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Context:
- The Insolvency and Bankruptcy Code, 2016 has enough loopholes to close down businesses instead of assisting entrepreneurs.
Objectives of the code:
1.The Code aims to mend laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals.
2.It attempts to ease the process of recovery of money by operational and financial creditors in a timely manner and places the onus on professionals to put forth resolution plans within 180 days.
3.It seeks to ensure that there is neither scope for any further claims by the creditors, except through the Code’s mechanisms, nor for the corporate debtor to challenge the claims made by the creditor.
The loopholes:
1.It fails to provide adequate safeguards to protect the rights of the company before handing over the management in its entirety to the resolution professional.
2.At various stages of admission of the insolvency proceedings, of appointing the insolvency professional, of finalising the resolution plan the Code fails to provide any opportunity to the corporate debtor to make a representation, at the very least.
3.The Code is also deficient in providing a standard for the qualification of the interim and of the final insolvency resolution professionals.
4.It is also shocking that the Code prohibits withdrawal of the application once the same has been admitted.
- This means that there is no scope whatsoever for settlement.
5.Further, the unrestricted access of any person without mandatory contractual obligations in relation to confidentiality violates the fundamental right to business under Article 19(1)(g).
Conclusion:
- All this shows that the Code still requires a lot of hand-holding by the judiciary to put in place adequate safeguards and guidelines to ensure its smooth, effective, and fair enforcement.
