Since the act
came into existence in 2016, not much action has been taken so far. Lenders have been using solvency processes
however, these processes been used to resolve smaller cases and are yet to do
it in any large corporate account. Another reason for lenders staying away is because
the RBI hasn’t given any clarification as to how the provisioning on accounts
would work when they are under the insolvency process.

A
number of companies had often filed their petitions before the National Company
Law Tribunal, but before the application was admitted, withdrew the case. This showed
that most of these companies preferred an out-of-court settlement due to the
amount of time and resources involved. Under the previous Civil Code, the
issues remained unresolved for years.

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Statistics show that the
recovery is only 20 per cent in India and in global ranking, the country is
ranked in the 136th position with respect to the time taken for resolving
disputes.

 

Before the IBC code came into existence, India had
numerous acts to punish the defaulters

1.     
Indian Contract Act, 1872

This was the
first law enacted by British India, and based on the principles of English common
Law. The Indian Contract Act embodied the simple and elementary rules relating to
Sale of goods and partnership.

2.     
Presidency-Towns Insolvency Act, 1910

During the colonial rule, the
Britishers had divided India into Presidency towns for better administration.
The PTI Act laid down provisions wherein High Court had the enormous powers to
decide matters relating to insolvency and decided on all questions pertaining
to insolvency

3.     
Recovery of debts due to Banks
and Financial Institution Act 1993

The
Recoveries of Debts due to Banks and Financial Institutions Act, 1993 was set
up to counter the ever-growing NPA problems in India. A special Debt Recovery
Tribunal (‘DRT’) was set up for the same purpose. Before
the enactment of this act, banks and financial institutions were facing challenges
in recovering debts from the borrowers. Since the courts were overburdened with
large numbers of regular cases, they were neither able to prioritize the important
cases nor expedite the existing cases.

4.     
The Securitizations and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002

Even
though the government had enacted the RDBFI act, it had it its fair share of
problems. The government was unable speed up the recovery of the debts
and the balance sheet of the financial institutions continued to be red. The
securitization act aimed to solve this problem by securitising and reconstructing
the financial assets through two special purpose vehicles viz. ‘Securitisation
Company (‘SCO’)’ and ‘Reconstruction Company (RCO). The aim of this act was
to make adequate provisions for the recovery of the loans and also to foreclose
the security.

5.     
The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA)

The SICA act had 2 objectives
a. Determine sickness and
b. Expedite the revival of potentially viable units

It was expected that through revival, idle investments will become productive
and by closure, the locked-up investments in unviable units would get released that
could be used elsewhere. The government knew that timely detection of sick and
potential sick companies could lead to speedy determination and expeditious
enforcement of preventive measures. It set up a body of experts for the
preventive, ameliorative, remedial and other connected matters.