This quarter is marked by passing of the transformational financial sector reform, the Insolvency and Bankruptcy Code, 2016 (“Code”) which seeks to provide a time-bound process for insolvency resolution of legal entities and natural persons. The Code will consolidate India’s archaic laws on resolving bankruptcies, into one comprehensive law and will structurally strengthen both the identification as well as resolution of insolvencies.
The introduction of the Code is timely given the quantum of bad debts plaguing the banking system in India. Lenders and Asset Reconstruction Companies will be the immediate beneficiaries. The key focus of the Code is prompt and timely action during early-stage debt defaults, which will enable lenders to auction the locked up assets of the defaulting company and recover its dues quickly.
Additionally, the Code seeks to protect the rights of borrowers and lenders, clarifies the risks associated with lending, fosters predictability and makes debt collection through insolvency proceedings more certain. These factors, in turn, would facilitate credit lending and increases the flow of capital in the economy.
A critical element of the insolvency process is a well functioning adjudication infrastructure. For this, the Ministry of Corporate Affairs has now constituted National Company Law Tribunal and National Company Law Appellate Tribunal for resolving corporate disputes. This will pave the way for the faster implementation of the Insolvency and Bankruptcy Code, 2016.
The Union Government has now further liberalized the Foreign Direct Investment (“FDI”) across nine key sectors by easing FDI caps for Defence, Asset Reconstruction companies, Aviation and Food processing sector. The thrust of the latest reforms is put more sectors under the ‘automatic route’ and ease conditionalities provided therein. The changes have been made to attract more investment from overseas into India, to develop various sectors and generate employment in the country.
Besides the various developments discussed above, this edition of Lex Novus also focuses on other key regulatory developments in the last quarter in the Banking and Capital Markets regulations, along with important judicial decisions concerning the corporate sector. We hope you find this edition of Lex Novus informative and insightful.