Tracing the Duty of Directors in India: Wilful Drift Towards Insolvency?

Abstract

As we tread towards overcoming the Covid-19 pandemic, the world is gearing up to face the challenges of a post-Covid era. The Insolvency and Bankruptcy Regime has already armed itself to tackle this challenge in the form of pre-packs. However, there are still a few concerns that need to be ironed out. In this article, we expound upon the ambiguity and the adverse effect of the directors’ duty towards creditors that is manifested under section 66 of the Insolvency & Bankruptcy Code, 2016 (‘the Code’). In this regard, we discuss the jurisprudence in the UK and the US on the shift in the directors’ duty from being shareholder-centric to creditor-centric. Further, the article places an insight into the safe harbour approach employed by the Australian legislators to deal with the ambiguities associated with this duty. And finally, we posit that providing safe harbour to directors, in India, is essential to fulfil the objectives set to be achieved through the Code. Director’s duty towards creditors, safe harbour approach, India, Insolvency & Bankruptcy Code, 2016, corporate insolvency