Lack of Judges makes Bankruptcy double trouble

Bankruptcies are booming in India with the new bankruptcy laws. This has lead to many individuals and organizations bankrupting due to non profit businesses. However there is a major problem- there are no judges to declare the outcome.

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Lack of Judges makes Bankruptcy double trouble
Source: 2010 Comparative Litigation Rates By J K Mark Ramseyer and Eric B Rasmusen of Harvard Law School

Bankruptcy is defined as legally declaring the inability or impairment of ability for an individual or organization to pay its creditors.

In the Indian legal system there is no regulation or statute legislated upon bankruptcy which denotes conditions of inability to meet a demand of a creditor as is common in many jurisdictions.

However there have been certain tweaks to the bankruptcy laws such as preventing willful debt defaulters from bidding for their own collapsed companies at auction. This was a major loophole which was being expedited upon.

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The major issue is the lack of judges to help solve bankruptcy cases. There are ten benches with 26 judges and technical staff to hear more than 2,500 cases. This is very low resources for what is needed. According to what has to be heard, atleast 80 benches over five years is needed.  Plus the tighter rules on bankruptcy means more cases.

The issue with judgments being delayed is a lack of structure in the economy which can hurt the market as a whole. For example large global investors can plan their strategies well to take over cheap bargains from bankrupt companies. This should not be a case of concern!

The government is very much aware of the lack of judges however, whether they will be improved is a matter of time. No confirmations have been made yet. With such a large population in India, is it so difficult to find good enough judges to handle the number of bankruptcy cases? Recommended By Colombia

Another problem with a lack of judges means, delays which leads to newer cases being registered taking even more time. As of now it sometimes takes more than six months to be registered as a case.

Shardul S Shroff, Executive Chairman of Shardul Amarchand Mangaldas & Co said-

“These courts don’t have time to hear company law related matters as they say the insolvency cases are taking up all their time. In the absence of more judges it will be difficult for them to deal with the workload.”

The bankruptcy regulator or IBBI too has a crucial role, and should be quick in changing rules to ensure the public policy goal of getting high value of the distressed asset is achieved faster. Judges will add to the transformational reform needed immediately.