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Evolution of the insolvency framework for non-financial firms in India

Author

Listed:
  • Rajeswari Sengupta

    (Indira Gandhi Institute of Development Research)

  • Anjali Sharma

    (Indira Gandhi Institute of Development Research)

  • Susan Thomas

    (Indira Gandhi Institute of Development Research)

Abstract

The current Indian framework for corporate insolvency resolution, is fraught with deficiencies in the laws, their procedures, their implementation as well as in the capacity of the institutions supporting them. The absence of a coherent and effective mechanism for resolving corporate insolvency has resulted in poor economic outcomes. The origin of the complex framework characterised by multiple, fragmented laws, can be traced back to the history of its evolution. In this paper, we describe the evolution of the corporate insolvency resolution framework, with the objective of linking it back to the policy directive of the time. We conclude that when policy adopts a piecemeal approach focusing on solving only a part of the complex problem, one at a time, it most often leads to inefficient outcomes on the overall objective. We end with a brief description of the Insolvency and Bankruptcy Code (IBC), 2016 which is most recent policy initiative in this field. The IBC is a clean, modern law that offers a simple, coherent answer to the insolvency resolution problems under current Indian conditions. Once implemented, the law will potentially change not only the manner in which insolvency is resolved in India but also the entire credit landscape of the country.

Suggested Citation

  • Rajeswari Sengupta & Anjali Sharma & Susan Thomas, 2016. "Evolution of the insolvency framework for non-financial firms in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2016-018, Indira Gandhi Institute of Development Research, Mumbai, India.
  • Handle: RePEc:ind:igiwpp:2016-018
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2016-018.pdf
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    References listed on IDEAS

    as
    1. Aparna Ravi, 2015. "The Indian insolvency regime in practice-An Analysis of insolvency and debt recovery proceedings," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2015-027, Indira Gandhi Institute of Development Research, Mumbai, India.
    2. Aparna Ravi, 2015. "The Indian Insolvency Regime in Practice – An Analysis of Insolvency and Debt," Working Papers id:7786, eSocialSciences.
    3. John D. Burger & Francis E. Warnock, 2006. "Local Currency Bond Markets," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 1-7.
    4. Burger, John D. & Warnock, Francis E., 2007. "Foreign participation in local currency bond markets," Review of Financial Economics, Elsevier, vol. 16(3), pages 291-304.
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    Citations

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    Cited by:

    1. Rajeswari Sengupta & Harsh Vardhan, 2023. "Bankruptcy regime change and credit risk premium on corporate bonds: Evidence from the Indian economy," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2023-001, Indira Gandhi Institute of Development Research, Mumbai, India.
    2. Pratik Datta, 2019. "Value Destruction and Wealth Transfer Under the Insolvency and Bankruptcy Code, 2016," Working Papers id:12965, eSocialSciences.
    3. Surbhi Bhatia & Manish K. Singh, 2022. "Fifty years since Altman (1968): Performance of financial distress prediction models," Working Papers 12, xKDR.
    4. Agarwal, Shivangi & Singhvi, Bhavya, 2023. "Creditor-controlled insolvency and firm financing– Evidence from India," Finance Research Letters, Elsevier, vol. 54(C).
    5. Nirupama Kulkarni & S.K. Ritadhi & Sayan Mukherjee, 2021. "Unearthing Zombies," Working Papers 59, Ashoka University, Department of Economics.
    6. Prasad Rohit & Gupta Gaurav & Mathur Yogesh B., 2020. "A Game Theoretic Analysis of the Relative Payouts to Operational Creditors and Financial Creditors from Bankruptcy Resolution in India," Asian Journal of Law and Economics, De Gruyter, vol. 11(2), pages 1-21, August.
    7. Bose, Udichibarna & Filomeni, Stefano & Mallick, Sushanta, 2021. "Does bankruptcy law improve the fate of distressed firms? The role of credit channels," Journal of Corporate Finance, Elsevier, vol. 68(C).
    8. Ahmad, Wasim & Tiwari, Shiv Ratan & Wadhwani, Akshay & Khan, Mohammad Azeem & Bekiros, Stelios, 2023. "Financial networks and systemic risk vulnerabilities: A tale of Indian banks," Research in International Business and Finance, Elsevier, vol. 65(C).
    9. Choorikkad Veeramani & Lakshmi Aerath & Prachi Gupta, 2018. "Intensive and extensive margins of exports: What can India learn from China?," The World Economy, Wiley Blackwell, vol. 41(5), pages 1196-1222, May.
    10. Datta, Pratik, 2018. "Value Destruction and Wealth Transfer under the Insolvency and Bankruptcy Code, 2016," Working Papers 18/247, National Institute of Public Finance and Policy.
    11. Sreyan Chatterjee & Gausia Shaikh & Bhargavi Zaveri, 2017. "Watching India's Insolvency Reforms: A New Dataset of Insolvency Cases," Working Papers id:12105, eSocialSciences.
    12. Sreyan Chatterjee & Gausia Shaikh & Bhargavi Zaveri, 2017. "Watching India's insolvency reforms: A New dataset of insolvency cases," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2017-012, Indira Gandhi Institute of Development Research, Mumbai, India.
    13. Kariya, Ankitkumar, 2021. "Borrowing from government owned banks & firm's liquidation risk," Journal of Corporate Finance, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    Indian insolvency law; Restructuring; Winding up; Secured creditors; Debt recovery; Insolvency and Bankruptcy Code;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K2 - Law and Economics - - Regulation and Business Law

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