 "Swaminathan Janakiraman")
The resolution of cases involving business conglomerates under the Insolvency and Bankruptcy Code (IBC) needs further legislative changes as complex structures in the group may become a hurdle in dealing with an individual entity, said Swaminathan J, deputy governor, Reserve Bank of India.
Elaborating on the reform agenda for IBC, he said very often such groups have intricate corporate structure with interconnected related-party relationships that add to the complexity. Similarly, there is the unfinished agenda of a comprehensive resolution framework for financial services providers such as banks, non-banking financial companies and insurance companies, Swaminathan said.
He was addressing the Conference on Resolution of Stressed Assets and IBC organised by The Centre for Advanced Financial Research and Learning (CAFRAL) on January 10, 2023 in Mumbai. The RBI uploaded the speech on Wednesday.
In the absence of an IBC-like legislative framework for resolution of financial institutions, IBC has been used for resolution of NBFCs, he added. The introduction of new laws often brings about a period of adjustment and interpretation as stakeholders, legal professionals, and the judiciary grapple with the intricacies of the legislation. In the context of the IBC, this phenomenon is heightened due to the significant stakes involved, he pointed out.
Parties involved in insolvency proceedings do file appeals and review petitions challenging lower court decisions. “While there was no objection to any party seeking legitimate legal recourse, these proceedings have often been used as delaying tactics by defaulting borrowers and have significantly contributed to delays in the resolution timeline”, he said. “One hopes that as the law matures, judicial interpretation and precedents would emerge to help navigate the nuances, ultimately reducing delays in future,” the RBI deputy governor said.
It was conceivable that certain judicial interpretations may prompt the need for further reforms, aiming to enhance the efficiency and improve the outcomes of the resolution regime.
The IBC was a landmark legislation that transformed the insolvency and resolution framework in the country. There has been visible improvement in the credit culture as evident from the marked decline in non-performing assets (NPAs) and increased resolutions even before the admission stage, he said. He further added that significant foundational work has been done by the government and it is expected that the next set of reforms once legislated by Parliament would further strengthen the IBC.
However, there is always scope for improvement, especially with regard to the timeliness of the resolution process, he added.
