Recently, the Government of India has decided to bring various amendments to Insolvency and Bankruptcy Code (IBC) and Companies Act, 2013 to enhance ease of doing business in the country.
The amendments to these laws are a part of the government’s economic stimulus package announced under Atmanirbhar Bharat Abhiyan. India was placed at 63rd position in the World Bank’s ease of doing business report, 2020 out of 190 countries.
Changes in Insolvency and Bankruptcy Code IBC
• Minimum threshold to initiate insolvency proceedings has been raised to Rs.1 crore.
• Earlier- Rs.1 lakh, which largely insulates Micro, Small and Medium Enterprises-MSMEs.
Ease of Doing Business in India
• Suspension of fresh instigation of insolvency
Empowering the Central Government to exclude Covid-19 related debt from the definition of “default” under the IBC for the purpose of triggering insolvency proceedings.
Decriminalisation under Companies Act, 2013 Remove criminal penalties from all provisions of the Companies Act, except provisions dealing with fraudulent conduct.
The decriminalised offences include administrative offences such as delays in filing Corporate Social Responsibility (CSR) reports, or failure to rectify the register of members in compliance with orders from the National Company Law Tribunal (NCLT).
A number of offences under the Act previously classified as compoundable offences will not have confinement penalty now. Compoundable offences are those offences that have either confinement or fines as
Some of the offences under the Act have been omitted altogether Some others have been shifted from the purview of the NCLT to an in-house adjudication mechanism.
Under the in-house adjudication mechanism the matter will be dealt by the Registrar of Companies (RoC). The RoC is empowered to decide penalties for the offences under the Act.
Changes to raise funds
Direct listing of securities by the Indian public companies in acceptable foreign jurisdictions. Private companies which just want to list Non-Convertible Debentures (NCDs) on stock exchanges not to be regarded as listed
• This will bring additional sources of funding to companies who do not wish to comply with the regulations applicable to listed companies.
Rationale behind the Amendment
• The decriminalisation efforts are to pull back on regulations introduced in 2014 aimed at boosting corporate compliance.
• As consent levels have improved, the government now felt a need to boost ease of doing business and therefore, it has started to relax criminal provisions.
These moves will bring great relief to companies as they can focus on business restoration rather than worry about defaults and consent. These measures will prove to be instrumental in easing the financial situation of firms especially, MSMEs who have been one of the biggest victims of this pandemic crisis.
Ease of Doing Business in India
Reducing the burden on company courts, Ensuring investor interests, and ▪ Facilitating the ease of doing business.
• This could well be the step towards showing intent to incentivize domestic and global investments, especially post Covid-19.
• The move will hamper the recovery proceedings of financial institutions • Increase in the non-performing asset.
• Suspension of insolvency initiation for up to a year may protect promoters from losing control of their companies but will not prevent creditors from seeking recoveries through other means.