Budget 2024: Finance Minister proposes to strengthen Insolvency Framework

Finance Minister Nirmala Sitharaman announced a slew of budget proposals to improve insolvency and debt recovery processes with measures including enhancing the efficiency of National Company Law Tribunals (NCLTs). The reforms aim to expedite insolvency resolutions, strengthen debt recovery tribunals, and establish additional tribunals to handle cases exclusively under the Companies Act. The steps include extending the Center for Processing Accelerated Corporate Exit (CPACE) services for the voluntary closure of LLPs.

Talking about the success of the National Company Law Tribunals (NCLTs) under the Insolvency and Bankruptcy Code (IBC), Sitharaman said that more than 1,000 companies have been resolved, resulting in the direct recovery of Rs 3.3 lakh crore for creditors. Additionally, 28,000 cases involving over Rs 10 lakh crore were disposed of even before admission. To expedite insolvency resolutions further, the government plans to implement appropriate changes to the IBC, reform and strengthen the tribunals, and establish additional tribunals. Some of these new tribunals will exclusively handle cases under the Companies Act. Steps to reform the Debt Recovery Tribunals are also on the agenda, with the establishment of additional tribunals to accelerate the recovery process.

The IBC has been recognized as an effective tool for addressing the twin balance sheet problem, where banks are burdened with Non-Performing Assets (NPAs) and corporates are overleveraged, the economic survey had said. Since its inception in 2016, the IBC has transformed the credit market landscape in India. By March 2024, 31,394 corporate debtors with a combined value of Rs 13.9 lakh crore had been disposed of, including pre-admission case disposals, Rs 10.2 lakh crore of underlying defaults were resolved at the pre-admission stage, as debtors sought to settle with creditors immediately after filing with the NCLT.