The Advisory Group on Bankruptcy Laws, chaired by N. L. Mitra, Director, National Law School of India, was formed by the Standing Committee on International Financial Standards and Codes at the Reserve Bank of India (chaired by Y. V. Reddy) in February 2000 to address the deficiencies in India’s corporate-bankruptcy framework. Members included Bimal Kumar Chatterjee (Bar-at-Law); H. Banerjee (Official Liquidator, Government of India); Cyril Shroff (C/o Amarchand & Mangaldas and Suresh A. Shrodd & Co.); T. C. A. Anant (Professor, Delhi School of Economics); S. Krishnaswamy (CA); and Subhashis Gangopadhyay (Professor, Indian Statistical Institute).

The Standing Committee itself had been established in response to the growing international consensus on strengthening financial systems after the late-1990s Asian financial crisis, which underscored the need for common standards, greater transparency, and more robust regulatory structures to prevent systemic risks. The group was tasked with aligning Indian laws with international standards such as International Monetary Fund guidelines and the United Nations Commission on International Trade Law’s Model Law on Cross-border Insolvency. Its primary objectives were to review the existing legal framework, assess compliance with global practices, and propose a roadmap for reform. The group’s terms of reference included studying India’s current bankruptcy laws, examining the feasibility of adopting international standards, and comparing India’s legal framework with those of industrialized and emerging economies.

The advisory group identified several critical gaps in India’s bankruptcy regime, especially regarding corporate restructuring and insolvency. Unlike many other nations, India lacked a comprehensive corporate-bankruptcy code. The Sick Industrial Companies (Special Provisions) Act of 1985, which addressed restructuring, was found to be inadequate because it recognized sickness only after substantial financial deterioration, delaying intervention. The group also examined other insolvency-related laws, including the Companies Act of 1956, and noted inefficiencies in the winding-up process, particularly delays in settling creditor claims, lack of professional input in asset valuation, and mismanagement by liquidators. The advisory group referenced the report of the Eradi Committee of 2000, which had highlighted similar issues regarding the insolvency system and recommended improvements in corporate restructuring mechanisms.

The advisory group strongly recommended drafting a new, comprehensive bankruptcy code to replace fragmented and outdated legislation. This code would facilitate fast-track insolvency, restructuring, and liquidation and provide a clear legal framework for handling cross-border insolvency cases. The group suggested that corporate bankruptcy should be managed by professional trustees, appointed from empaneled firms of chartered accountants and legal professionals. These trustees would be responsible for managing the company’s operations, negotiating with creditors, and overseeing liquidation. The remuneration of trustees would be performance based, ensuring efficiency and accountability.

The group also recommended establishing special bankruptcy benches in high courts to expedite bankruptcy proceedings. The group proposed distinct bankruptcy procedures for banks and financial institutions, recognizing their systemic importance. These procedures would require close coordination with the Reserve Bank of India, especially during the restructuring process. The advisory group emphasized that bankruptcy proceedings must protect the interests of depositors and creditors, and it proposed risk-based deposit insurance premiums to safeguard depositors during insolvency.

In its interim report, the group recommended aligning Indian laws with international best practices, citing the need for adopting cross-border insolvency provisions like those in the United Nations Commission on International Trade Law’s Model Law. Additionally, it called for better public awareness of bankruptcy laws through seminars and workshops. The report concluded with a strong call for immediate reforms, recommending the adoption of a comprehensive, globally aligned bankruptcy code to enhance the efficiency of India’s bankruptcy process and ensure timely corporate restructuring.

The recommendations of the committee would be realized in the form of the Insolvency and Bankruptcy Code of 2016, which consolidated and reformed various insolvency laws in India, focusing on corporate insolvency, restructuring, and liquidation; it also led to the establishment of the National Company Law Tribunal, where these cases would be considered, instead of creating benches on high courts. Also, under the Insolvency and Bankruptcy Code, the institution of Insolvency Resolution Professionals was created to oversee the management of insolvent companies.

Overall, the Advisory Group’s report played a crucial role in laying the groundwork for significant legal and regulatory changes in India’s insolvency regime. By recognizing the importance of aligning with global standards and practices, the group’s recommendations, while they did not lead to immediate comprehensive changes in India’s bankruptcy framework, ultimately paved the way for more efficient and predictable bankruptcy proceedings under the Insolvency and Bankruptcy Code of 2016.