Study Material | Test Series
Drishti IAS
call1800-121-6260 / 011-47532596
Drishti The Vision Foundation
(A unit of VDK Eduventures Pvt. Ltd.)
prelims Test Series 2019
बेसिक इंग्लिश का दूसरा सत्र (कक्षा प्रारंभ : 22 अक्तूबर, शाम 3:30 से 5:30)
Q. Insolvency and Bankruptcy Bill: Discuss the need of new Bankruptcy Code in India and also outline how it helps in recovering the bad loans?
May 06, 2016 Related to : GS- Paper 3

Ans :


Bankruptcy is a legal term/status generally imposed by a Court, on an individual or a firm who unable to meet their debt obligations. Recently Loksabha has passed the Bankruptcy bill, which empowers the banks to faster winding up of troubled companies and recover money before the value of the underlying assets get eroded fully. The bill is now pending before Rajyasabha.

Why Bankruptcy code?

  • Indian banks are suffering from huge pile of bad loans. The share of Non-Performing Assets (NPAs) have been increased in recent times, at present banks have around Rs.4 lakh crore of NPAs.

  • Banking system is facing difficulties in recovering these bad loans, as existing mechanisms like SARFAESI Act and Debt Recovery Tribunals are not equipped enough for faster recovery.

  • Hence since long time banking sector has been demanding for effective bankruptcy code. Even an expert panel headed by former law secretary, T K Vishwanathan, had given recommendation for bankruptcy bill.

How Bankruptcy code helps in faster recovery of bad loans?

  • The new Bankruptcy Bill enable the banks (creditors) to take most decisions and thus helps in faster rehabilitation of companies. The bill would aim to fasten debt recoveries and restructurings by setting a deadline of 180 days to decide the fate of a company that defaults.

  • It will attempts to create a formal insolvency resolution process for businesses, either by coming up with a viable survival mechanism or by ensuring their speedy liquidation.

  • he bills proposes to create information utilities to provide creditors with information about borrowers and these information utilities would be regulated by the by new regulator ‘the Insolvency and Bankruptcy Board of India’. These steps help in speedy recovery.

  • According to new bill, a debtor could be jailed for up to five years for concealing property or defrauding creditors. Also Bankrupt individuals would be barred from contesting elections. Hence it will discourage the tendency of being wilful defaulters.

  • Also the law will protect interest of employees in case the employer files for bankruptcy.


The new Bankruptcy bill is major step towards addressing the issues of growing bad loans in Indian banking system. Though definitely it will lead to speedier insolvency resolutions and improve ease of doing business in India but it has to address the challenges in of functional issues in fastening the process of recovery. If implemented effectively it will defuse the crisis of bad loans and strengthen the India banking sector.

Helpline Number : 87501 87501
To Subscribe Newsletter and Get Updates.