the IBC and other regulatory
bodies, leading to confusion and potential conflicts. Ensuring better
coordination between these entities is necessary.
9.
Homebuyers
who are categorized as financial creditors often face challenges in the
insolvency process. Their interests may not be adequately protected, especially
in cases involving real estate developers.
10.
The
IBC, 2016 brought personal guarantors under its ambit through an amendment in
2019. Clarifications and refinements may be needed in this area to ensure
effective implementation.
It's important to note that
addressing these lacunae requires a careful and balanced approach to maintain
the IBC's objectives of expeditious and efficient insolvency resolution while
protecting the interests of all stakeholders. The government, regulatory
bodies, and legal experts continue to work on refining the IBC to make it a
more robust and effective framework for insolvency and bankruptcy in India. Despite the above challenges that IBC, 2016
has been facing, it has changed the process of insolvency and bought a new era
of dealing with stressed assets.
5.
RECOMMENDATION
The IBC,
2016 has faced its fair share of challenges since its inception. It can be
further improved by the following:
1.
The IBC, 2016 should be made a more debtor-friendly
Act “similar to chapter 11 of the US Code which gives a debtor a chance to file for bankruptcy while
retaining possession of his or her firm.”[46]
2.
To
establish precise guidelines from the Central Vigilance Commission (CVC)
pertaining to the Insolvency and Bankruptcy Code (IBC) that permit more
adaptable decision-making instead of mandating that government-owned banks
adhere strictly to the general CVC principle of engaging solely with the
highest bidder.
3.
To make the IBC, 2016 work effectively, the NCLT’s
(National Company Law Tribunal) needs to be made efficient. Hence, the addition
of more judges to the Tribunal creates additional sources for the resolution of
the defaulted enterprises, etc.
4.
The
central government has “raised the threshold for initiating insolvency
proceedings from Rs. 1 lakh to Rs. 1 crore.”[47]
This change is expected to lead to a decrease in the number of claims that can
be lodged, particularly targeting small businesses. As a result, a greater
proportion of judicial resources can be dedicated to handling cases of higher
value. It's essential to maintain appropriately calibrated thresholds for
initiating insolvency proceedings to ensure that the majority of delinquent
companies are subject to the IBC, 2016, while also avoiding the inclusion of
businesses in insolvency proceedings due to minimal outstanding debts.[48]
5.
Enhance
provisions for dealing with cross-border insolvency cases to ensure better
coordination with foreign jurisdictions. This can involve adopting the UNCITRAL
Model Law on Cross-Border Insolvency.
6.
Ensure
that the IBC remains in harmony with other relevant laws and regulations, such
as taxation laws and environmental regulations, to prevent conflicts and ensure
a smooth resolution process.
7.
The movement towards the Swiss Challenge method in bidding
both in resolution and liquidation.[49]
In alignment with the current RBI guidelines applicable to banks for the sale
of assets, the paper suggests the Swiss Challenge method to be used in
processing competitive bids.[50]
8.
Continuously
improve the quality and professionalism of insolvency professionals through
training, certification, and monitoring mechanisms. This will ensure that they
effectively manage the insolvency resolution process.
9.
Provide
further clarity on the order of priority for distributing assets during
insolvency proceedings (WATERFALL MECHANISM). Ensure that secured creditors,
unsecured creditors, operational creditors, and shareholders understand their
rights and the expected outcomes.
10. Encourage the use of ADR mechanisms
like mediation and arbitration to resolve disputes related to insolvency cases
quickly and cost-effectively.
With the successful and constructive
implementation of the recommendations, the IBC, 2016 can further level up the
process of insolvency and bankruptcy. These recommendations, if implemented
thoughtfully, can help further improve the effectiveness of the IBC, 2016, and
enhance its contribution to India's business environment by facilitating
efficient insolvency resolution and protecting the rights of all stakeholders.
6. CONCLUSION
In 2015, the government aimed to
achieve a position among the top 50 economies in the ease of doing business
ranking by the year 2020. The
government's reform initiatives encompassed all the aspects evaluated by the
Doing Business report, with a particular emphasis on areas such as tax
payments, international trade, and insolvency resolution. The nation has
achieved significant progress, ascending from a “position of 130 in the Doing
Business 2016 report to rank 63 in the Doing Business 2020 report in terms of
ease of doing business.”[51]
This tremendous progress that India achieved is quite commendable.
The ease of conducting business has a
pivotal role in fostering economic growth in the region, as it affects not only
foreign direct investments but also the operations of local businesses. The
procedures, rules, and regulations established by governments can either create
a business-friendly environment or hinder the entrepreneurial aspirations of
local businesses.[52] India has experienced notable
advancements in the World Bank's Doing Business rankings in recent times, yet
there are specific categories in which it falls behind, such as Initiating a
Business, Property Registration, Tax Payments, and Contract Enforcement.
The efforts of the Government of
India and the enactment of the IBC, 2016 had a positive effect on the
improvement of the rankings of India in this index. Even though the Planning
Commission ceased to exist in 2014, the pursuit of national planning is still
very much active, particularly in the endeavour to elevate the country's
position in the Doing Business rankings. “A
national workshop was established in 2014 to come up with a 98-point reform
plan, followed by smaller Business Action Plans.”[53]
In 2015, a parliamentary Ease of Doing Business Committee was formed to
provide suggestions on the execution of these strategies.[54]
It's evident that this ranking holds significant sway in Delhi.
As the Indian Government concentrated
on improving the Doing Business Ranking, it did not only do that but also
simultaneously improved the economy of India, the business environment, and the
investment funds. Hence, if the country prioritizes its reform agendas then
India could very well leap to being a developed country very soon. India's
commitment to ongoing reforms and its adaptability to changing economic
conditions will be pivotal in sustaining the positive impact of the IBC. It is
crucial to strike a balance between the interests of creditors, debtors, and other
stakeholders, ensuring that the IBC remains equitable and responsive to
evolving challenges.
As India continues to fine-tune the
IBC and reinforce its position as an attractive destination for investment and
entrepreneurship, the code's role in boosting the ease of doing business will
remain a key driver of economic growth and development. The IBC serves as a
testament to India's dedication to creating a robust and competitive business
environment, fostering innovation, and promoting responsible business practices.
The IBC, 2016 is not just a legal
framework; it is a catalyst for change. It has not only improved the insolvency
resolution process but has also sent a signal that India is committed to
creating a business-friendly environment. As India's economy continues to
evolve, and as the global business landscape becomes increasingly competitive,
the IBC,2016 will remain a critical tool for ensuring that the ease of doing
business in India continues to improve, attracting investment, promoting
entrepreneurship, and driving economic growth. In the years ahead, India's
commitment to refining and implementing the IBC, 2016 along with other
complementary reforms and initiatives, will be key to its sustained success in
improving its business environment and maintaining a favourable position in
global rankings. The journey toward a more business-friendly India is ongoing,
and the IBC, 2016 stands as a cornerstone of this transformation.
“The King (i.e., the State) shall promote trade and commerce by setting
up trade routes by land and by water, and establishing market towns and ports”
– Kautilya’s Arthashastra, 4th century B.C.
[1] Press Information Bureau,
Government of India, Ministry of Commerce and Industry, ‘India improves rank by
23 positions in Ease of Doing Business’
(https://pib.gov.in/newsite/PrintRelease.aspx?relid=184513) accessed on 18
April, 2023.
[2] International Bank for
Reconstruction and Development, The World Bank, ‘Doing Business 2020’
(https://documents1.worldbank.org/curated/en/688761571934946384/pdf/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies.pdf)
accessed on 20 July 2023.
[3] Neha Shroff, Sudesh Zingde, ‘Ease
of Doing Business and its Significance in Indian Economy’ (2021)
ResearchGate(https://www.researchgate.net/publication/356065783_Ease_of_Doing_Business_and_its_Significance_in_Indian_Economy)
accessed 20 July 2023.
[4] ibid.
[5] ibid.
[6] Ibid.
[7] ibid.
[8] ibid.
[9] Rachit Garg, ‘Sick companies and
the regulations governing them’ (ipleaders,
2nd March, 2023)
(https://blog.ipleaders.in/sick-companies-and-the-regulations-governing-them/)
accessed on 20 July 2023.
[10] International Finance Corporation,
The World Bank, ‘Understanding the IBC Key Jurisprudence and Practical
Considerations- A Handbook’ (2020) (https: //ibbi.gov .in/uploads
/whatsnew/e42fddce80e99d28b683a7e21c8 1110e.pdf) accessed on 20 July 2023.
[11] Ministry of Commerce and Industry,
'Insolvency and Bankruptcy Code (IBC), 2016 a "gamechanger reform” Shri
Piyush Goyal' (PIB, 25 November 2021)
<https://pib.gov.in/PressReleasePage.aspx?PRID=1775096> accessed on 19
May 2023.
[12] ibid.
[13] The World Bank, ‘Doing Business
Rank’ (2023) (https://data.worldbank.org/indicator/IC.BUS.EASE.XQ) accessed on
20 July 2023.
[14] Indian Government, ‘Targeting Ease
of Doing Business in India.’ (Economy Survey 2020-21 Vol I) (https://www.indiabudget.gov.in/budget2020-21/economicsurvey/doc/vol1chapter/echap06_vol1.pdf) accessed on 20 July 2023.
[15] ibid.
[16] ibid.
[17] Doing Business 2020 (n1).
[18] ibid.
[19] ibid.
[20] ibid.
[21] ibid.
[22] ibid.
[23] ibid.
[24] Embassy of India, The Hague, The
Netherlands, ‘Ease of Doing Business of India’ (2023)
(https://indianembassynetherlands.gov.in/page/ease-of-doing-business-in-india/)
accessed on 20 July 2023.
[25] ibid.
[26] ibid.
[27] Ease of Doing Business of India
(n16).
[28] The Insolvency and Bankruptcy
Code, 2016.
[29] Doing Business 2020 (n1).
[30] Dipak Mondal, ‘How IBC helped
improve India's ease of doing business rankings’ Business Today (India, 24 October 2019)
(https://www.businesstoday.in/current/economypolitics/how-ibc-helped-improve-india-ease-of-doing-businessrankings/story/386544.html)
accessed on 21 July 2023.
[31] ibid.
[32] ibid.
[33] ‘Govt took several steps for ease
of doing biz: MCA’ The Economic Times
(India, 16 December, 2019)
(https://economictimes.indiatimes.com/news/economy/policy/govt-took-severalsteps-for-ease-of-doing-biz-mca/articleshow/72737217.cms?from=mdr)
accessed on 21 July 2023.
[34] ibid.
[35] Reserve Bank of India, ‘Insolvency
and Bankruptcy Code and Bank Recapitalisation’ (21 December 2017)
(https://www.rbi.org.in/scripts/PublicationsView.aspx?id=18060#FT3) accessed on
21 July 2023.
[36] Doing Business 2020 (n1).
[37] ibid.
[38] ibid.
[39] Sumant Batra, ‘Corporate
Insolvency Law and Practice’ (1st edn, Eastern Book Company 2018).
[40] Pratik Datta, ‘Value destruction
and wealth transfers under Indian Insolvency and Bankruptcy Code, 2016’ (Oxford Business Law Blog, 8 February
2019)
(https://www.law.ox.ac.uk/business-law-blog/blog/2019/02/value-destruction-and-wealthtransfers-under-indian-insolvency-and)
accessed on 23 July 2023.
[41] ibid.
[42] Raghav Pandey & Advaith
Govind, 'Indian Insolvency Regime: Impact on Ease of Doing Business and
Investment' (2020) 7 RGNUL Fin & Mercantile L Rev 58.
[43] RBL Bank Ltd. v. MBL
Infrastructure Ltd., (2017) SCC OnLine NCLT 12612.
[44] Nikita Kwatra, ‘The IBC has an
incentive problem’ (Live Mint, 2
January 2019)
(https://www.livemint.com/Industry/nYs7QsAfNqtgGoQHZw2zBJ/The-IBC-has-anincentive-problem.html)
accessed on 23 July 2023.
[45] Raghav Pandey & Advaith Govind
(n33).
[46]Anirudh Burman, 'India’s Sustained Economic
Recovery Will Require Changes to Its Bankruptcy Law' (2021) Carnegie Endowment
for International Peace, JSTOR 10.
[47] ibid.
[48] ibid.
[49] Hari Hara Mishra, ‘Five years of
IBC: Five takeaways and five suggestions to make it better’ (Governancenow, 31 August 2021)
(https://www.governancenow.com/views/columns/five-years-of-ibc-five-takeaways-and-five-suggestions-to-make-it-better)
accessed on 23 July 2023.
[50] ibid.
[51] Doing Business 2020 (n1).
[52] ‘Three Reasons Why Ease of Doing
Business in a Country is Important’ (Friedrich
Naumann Foundation for Freedom, 17 January 2017) (https://www.freiheit.org/sudost-und-ostasien/3-reasons-why-ease-doing-business-country-important) accessed on 23 July 2023.
[53]Aparna Gopalan, 'We've got the Ease of Doing
Business-but for whom?' (The Wire, 26 October 2019)
(https://m.thewire.in/article/economy/weve-got-the-ease-of-doing-business-but-for-whom)
accessed on 19 May 2023.
[54] ibid.