In July, 2014, the Reserve Bank of India (RBI) issued a Master Circular on Wilful Defaulters (‘Master Circular’) which incorporated all instructions and guidelines issued on cases of willful default till such date. Certain important features of the Master Circular included that all borrowing units identified as willful defaulters or the promoters involved in diversion of funds were subject to penal measures and initiation of criminal proceedings.
This report examined the wilful defaulter regime proposed in the Master Circular along with the framework governing company and insolvency laws, particularly provisions on managerial liability and transaction avoidance and other related provisions such as direct remedy for creditors to approach the National Company Law Tribunal for relief in cases of willful defaulters and investigation into affairs of a company for business being carried on fraudulently.
It also studied in detail international practices on disqualifying directors and whistle-blowers’ protection to suggest reforms that may be suitably adopted in the Indian context. The report presented key recommendations in relation to director identification and reporting, managerial liability and transaction avoidance under insolvency laws, auditors’ reporting obligations, re-instating the debt-enforcement function of liquidation law and developing a separate director liability regime in order to strengthen the framework governing wilful defaulters in India.
The report also recommended special protections for independent and non-executive directors from the applicability of the willful defaulter regime. This recommendation was implemented.
About the Authors
Debanshu is one of Vidhi’s Co-Founders. He has over a decade of experience in commercial laws and the financial sector and has advised the Government of India on several legislative projects in this space. He was instrumental in advising the Government on the design and drafting of the Insolvency and Bankruptcy Code and its subsequent implementation. He has developed and curated Vidhi’s work on insolvency law, corporate law, financial regulation, and competition law and conceptualized its Bankruptcy Research Program. He has served as a member of a Government-appointed committee for operationalizing the National Company Law Tribunal and deposed before two Parliamentary committees examining financial sector legislation. He has also worked as a teaching fellow at Harvard Law School.
He is an alumnus of the Harvard Law School, the University of Oxford, and Hidayatullah National Law University. He attended Harvard as a Fulbright Scholar and was awarded the Irving Oberman Memorial Prize in Bankruptcy and the Dean’s scholar prize in Corporations. He was also awarded a Distinction for his graduate studies at Oxford. In 2017, he was selected for NYU School of Law’s Hauser Global Scholarship, which he waived. His academic work has been published in peer-reviewed journals and an edited book published by Cambridge University Press, New York. He has been consulted by and mentioned in global business publications, such as IFR Asia and The Economist. Earlier, Debanshu practiced as an M&A and regulatory lawyer with AZB & Partners at its Mumbai and New Delhi offices.
Shreya is a Senior Resident Fellow, and leads the work at the intersection of law, finance and development at Vidhi. She is currently focusing on independent research work relating to financial inclusion, tech and corporate governance. She has worked on several engaged projects with the International Financial Services Centres Authority, Ministry of Corporate Affairs and the Insolvency and Bankruptcy Board of India. Shreya completed her LLB from National Law University, Jodhpur in 2012 and LLM from Queen Mary, London on a Chevening scholarship in 2019. She also worked with the European Bank for Reconstruction and Development, London in 2019. Prior to joining Vidhi in 2014, she worked as an Associate at Luthra & Luthra Law Offices, New Delhi.
Sowjhanya Shankaran was a Research Fellow at the Vidhi Centre for Legal Policy.