India acts to speed up bankruptcy proceedings

Question: When the insolvency and bankruptcy code (IBC) was enacted, a deadline of 270 days was stipulated for resolving the dispute and recovering the debt. However, this time limit has not been adhered to and most cases have dragged on beyond this deadline. Is anything being done to expedite the process in order to fulfill the objective of the IBC?

ANSWER: You are right in stating that the time limit of 270 days has not been adhered to in most cases. In fact, data published by the Insolvency and Bankruptcy Board of India indicates that cases have dragged on for 724 days on an average. This has been attributed to excessive litigation by debtors, including personal guarantors. It has resulted in value erosion of the company. However, the Supreme Court has recently cleared the decks and resolved all the controversial and vexatious issues, providing sufficient clarity on the interpretation of the Code. This will expedite the recovery process considerably as personal guarantors will need to provide the funds based on the guarantees given by them. However, if the personal guarantors submit a repayment plan which is approved by the committee of creditors, they will be able to reduce the overall burden as the interest amount can come down substantially. Therefore, it is expected that hereafter the process of recovery will be more expeditious and creditors may agree to take a haircut if the personal guarantors pay up according to the schedule presented by them which is accepted by the creditors.

Question: While the network of highways has increased dramatically in the last five years, the toll collection is still a bottleneck and considerable time is wasted at toll plazas. Are any steps being taken to address this issue?

ANSWER: According to the Minister in charge of Roads and Highways, the network of roads in India will be as large as in the USA, by the end of this year. With automobile traffic rising every month, the toll revenue of the National Highway Authority of India is currently Rs400 billion, which is expected to rise to Rs1.4 trillion in the next three years. To speed up toll collection and reduce the waiting time at toll plazas, the Ministry of Road Transport is identifying new technologies including GPS-based toll systems which will replace toll plazas throughout the country. Currently, the Ministry is conducting a pilot project of automatic number plate recognition system to enable automated toll collection without vehicles having to stop. This will certainly speed up the traffic in densely populated areas during peak hours. Even at present the average waiting time for vehicles has come down with the introduction of FasTags. It is expected that the GPS-based toll system will be introduced gradually in India starting from the end of this year.

Question: Is there adequate scope for young persons to join the merchant navy in India? If they are working on a ship, would they be liable to pay tax in India on the remuneration earned by them?

ANSWER: According to recent estimates, the total number of Indians working in the merchant navy is 250,000. About 160,000 are professionally certified seafarers who work on cargo ships. The remaining 90,000 are employed by cruise liners. It must be noted that India has been on the International Maritime Organisation’s White List, which identifies nations which are fully in compliance with STCW-95 Convention and Code. To be included in this list, the country must have an appropriate seafarer licensing system, oversight of training centres, flag state control and port state control. Therefore, Indian sailors are in great demand by global shipping companies, cargo, passenger and cruise liners. The demand for Indian sailors is expected to grow annually by 20 per cent over the next ten years. India currently has about 165 maritime training institutes. As regards the tax implications on remuneration earned by citizens of India, the sailors would be treated as non-resident if they are out of India for 182 days or more in a financial year, which is from April 1 to March 31. If they satisfy this condition, they would not be liable to pay tax in India on the remuneration which they earn while working on a ship.

HP Ranina is a practising lawyer, specialising in corporate and tax laws of India.

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