 "Street Food: The difficulties of achieving ease")
The World Bank’s Doing Business Project, measuring the regulations applicable to small and medium-size companies through various stages of their life cycle, was launched in 2002. Not many among policy makers and the government paid attention to the Ease of Doing Business (EODB) ranking and its components.
All that has changed in the past couple of years. This government is serious about its image as a business-friendly dispensation. It sees the rankings as a benchmark that can be used to measure its performance. And, top bureaucrats and entire departments have started thinking about and working on these. Positive, auguring well for the long term.
However, trouble starts when you try to rush through structural changes. In this regard, the efforts taken on ‘Resolving Insolvency’ , one of the key topics in the EODB index, merit mention.
According to last year’s rankings, India stood at 136 in this. The recovery rate was abysmal at 25.7 cents a dollar and the time taken was 4.3 years. On the strength of insolvency framework, India’s score was six on a scale of zero to 16. While better than its South Asian peers, India it was way below the average of around 12 points scored by high income countries.
Ever since those rankings were out, efforts to improve the scores on insolvency went underway. An Insolvency and Bankruptcy Code was introduced in Parliament last December and referred to a joint committee of both Houses. By the end of April, the committee’s report was ready. Within a month, both Houses passed the important bill, without much discussion. On May 30, the law received the President’s assent.
Two days later, the government notified the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), with effect from June 1. The former will administer insolvency proceedings and winding-up of a company under the new law.
The cut-off date for this year’s EODB rankings was June 1. So are we set for a big leap in the insolvency ranking, now that we have a solid, modern framework?
A little birdie, aware of the processes, says it is unlikely. Though we have a new insolvency law, it cannot become operational: Several key components are yet to be in place. The new law mandates constitution of an insolvency and bankruptcy board and an insolvency fund. These are yet to be constituted.
Also, there are at least 40 places in the code where ‘as may be prescribed’ is used. The law defines ‘prescribed’ as rules made by the central government. The government needs to draft and notify these rules. Further in over 80 places, the law refers to 'regulations'. These are defined as those made by the board mentioned earlier. So, first the board needs to be constituted and this has to then make these regulations.
NCLT, adjudicating authority for corporate entities under the new law, is a work in progress itself. There are murmurs about how some members appointed to the tribunal have never come across company law all their work life.
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Unless these issues are addressed, the new law cannot be notified. Considering past instances when some laws never got notified, even after Presidential nod, it is not easy to claim that the new insolvency framework has been implemented.
Ironically, the rush and hype around the new insolvency framework, which is there and yet not, has only created confusion among professionals and companies as to which regime they are currently under. On the EODB, “The new deadline is June 1, 2017. That’s far away,” chuckles our birdie.
