The Economic Survey today prescribed a new bankruptcy law for ensuring speedy disposal of insolvency petitions.
At present, the country does not have any separate bankruptcy law. But, the provisions of bankruptcy are included in the Companies Act, 1956.
Tabled in parliament, the survey called for a new bankruptcy law to "ensure speedy and effective bankruptcy so as to save/preserve assets for alternative use."
However, the present laws are very cumbersome, say professionals, and the system and procedures need to be simplified. The general time taken to complete the procedure of bankruptcy in India is 8-10 years and "in some cases it is even more, as many as 12 years," NK Jain, Institute of Company Secretaries of India CEO, said.
Whereas in developed economies like Australia, it takes only 2 years to complete the process of bankruptcy, he added.
The long time span leads to loss of value of assets as the assets are depreciated and they become unfit for any other use, he added.
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"If the procedure is expedited, then the assets can be put to alternative use," Jain said.
He said there is a need to increase the role of professionals in the insolvency procedures as the official liquidators are overloaded with pending cases, which is also contributing to the already slow pace of winding up the cases of insolvency.
The law ministry had earlier proposed Bankruptcy Act.