A continuously evolving and improving Insolvency and Bankruptcy Code (IBC) framework is important to achieving a 7-8% growth over the next decade, as  growth aspirations require capital to operate at the frontiers of productivity and efficiency, said the Economic Survey. 

An efficient bankruptcy system will free up capital, allowing better production, employment, and growth prospects, it said, and added that the next step towards IBC reform is to improve operational efficiencies to speed up the resolution process. “This is especially important for MSMEs, for whom legal costs can prove to be substantial,” it added.

Improving time efficiencies in the system comes down to using innovative resolution routes such as the pre-pack arrangements for MSMEs, inter-disciplinary capacity building of resolution professionals across legal, financial and industry basics and minimising judiciary delays in proceedings, the survey said. 

As per official data, the average time taken for conclusion of the corporate insolvency resolution process (CIRP) stood at 582 days as against 330 days mandated under the Code.

Further strengthening the number of courts, benches, and members and ramping up physical infrastructure, will help improve the disposal rate of cases under IBC; and addressing issues in the insolvency procedures and the tribunal’s administrative processes would help to reduce pendency in the long term, the survey said. 

Additionally, the survey noted that while the law states that admission of cases for CIRP should be in 14 days, in FY21, the average time for admission of 153 applications by operational creditors was 468 days’; and in FY22, an average of 650 days was taken in the admission of 207 applications. 

“Reasons for delay in admission occur as the AA tries to establish the existence of debt and default, as promoters file objections,” the survey said. 

“The financial system with digital credit information repositories receipts, trading platforms, and the Information Utility (IU), set up under the IBC, is quite robust and should be harnessed, and a means for verification of debt and default may be enabled, especially for applications filed by financial creditors,” it said.