The issue exposed the unhealthy relationship that had developed between major corporations and India’s state-owned and private banks, with the corporations getting loans for troublesome projects, and making their lenders to defer repayment when those projects failed. Critics suggested that India’s dysfunctional insolvency service system incentivized bankers to keep their major borrowers in business rather than force bankruptcy proceedings.

1. Reshaping the Big Business - New Insolvency & bankruptcy law
India was gripped by the flight to London of liquors tycoon
Vijay Mallya , the self-proclaimed “king of good times” When in
May 2016 India’s parliament passed the new insolvency and
bankruptcy code. with Kingfisher Airlines defaulting on debt of
$1.3bn in 2012, His immediate plight followed the failure into
aviation.

3. The issue exposed the unhealthy relationship that had
developed between major corporations and India’s state-
owned and private banks, with the corporations getting loans
for troublesome projects, and making their lenders to defer
repayment when those projects failed. Critics suggested that
India’s dysfunctional insolvency service system incentivized
bankers to keep their major borrowers in business rather than
force bankruptcy proceedings.

4. Before the new code was introduced, creditors typically had to write off 3
quarters of the debt in Indian insolvency cases, which on average took more
than four years to get resolved: compared to with a year or less in the major
best-performing countries, as per the data published by the world bank,
Under the new law any creditor owed as little as Rs100,000 ($1,400) can file an
insolvency petition against a defaulting company. If this is accepted by a court,
the company liquidated within nine months if no buyer can be found and the
management must be removed immediately. As the Lenders were not fast to
make use of the new system, so India’s central bank made sure to force their
involvement. In July against twelve of the biggest corporate defaulters, it
ordered banks to launch proceedings for insolvency service.

5. The code has made sure that the capital isn’t distributed away
on weak businesses and it merits further review in order to
balance the twin objectives of speedy resolution and
maximizing recovery for the lenders.
Insolvency Law Committee had earlier made suggestions to the
Ministry of Corporate Affairs including addressing the situation
of home buyers, expanding the pool of potential bidders,
making recoveries easier for lenders, and expediting the
decision-making process by creditors.

6. The changes regarding the insolvency services are practical,
bold and definitely needed for India to turn the page on a bad
& long downward phase in its credit cycle. Three out of four of
the economy’s engines – exports , , consumption and private
investment – have stalled, while government spending, the
overworked last option, is sputtering. Amending
the bankruptcy code won’t revive nation’s spirits overnight, but
it would at least prevent a difficult situation from getting
indefinitely worse.
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