Vol 16 (2019) - Issue 4

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Statutory Dues and Insolvency Resolution: The Need for Reform in Indian Law

Synopsis

The Insolvency and Bankruptcy Code of 2016 ('IBC') is said to be the bulwark amongst the series of corporate law reforms introduced in India in recent times. The enactment of IBC consolidates the law relating to reorganisation and insolvency resolution. It provides a comprehensive one-stop framework for corporate insolvency resolution by providing overriding powers over any other process that could potentially interfere with such resolution. The functioning of the Code since its enactment in 2016 has been carefully monitored by the legislature and India’s Apex Court. Any deviance observed in practice as compared to the stated aim of the law has been carefully examined and acted upon. As a result, the Code has already undergone two legislative amendments apart from a number of interpretative clarifications from the Supreme Court of India.
The stated aim of the IBC, at least in the short-to-mid term, is to provide an effective legal framework for timely resolution of insolvency and bankruptcy which would support development of credit markets and encourage entrepreneurship. While, in the long-term, it hopes to improve the ease of doing business, and facilitate more investments leading to higher economic growth and development. However, consolidation and amendment of the laws relating to reorganisation and insolvency resolution merely caters to the short-to-mid term goals highlighted above. In order to improve the ease of doing business, a number of other avenues need to be taken care of, for instance, estoppel on old litigation after restructuring, maintaining corporate structures etc. One such avenue that needs attention is continued compliance with statutory authorities even after the Corporate Insolvency Resolution Process ('CIRP') has been completed. A comprehensive framework to address the accrued or outstanding statutory liabilities of the corporate debtor is therefore fundamental to the success of a CIRP. However, the IBC in its current form severely fails to address the same.
In this article, I will analyse the lacuna present in the IBC that restricts it from comprehensively addressing statutory dues at the time of insolvency resolution. I will begin by describing the original mechanism that was available under the Code for statutory dues and how certain deficiencies were observed in the same. In the next section, I will analyse how those deficiencies were addressed and how even then the revamped Code fell short of addressing the identified lacuna. In the final section, I will argue for revising the Code in favour of providing a comprehensive framework that removes statutory dues from their current classification in order to provide an effective solution to the issue at hand. For the purposes of this article, statutory dues connote taxes, cesses, duties and such other levies.