Insolvency law is widely regarded as a difficult subject. Although, this reputation is not entirely justified, there are generally two principal difficulties to gaining an overall understanding of the insolvency law. First, the provisions of an insolvency law are highly interrelated with many other equally complex commercial laws that operate in the ecosystem around it. A real grasp of insolvency law is thus, possible only when there is a deeper familiarity of the entire framework of insolvency. Second, in many respects, insolvency is primarily about procedures governed by the rules and best practices. In fact, the insolvency law is mainly a rule-based law with substantive provisions of law being heavily dependent on the rules for their implementation. The design of the procedural rules plays a critical role in determining how roles are to be allocated between the various participants, in particular, in terms of the decision-making.
It is the procedural glue that holds the statutory provisions together. Reading the substantive statutory provisions without becoming familiar with the rules and best practices is not only confusing but also fruitless. Dealing with insolvency through a web of economics-based laws is certainly a Herculean task. The addition of cultural and human factors makes it much more complex. This is also true for the Insolvency and Bankruptcy Code, 2016 (IBC), many rules and regulations prepared to implement it and an array of other laws that become active in insolvency. An understanding of the complete legal and procedural landscape of IBC is necessary for its consumers, in particular, an insolvency professional who sits at the heart of this insolvency system. The applicable statutory provisions are substantial in amount and specific in nature setting the insolvency profession apart from most other specialised professions.
IBC contains many new principles and concepts alien to the Indian market on which neither any best practices nor recorded precedents exist. Direct legal jurisprudence on them is also scarce. For example, IBC introduces a shift from the "debtor in possession" regime under the Sick Industrial Companies (Special Provisions) Act, 1985 (since repealed) to a "creditor in control" regime, making it a creditor-friendly legislation. The law establishes a new discipline of insolvency professionals. Insolvency professional will perform vital functions in the corporate insolvency process including management of the debtor's enterprise as a going concern. His role will be crucial in determining the outcome of insolvency proceedings.
IBC is based on the UK's administration procedure although, few provisions have been customised for India. The role of court has been reduced. Creditors have been provided with greater powers to approve decisions of Resolution Professional appointed as office-holder in corporate insolvency resolution process. Strict timelines have been provided for resolution and liquidation, shorter even than what is provided in the English Law. An understanding of the experiences under the UK law, where similar provisions have been in practice for long will help in development of best practices for the Indian market.
The book is an attempt to offer an introduction to the complex architecture of a simple legislation through a format different from standard commentaries on laws. The book contains sections that read more as essays than just explanations of legal and regulatory provisions. This is because the book strives to serve two main goals. First, to provide a broad understanding of the principles of insolvency law and the ecosystem in which it functions while referring to the global best practices and experiences of advanced markets. Second, to serve as a guide for the insolvency professionals and other consumers of IBC. Yet, it is a primer, not an instrument of research. The book has been structured keeping in view both the Indian and the foreign reader.
The book refers to the various practices operating in England, US and other countries at many places but with some caution. Comparing each and every provision of IBC with the laws of other countries or with the UNCITRAL Legislative Guide has been avoided as that posed the risk of comparing elements, which may not be otherwise comparable in many aspects of law. The operative legal system, traditions, cultural attitudes, customs or traditions, political dynamics, and practical and pragmatic factors in India are different in many respects from these countries.
Insolvency law has an important economic dimension that must be appreciated in the practical application of its legal provisions. Appreciating economic dimensions of IBC is vital for effective implementation of law and to achieve the desired objectives. The book explains the economic, cultural and practical dimension of insolvency and their role and importance in success of insolvency law. There are several objectives of insolvency law, frequently conflicting with each other, and it is the role of those responsible for its implementation to achieve a balance of the different objectives in a manner that reflect social consensus and expectations within the society. The book offers suggestions at relevant places on how this balance could be achieved. A somewhat unusual structure of the book also stems from the necessity to capture this dynamic.
The book does not follow the standard textbook approach of a section-by-section walk-the-talk through the statute. Rather, it follows the scheme of corporate insolvency process in IBC. In many places, discussion is devoted to subjects that may not be an explicit part of the statute but have a strong bearing on the outcome of the resolution and liquidation process. The first two parts of the book set the backdrop for the other parts of the book. They contain discussion on the economic reforms introduced in the country after the liberalisation of the economy. A brief overview of the banking sector and state of non-performing assets is also provided for the benefit of those not familiar with its details. The history of the insolvency reforms and the circumstances leading to the passing of IBC discussed in that chapter explain the genesis of IBC. This is complimented by a snapshot worldview of the development of modern insolvency laws in key markets and of global best practices by the IMF, UNCITRAL, World Bank Group, EBRD, INSOL International and other institutions. The economic rationale of IBC is also analysed in this part. A broad introduction of institutionalised out of court workout mechanisms functional in India is also provided in the first part.
Various institutions-the regulator, insolvency professionals, information utilities and the adjudicating authority will play a crucial role in the insolvency process. The second part of the book explains the institutional framework of IBC, so that the flow of the discussion in chapters on resolution and liquidation chapters is not interrupted by the need to explain that beyond, what might be directly relevant.
The third part of the book on corporate resolution process and the fourth on liquidation process are structured to follow the scheme of IBC and not the order in which statutory provisions appear in IBC on these two processes. In many places, chapters are devoted to subjects that are not part of the legislation but have a strong bearing on the outcome of these processes. Comments on the corporate resolution and liquidation process are kept simple. At many places they are accompanied by reference to the experience and the best practices in other jurisdictions where similar principles and concepts have been operational for a while. Issues that are common to resolution and liquidation process including, remedy of appeal, liabilities of directors and officers of corporate debtor, wrongful and fraudulent transactions are in fifth part. The sixth part deals with cross border insolvency. Key implementation issues of IBC are discussed in seventh part.
Citing a plethora of judicial pronouncements on the erstwhile insolvency regime has been purposely avoided except wherever directly relevant. Reference to jurisprudence on the erstwhile law might tend to obscure the freshness with which we must approach and apply IBC to applications brought before the National Company Law Tribunal.
Each chapter in this book demands an in depth research and a separate book. I am confident that the scholars in the country will shoulder research work in these areas and the market will soon benefit from their work. The Government of India must extend support scholarly work in these areas by engaging academics and other scholars.
Insolvency is probably the most demanding career option which a professional can undertake. It is certainly one of the most challenging, involving and rewarding. Most of them wouldn’t wish to do anything but practice insolvency! I hope the insolvency professionals and others interested in the Indian insolvency system, whether located in India or outside, will find the book useful. It is my tiny contribution in the development of the best practices in the early stages of implementation of the new insolvency regime. Surely, any book at such early stage is nothing but a work in progress!