Insolvency and Bankruptcy Code, 2016 “A step Toward ease of doing business” was introduced in Lok Sabha in December 2015 and enacted on 28 MAY’2016.
The code consolidated and amend all insolvency laws in one code. Insolvency resolution process of corporate persons, partnership firms, individuals and LLPs in a time bound period. The objective of the code is to resolving insolvencies which previously was a long process, aims to promote entrepreneurship and to protect the interest of creditors including stakeholders in a company. Two years, IBC completed and has a great success in a large measure in preventing corporates from defaulting on their loans, changed the debtor-creditor relationship, insolvency done within time bound manner and many cases have been resolved.
The Glass Is Half Full
Yet, the code achieve success but there is still lots of issues, loopholes in this code. Many issues of insolvency are solved but there are many things where many need to be focused. Timely resolution process is biggest positive attitude toward the IBC but not in absolute terms there is still delay in judgement still it is probably better than DRT and SARFAESI. Defaulting borrowers paying loans to bank rather than going IBC proceedings just because to create balance between both speedy disposal and justice due to expiry of time goes to liquidation which company avoided to do that thus, impact of IBC is more visible from outside than in IBC Crossborder Insolvency that IBC fails to address the issues against a debtor when it commenced in more than one jurisdiction and does not discriminate between domestic and foreign creditors or resident outside the India are participate in proceedings under the IBC. The IBC with debt recovery laws such as SARFAESI and the RDDBFI Act have not been fully addressed. There needs to be a clear between these two types of laws.
Insolvency of group companies or different company in the group then, who is held liable for insolvency? Supreme Court taken step forward that corporate by making a parent company liable for obligation of subsidiary company undergoing the insolvency proceedings. All these factors concern that IBC will meet the same fate as DRT and SARFAESI. It is like glass is half full i.e. implementation of IBC is success in Indian economy, but loopholes and challenges are still in IBC which with timely need to focus. With the motive that the new rules will improve credit culture, make banks more proactive in dealing with NPAs and reduce bad loan accumulation in future notify circular on February 12, 2018.
Constitutional Validity Of RBI Circular Ferbruary 12?
On Febuaury 12,2018 a circular is notifying by RBI called as febuaury12 circular. In this circular, the major three issues regarding Non- profits Assets, insolvency time bound period are highlighted and focused under section 35AA, 35AB of banking regulation Act which states that government may issue or order the RBI to direct the company to recover stressed assets or under section 35AB say that RBI from time to time issue direction to any Bank, Company for resolution of stressed assets and the lenders need to be weekly report credit information, classified as special mention account (SMA)having  aggregate exposure of Rs 5 crore and Above. Revamped the rules tackling with the Non-Profiting Assets (NPA) withdraw or restructure their defaulted loans such as CDR, SDR, S4A, JLF schemes with harmonized and simplified it to deal with defaulters. Further, One-day defaulting rule in which resolution plan if there is one day delay of repayment in case of a default on large accounts of Rs 2,000 crore and above within 180 days, by the defaulters regarded as willful defaulters and undergo IBC proceedings invoked against them.
The main aim of the circular is to reduce the arbitrage borrowers which are currently enjoying while raising funds through borrowing from banks. RBI deputy governor N.S Viswanathan said that “If a borrower delays coupon or principal payment on a corporate bond even for a day, the market would penalize the borrower heavily, but defaults in bank borrowings have not led to a similar reaction. “There is a need to change this and restore the sanctity of the debt contract, lest bank debt becomes subordinate even to equity.” Many company or industry of power and energy sector, sugar mills and shipping  such as GMR Energy Ltd; Rattan India Power Ltd, a Punjab-based textile company; Association of Power Producers (APP); Independent Power Producers Association of India; Sugar Manufacturing Association from Tamil Nadu and a shipbuilding association from Gujarat, had intervened for challenging the constitutional validity of the RBI circular. They pleaded for relief from the circular. They said that:
“The circular is like ‘umbrella’ that’s ‘all size fits in one’. Here RBI need to see the cause for delay and non-payment in the sector. If the companies are liquidated or handed over the another by insolvency proceeding, the same problems face by them also. Thus, companies are hand over from one to another, but the problem remain same. Its not only effect to the sector but also on the economy of the country as all they are play important role in the economy of the country.”
Due to such a large amount it’s hard to get buyers. There are more than 24 stressed power projects could have faced insolvency proceedings. There is no adequate supply of the raw material, equipment, land issues such as Thermal power projects, there are 14,000 Mw of natural gas-based power projects which don’t have any  gas supply. Several projects are due to the cancellation of coal block allocation, delay in getting land and/or environmental clearances.
Discrimination Between Private Sector And Public Sector
These are the major root cause faced by the power and energy sectors, mill industries and reason for go against the RBI circular February 12 circular, after the interpretation of section 35AA, 35AB ,45L of Banking Regulation Act. Supreme court declare unconstitutional and ultra vires to the RBI circular as it goes beyond the scope of RBI powers. “The impugned circular will have to be declared as ultra vires as a whole and be declared to be of no effect in law,” said the two-judge bench led by justice RF Nariman. SC also upheld the validity of IBC it said that there is no change about companies that may have anyway gone to bankruptcy court under the IBC process and  a “fair” warning to the RBI, which is a “big institution “must be function within the “statutory scheme” or  Government order or issue RBI to make circular on specific defaults not to considered all in one keeping in view of all.
Impact After Unconstitutionality Of February 12 Circular
Whole RBI circular becomes void, but the cases in NCLT are go away automatically. Prior to the date of circular cases referred in NCLT has no impact. Parties must prove the insolvency under the RBI circular or not. If not, then the proper proceeding is done in insolvency. Huge relief for the companies in stressed sectors such as power, shipping, steel, telecom, infrastructure, sugar, fertilizer and sports infrastructure, which had blamed for such as regulatory controls that capped prices. It opened a “Pitara” a box, in it there is way for many distressed promoters to pull their company out of insolvency proceedings. Banks had filed about 150 insolvency cases after the RBI issued the February 12 circular and in all these cases, promoters can move the National Company Law Tribunal (NCLT) to withdraw their proceedings. The February 12 goes negative impact on bank because by using channel of insolvency getting their loans without delay. But the hopes of a timely resolution have been dashed by the apex court with its decision. With the SC quashing the circular itself, this process will get delayed causing taking things back to the old era when defaulting companies enjoyed the privilege of time and relaxed rules to take the banks for a ride.
One of success story in India economy, with completing of Two years, lots of success is achieve while some challenges are remained to worked through. The honeymoon period is over now, it’s time for hard task due to easy going proceeding of insolvency a greater number of debtors are enters in the market and there is need of prepare market to support resolution for larger no. of cases in future. Unconstitutional or ultra vires the RBI circular by Supreme Court has favor decision to provide the debtor with various mechanisms to restructure and revive its business. Need of time, that whole system must worked efficiently, and its success will depend to a large extent on how quickly or high quality of insolvency resolution professionals will wind up the cases.

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