The Parliamentary Standing Committee on Finance has urged the government to set up an institute for insolvency resolution professionals (RPs) to oversee and regulate their functioning.
In a report tabled in Parliament on Tuesday, the committee cited concerns over the capability of RPs to carry out time-bound resolution of large companies with complex cases.
The report said that insolvency professionals, who play a key role in the bankruptcy proceedings of a company, have numerous conduct issues with the regulators. The IPA (Insolvency Professionals Agency) and IBBI (Insolvency and Bankruptcy Board of India) have taken disciplinary actions on 123 IPs out of a total of 203 inspections conducted by them till date.
“Most penalties carried out by IBBI against RPs reveal misinformation and unawareness of the resolution process by RPs. The committee believes that a professional self-regulator for RPs that functions like the Institute of Chartered Accountants of India (ICAI) should be put in place,” the report added.
The report said that in the past seven years since Insolvency and Bankruptcy Code (IBC) was formed, the actual recovery rate is just about 25-30 per cent, and in some cases, the resolution takes as long as two years, which is far beyond the time limit that was envisaged.
A November study by CRISIL said that the recovery rates under IBC have fallen from 43 per cent in March 2019 to 32 per cent in September 2023. Even the average resolution time has increased from 324 to 653 days vis-a-vis the stipulated 330 days. Till November 2023, the IBC has helped resolve some Rs 3.16 lakh crore of debt stuck in 808 cases.
The report has been critical of the NCLT (National Company Law Tribunal) as well. It said that the tribunal is currently functioning without a regular president and is short of 34 members out of the total sanctioned strength of 62. “The committee feel that in order to tackle the huge pendency of more than 20,000 cases in NCLT at the end of every year, the sanctioned strength of NCLT needs to be enhanced,” the report said.