India's Insolvency and Bankruptcy Code (IBC) may have digressed from its basic design, according to a report by the parliamentary standing committee on finance.
The panel analysed the law and the progress made in resolving stressed assets.
The panel noted that the law has deviated from original objectives and blamed the amendments for giving it a "different orientation" that was "not originally envisioned."
The committee also pointed at low recovery rates with banks taking haircuts of even up to 95 percent in some cases. It also highlighted the delays in the recovery process.
The panel has proposed several recommendations to strengthen the current law by revisiting the design and implementation. The panel is also calling for a benchmark on haircuts that banks will have to take.
In an exclusive interview to CNBC-TV18's Shereen Bhan, Jayant Sinha, Chairperson of Parliamentary Panel on Finance, said that the outcomes from IBC have not been satisfactory. He also said that the important objective of ensuring good recovery for creditors and employment protection was not being achieved.
"The actual outcomes from the IBC have not been very satisfactory and that is why we have proposed that there should be some significant changes made to the legislation as well as to how it is being implemented."
"The most important objective for the IBC was to ensure that there was good recovery for creditors and second, jobs and employment was protected. When you look at the performance from those two parameters, you will find that neither creditors have been able to do particularly well nor have employees been protected sufficiently. So there are some important legislative changes that are required but much more so in terms of the actual procedural and execution related aspects, that is where we really need to concentrate, so that the law as passed works well on the ground," he said.
Sinha recommended strengthening of NCLT by filling up vacancies and improving the experience and qualifications of the NCLT members.
He said, "The biggest bottleneck in the system is NCLT. The NCLT right now has vacancies of 50 percent. So, it becomes a big bottleneck and that is why these resolutions drag on for as long as they do. In addition to the fact that there are a lot of vacancies in the NCLT, we think that the experience and qualifications of the NCLT members need to be significantly improved. We have recommended that we should have High Court judges on the NCLT because what is happening is that every NCLT decision is being appealed and it is leading to a lot of litigation going to NCLAT and the Supreme Court. So the NCLT needs to be significantly strengthened so that all of this can move much more quickly."
Sinha said that the resolution professional should be allowed to sell the entire entity by breaking it up into different businesses. He also recommended having pre-packaged resolution for large corporates.
"There are three very important legislative changes that are still required. One is that we have a choice between selling the business in its entirety or bring it into liquidation but there is another possibility which is to sell different businesses that are part of the overall group. So from a legislative point of view we should enable the resolution professional to be able to sell the group or the entire entity by breaking it up into different businesses and selling the businesses individually. The second important legislative change that is required is to bring the resolution professionals and the insolvency agencies together under one umbrella, right now they are being regulated and supervised across different institutions. The third important change that is required is, just like we have got the pre-pack for MSMEs, we should try and facilitate a pre-pack for large corporates as well so that they don't necessarily have to come into the whole NCLT process and resolution process, there can be a pre-packaged resolution."