A modification to the Companies Act, IBC, and MCA’s 100-day plan

Following the elections, the Ministry of Corporate Affairs (MCA) has prepared a strategy for the first 100 days of the next administration.

 

In addition to a number of modifications to the Insolvency and Bankruptcy Code (IBC) intended to accelerate settlements and broaden the scope of the process, the action plan calls for strengthening the National Company Law Tribunal (NCLT) and simplifying the current Companies Act, 2013 regulations.

“The MCA will endeavor to enumerate more members at NCLT than the now authorized number. In addition, an official source said that the industry’s suggestion to establish distinct benches within the NCLT for disputes pertaining to business law and the Insolvency and Bankruptcy Code would also be considered.

According to the insider, the strategy also includes putting the finishing touches on a more stringent governance structure for big unlisted companies, particularly in light of the suspected irregularities at companies like Byju’s.

Currently, the NCLT consists of 53 members, including judicial and technical members, as opposed to the 63 members that are authorized. It is anticipated that the number of registered firms would expand in proportion to the member strength. The strategy also includes the suggestion to strengthen NCLAT. The source said that the additional members will provide NCLT more time to handle issues pertaining to the Companies Act. As of February 2024, 1.67 million enterprises were registered in the nation, according to MCA statistics.

The MCA will expedite the process of amending the IBC under the new administration in accordance with the action plan. It’s the ministry’s main priority. Even though the IBC has already undergone a number of changes, the resolution process has to go even more quickly, the source said.

According to G.P. Madaan, adjunct faculty at the government-run Indian Institute of Corporate Affairs (IICA), “there is an urgent need for amendments related to real estate projects, reverse insolvency, group insolvency, treatment of EPFO claims, and priority of claims of government authorities in terms of Rainbow Papers judgment of the Supreme Court.”

According to a CRISIL study, as of September 2023, there was a backlog of over 13,000 cases that were at different levels of IBC resolution and that were taking an average of 653 days to resolve, as opposed to the required 330 days.

“We will address the unlisted enterprises’ governance frameworks that have systemic repercussions as soon as possible. In addition to the current committees that unlisted enterprises are expected to organize, the ministry is drafting a proposal to compel them to establish risk management committees (RMCs). This will significantly reduce the hazards, the official said.

In the first days, a few ideas concerning the corporations Act 2013 modifications will be discussed. These include making it possible for corporations to conduct AGMs and EGMs electronically and easing the need for troubled companies to raise capital. Companies have been conducting their AGMs virtually for the last three years. The MCA has approved this via circulars that have been renewed annually. The Act has to be amended since this is currently not covered by the laws, according to Corporate Professionals founder Pavan Vijay.

The establishment of group insolvency and cross-border insolvency processes is one of the cardinal IBC modifications. The change also includes the introduction of project-wise bankruptcy under real estate, the elimination of the interim moratorium provision for personal guarantors’ assets, and the establishment of the creditor-led resolution plan (CLRP) mechanism, which is an out-of-court dispute settlement technique.