Why Centre should prioritise IBC's alignment with other laws

India currently ranks as the fifth largest economy and is projected to become the third largest economy by 2030. It is therefore crucial to emphasise on the continuous improvement of India’s ease of doing business ranking. The significance of India’s rise holds both geopolitical and business significance, exemplified by its successful tenure at the G-20 presidency. Essentially, this trajectory sets the stage for a robust economy with a strong nationalistic undertone. In the near future, a surge in mergers and acquisitions (M&A) activity is expected, potentially reaching record levels. Indian corporate houses have been the main drivers of M&A and the landmark economic legislation namely the Insolvency and Bankruptcy Code (IBC) has been a catalyst in the same. Breakthrough deals, like ArcelorMittal’s acquisition of Essar Steel, have certainly boosted foreign investor confidence. Given the pace of progress that India wants to achieve, corporate activity will be a key factor and M&A would be a part of it. Further to ensure the success of M&A via the IBC, the government should prioritise clarity, promptly address any uncertainties, align the IBC with other laws, and make necessary adjustments to expedite the M&A process through this route. Mergers and acquisitions (M&A) are one of the quickest ways for firms to enter new markets and add new capabilities to existing organisations. With ongoing reforms being implemented under relevant corporate and allied regulations, the investor community has consistently accessed the potential of this inorganic growth. The adoption of the IBC is one such attractive reform. In fact the introduction of this law has created a favourable environment for an absolutely new market and ecosystem of M&As in the distressed companies which wasn’t so prevalent earlier. It is a matter of record that IBC is one of the most important measures adopted by the government to address the problem of stressed assets. As of March 2023, there were a total of 6,571 Corporate Insolvency Resolution Processes (CIRPs) in India. Out of these, 4,515, which is about 69 per cent, have been completed and/or closed in one way or the other including settlements, withdrawals, etc. according to the Insolvency & Bankruptcy Board of India (IBBI). The data also reveals that 678 companies facing financial difficulties have been saved through this process. Additionally, 117 of these companies have acknowledged claims exceeding Rs 1,000 crore as of December 2022, and 102 of them have successfully implemented resolution plans. While the ratio of successful resolutions to liquidations is not promising, there has been a flurry of activity, with many seeing this as an opportunity to acquire valuable assets at discounted prices. A careful examination of the cases filed under the IBC reveals a significant increase in M&A transactions in India. In the last couple of years, there have been several corporate entities, HNIs, offshore entities and others showing interest in acquiring Indian companies for the first time. This process of M&A, though relatively new, has garnered considerable investor attention. Some argue that it is still in its early stages and has not delivered on its promises effectively. The IBC in India has witnessed numerous successful resolution plans since its inception, some notable examples of successful resolution plans:  

  Some of the recent (2023) successful Resolution Applications:

  The Indian Bankruptcy Code (IBC) provides a comprehensive legal framework but does not eliminate the need for approvals from regulators and government bodies like CCI, RBI, SEBI, and others when resolution plans include their jurisdiction. Due to the early stages of the Insolvency and Bankruptcy Code (IBC) and its associated uncertainties, caution is advised when analysing potential risks and liabilities and developing a resolution plan. On the one hand, distressed M&A offers advantages, such as acquiring assets at a lower cost. These transactions are in their early stages under the IBC but are expected to grow as the framework matures. However, on the other hand, when foreign (on Indian) investors and acquirers are buying companies in India through the IBC route, there should not be unknown skeletons in the form of litigations and proceedings coming in from different corners. While the IBC promotes the idea of a clean slate, as emphasised by the Hon’ble Supreme Court judgement in the Essar Steel case, the reality on the ground is that challenges can persist even after acquisitions. These challenges may come from private stakeholders or statutory authorities. This situation is a concern that needs to be addressed to facilitate smoother and more successful M&A activity through the IBC route. At the end of the day, companies are looking for business-friendly governments, policies, legal frameworks and hence improvements on this aspect would go a long way in helping India achieve its well deserved and ambitious global economic position. The writer is a practicing commercial litigation and disputes resolution lawyer. He is the author of Defaulter’s Paradise Lost: Demystifying the Insolvency and Bankruptcy Code, 2016. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost_’s views._ Read all the  Latest News,  Trending News,  Cricket News,  Bollywood News, India News and  Entertainment News here. Follow us on  Facebook,  Twitter and  Instagram.