UK model of bankruptcy suited for personal insolvency in India

Corporate affairs secretary says there should be a process of even loan waiver in cases where deemed required.

Corporate affairs secretary Injeti Srinivas on Monday favoured the UK model of bankruptcy in the case of individuals, Business Standard reported. Srinivas was speaking at a CII event.

Individuals undergoing resolution under the bankruptcy law should be allowed a ‘fresh start’ and the loan should be waived in case it is small, Srinivas opined.

He was of the opinion that relief to such individuals must be  based on income levels, assets and possession of dwellings, etc., the report said.

He favoured such an approach as a large number of borrowers has only small loans. Personal insolvency should be approached carefully and in a planned manner, Srinivas said. “The UK example for personal insolvency should be emulated,” media reports quoted Srinivas. 
The UK law has the option of debt relief if the person has no or bare minimum disposable income, no real asset or little income.

Notably, the government is still to notify indiv­idual bankruptcy.

Apart from individual bankruptcy, the government is looking at bringing in rules for proprietorship firms and corporate guarantee, the report said.

Though the insolvency process is there, the government has not yet notified one on cross-border insolvency. Srinivas was of the opinion that the United Nations Commission on International Trade Law or UNCITRAL model would be the best fit for India’s needs on cross-border insolvency.

He further said that the ministry wants to table amendments to the Insolvency and Bankruptcy Code (IBC) to enact the cross-border insolvency norms in Parliament. However, this would happen only after the new government assumes power since the model code of conduct has been enforced.

With a cross-border insolvency law in place, foreign creditors will be empowered to lend to Indian corporate entities and Indian creditors to lend to foreign companies.

To enable this, the government wants to bring in a separate chapter in the IBC against the current provisions under Sections 234 and 235 of the code.

Under these sections, cross-border insolvency can be enforced only if India enters bilateral treaties with foreign governments, the report quoted an official at the ministry of corporate affairs.

As finalising these treaties is a long process, and since each treaty is different, there prevails considerable un­certainty among foreign inv­estors. Further, this creates ambiguity for Indian courts and the National Company Law Tribunal (NCLT), which has to treat each case separately. Adding this as a separate chapter would address these issues. 

Srinivas said 12,000 cases have been filed since the implementation of the insolvency law and setting up of National Company Law Tribunal (NCLT), the report said.

Personal bankruptcy law is also not in place as the provisional insolvency law needs to be repealed. Bankruptcy matters will go to the debt recovery tribunal as opposed to insolvency matters that go the National Company Law Tribunal, the report said.

Source: https://www.business-standard.com/media reports


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