Govt seeks inputs on tackling cross-border insolvency: Union Minister Rao

Union Budget in February talked about updating the Insolvency and Bankruptcy Code to enable cross-border dispute resolution.

The government seeks suggestions from "intellectuals" to have a process for solving cross-border disputes under the Insolvency and Bankruptcy Code (IBC), said Union Minister Rao Inderjit Singh on Saturday.

Singh, who is minister of state in the Corporate Affairs Ministry, was speaking on the sidelines of the two-day International Research Conference on Insolvency and Bankruptcy being held at Indian Institute of Management Ahmedabad (IIM-A).

"This is something that the government has put on the anvil and we will have help from all intellectuals to decide as to the best course to go about it. A lot of people have invested either from outside or vice-versa. We need to find a way to address these issues as well. The issue is under discussion. And we will take a final call once we have all the inputs from all the intellectuals," said Singh.

In budget speech in February, Finance Minister Nirmala Sitharaman talked about the government proposing changes in IBC to enable cross-border insolvency and dispute resolution.

Singh said the government was looking to shape IBC to cater to the interests of both creditors and debtors. "We need to do it as soon as possible. Any delay in the process is counterproductive for business in any case," Singh said, adding that a higher percentage of work was being done by the IBC outside of the National Company Law Tribunal (NCLT) courts.

M Rajeshwar Rao, deputy governor at the Reserve Bank of India (RBI), said a resolution framework should preserve the value of the firm, but at the same time the concern cannot be an absolute preference over liquidation.

"In the absence of ease of exit, overall production capacity in an economy will be held hostage to inefficient business ventures and prevent the economy from reaching its potential if that were so. Thus, an effective insolvency legislation should not shy away from liquidating ventures when they are perceived to be costlier to the society and that it would be more beneficial to unlock the value for redeployment," said Rao, who spoke at the same event.

The deputy governor stated that while RBI did not have a direct role to play in the insolvency process under IBC, the RBI regulated entities were an important stakeholder in effective bankruptcy law, even as he maintained that in order to further strengthen the insolvency code, IBC should not be the first resort for litigation but last, after "exhausting all options".

Rajesh Verma, secretary in the ministry of corporate affairs, said the government and regulator Insolvency and Bankruptcy Board of India (IBBI) had been constantly responding gaps in the IBC. "While we are working with agility as regards implementing the provisions of the Code... it is important that we have a rigorous and evidence-based research to public policy," Verma said.

IBBI chairperson Ravi Mital said due to stressed assets getting referred to IBC late, there has been a large instance of liquidation. "We will examine how to encourage the resolution of stressed projects more than liquidation. The basic essence of IBC is to resolve a project as a going concern," Mital said.