Emerging Jurisprudence on Corporate Insolvency

Abstract

“Capitalism without Bankruptcy is like Catholicism without Hell” - Frank Borman

According to RBI, terms loans on which interest or installment of principal remains overdue for a period of more than 90 days from the end of a particular quarter is called a Non-Performing Asset. Literally, they are nothing, but bad loans Non-Performing Assets have grown unprecedented over 135% over the last two years amounting to around 12% of gross advances of Public Sector Banks (PSB's). India's NPA ratio is higher than any major emerging market (with the exception of Russia), higher even than the peak levels seen in Korea during the East Asian crisis. India is ranked 136 out of 189 countries in resolving insolvency in Doing Business Report 2016 ^1, [1]. At 9.9 percent ratio, India has been ranked fifth on the list of countries with highest Nonperforming Assets, and is on top spot among the BRICS nations, a recent report by CARE Ratings revealed. The country is reeling under a huge NPA burden of over Rs 7.33 lakh crore as of June 2017. To address the crisis, the government has announced the recapitalization of these public sector banks by infusing around Rs 2.11 lakh crore, besides pumping in Rs 1.35 lakh Crore through recapitalization bonds. [2] The major reasons for such a condition are relaxed lending norms, inadequate contingency planning, lack of transparency and absence of bankruptcy code for systematic adjudication. The IB Code introduced in 2016 in parallel lines with U.S and UK tries to resolve the pertinent problem of overlapping of jurisdiction due to the existence of multiple laws which subsequently resulted in a delay of resolution. This code tries to remove this issue and has recommended the institution of two tribunals the National Company Law Tribunal (NCLT) for companies and limited liability partnership for firms, and the Debt Recovery Tribunal for individuals and partnership. This paper tries to assess the NPA problem in India on the twin parameters of banking systematization and government’s vigilance.