IBC is a seminal reform; instrumental in changing feudal mindset: CEA

Terming Insolvency and Bankruptcy Code as a "seminal reform", Chief Economic Adviser KV Subramanian on Friday said it has been instrumental in changing the mindset of promoters of businesses by making them more accountable.

Before IBC, he said, there used to be this feudalism, where the corporate debtor took it as the divine right to be in control.

"One big change that the IBC has brought is that it has ended feudalism of the promoters in a capitalistic society. There is absolutely no space for feudalism in an economic society which is actually based on freedom," he said at the 5th annual day of the Insolvency & Bankruptcy Board of India (IBBI).

In a democracy or a free society, he said, there is no space for feudalism.

Talking about resistance to reforms in a democracy, he said it comes from a vocal minority who have access to corridors of power.

In any democracy, when you think about reform, there is always this tussle between two sets of stakeholders, one that is a vocal minority versus a silent majority, he said.

The vocal minority is typically one that has benefited from the status quo, he said.

"On the other side of this tussle is a silent majority. The reason that this majority often stays silent is that they oftentimes don't even know the benefits that they are going to have that are going to come to them from the reform," he said.

Observing that the silent majority realises when benefit accrues to them, he said, the same vocal minority versus silent majority being played out in recent reforms.

Without elaborating about the reforms, he said "samajdhar ko ishaara kafi hota hai" (a signal is enough for a wise person to understand).

India overhauled its insolvency regime by enacting the Insolvency and Bankruptcy Code, 2016. Five years into the operation, the insolvency regime under the Code has now a strong ecosystem.

The Adjudicating Authority in 15 cities, Insolvency and Bankruptcy Board of India (IBBI), 3,670 insolvency professionals (IPs), three insolvency professional agencies (IPAs), 84 insolvency professionals entities (IPEs) and one information utility (IU) are in place.

About 4,541 corporates, including some with very large NPAs, have been admitted into the corporate Insolvency Resolution Process (CIRP). About 1,745 CIRPs have completed the process either yielding resolution plans or ending up with liquidation.

Corporate Affairs Secretary Rajesh Verma said the Code was historic legislation for the country's economy.

It is a work in progress and many issues need to be addressed. There are a lot of challenges ahead, he said on the occasion.