IBC Highlights in the Budget 2024

On July 23, 2024, the finance minister presented a budget focused on job creation, tax reforms, and support for micro, small and medium enterprises (“MSMEs”). For the Insolvency and Bankruptcy Code, 2016 (“IBC”) two reforms were announced: the establishment of an integrated technology platform to facilitate improved outcomes and the strengthening of tribunals and appellate tribunals, including the creation of additional tribunals some of which would be exclusively designated for matters under the Companies Act, 2013. These reforms aim to enhance the IBC's efficiency, consistency, transparency, and oversight, promising to expedite the resolution process.

While the budget briefly mentions an "integrated platform," a report by the Insolvency and Bankruptcy Board of India (“IBBI”) from November 2022 provides detailed insights into this initiative. The "Report of The Colloquium On Functioning And Strengthening Of The IBC Ecosystem" recommends the establishment of a comprehensive technology platform that ensures end-to-end integration and digitization of processes. This platform would minimize delays, increase transparency, facilitate effective decision-making, and maximize value for stakeholders by interlinking interactions among the five pillars of the system: National Company Law Tribunals (“NCLT”), IBBI, Ministry of Corporate Affairs (“MCA”), Information Utilities, and Insolvency Professionals.

The platform is envisioned to streamline various stages of the insolvency process. For example, the process of filing insolvency applications could be simplified if verified records of default flow directly from Information Utilities to the NCLT, with notices served electronically to all relevant parties. Template-based automated notices would further expedite this stage. Additionally, the platform would facilitate interactions between insolvency professionals and stakeholders for filing claims, asset custody, and organising meetings for the committee of creditors. A centralized information repository would mitigate disputes over records submitted by the corporate debtor and enable technology-assisted review for efficient document retrieval.

The platform's integration will also enhance regulatory oversight, allowing regulators to monitor the process in real-time and identify bottlenecks. NCLT could prioritize cases facing significant challenges. The report states that the creation of this overarching technology platform will follow an incremental approach, incorporating AI-enabled decision support systems and technology-aided reviews for integrated case management. Future expansions will integrate other players like valuers, resolution applicants, and auction purchasers, and link to IT systems of institutions like the Central Board of Direct Taxes, Employees’ Provident Fund Organisation, and MSME for seamless claim filing and verification.

Overall, this reform promises to modernize the insolvency ecosystem, centralizing information to promote transparency and speedier adjudications. A central repository of information will significantly enhance the coordination of proceedings, particularly in the context of insolvency resolution for group companies located in various States and in cases of personal insolvency. However, data privacy and security will be critical concerns. Effective measures against data breaches and unauthorized access will be essential to ensure the platform's success. The implementation of these safeguards remains to be seen.

On the downside, the latest budget falls short of addressing several critical amendments proposed by the finance minister in 2022 and the MCA in 2023. In 2022, the finance minister announced plans to amend the IBC to enhance dispute resolution and facilitate cross-border insolvency resolution. This update has been long overdue, as the Banking Law Reforms Committee, which conceptualized the IBC, highlighted in its 2015 report that the next frontier lies in addressing cross-border issues. Yet, nearly eight years after the IBC's enactment and following extensive discussions by various committees, no progress has been made on this front, leaving the law focused solely on domestic matters.

Additionally, on January 18, 2023, the MCA issued a notice inviting comments on proposed changes to the IBC. These proposed amendments sought to enhance outcomes in the real estate sector, extend the applicability of the pre-pack framework beyond micro, small, and medium enterprises to other categories of corporate debtors, address the judicial decisions in the Vidarbha Industries and Rainbow Papers cases, and establish a detailed framework for domestic group insolvency procedures. However, despite these efforts, the current budget fails to incorporate these essential updates, neglecting to address the evolving gaps and challenges in practice.

About the author: Kritika Poddar is a Research Fellow at Shardul Amarchand Mangaldas & Co.