Parliament, on 12th May 2016, passed a bill that seeks to create time-bound processes for insolvency resolution of companies and individuals.

The Insolvency and Bankruptcy Code Bill was approved by the Rajya Sabha by voice vote after a brief debate. Once the bill is signed by the President, India would have a new law on bankruptcy. This move of the government is expected to lead to ease of doing business.

Replying to a debate on the bill, Minister of State for Finance Jayant Sinha termed it as a “historic” legislation. The minister put to rest apprehensions about the possibility of declaration of repeated bankruptcy by individuals and companies saying creditors will not park their money again and again with such individuals and entities.

“We are changing the Indian economy. We will do so while protecting the people who matter most…The most vulnerable are protected first. The way this law is being set up, it protects the workers. We wanted to protect the most vulnerable. We are trying to create a robust safety note,” Sinha said.

With the passage of this law, there would be one law dealing with bankruptcy while doing away with at least 12 different legislations, some of which are centuries old.

According to the provisions of the bill, these processes will be completed within 180 days. If insolvency cannot be resolved, the assets of the borrowers may be sold to repay creditors, according to PRS legislative research. At present, it takes more than four years to resolve a case of bankruptcy in India, according to the World Bank. The code seeks to reduce this time to less than a year.

The bankruptcy bill was introduced in Lok Sabha on 21st December 2015 and was later referred to the Joint Committee of Parliament. The Committee submitted its recommendations and a modified Code based on its suggestions on 28th April 2016. This modified Code was passed by Lok Sabha on 5th May 2016.

The new framework is expected help in improving India’s position in the World Bank’s ease of doing business ranking.

Gems Jewellery industry and the bankruptcy code

The Indian gems and jewellery industry has been facing cash crunch due to tightening of lending norms by the banks. As this law would keep a tab on the capital isn’t squandered away for weak businesses.

As there would be one law dealing with bankruptcies instead of multiple laws, the resolution/recovery processes would be completed faster. This would also give provide an easy exit option for insolvent and sick firms.

* Insolvency is a situation where an individual or a company is unable to repay their outstanding debt.