Use of credit mechanism is a widespread phenomenon involved in business with slight differences according to the sectors of the economy. Increasing role played by the credit itself is apparent from the fact that in the year, Rs. 62 trillion were disbursed by the banking sector in India. Effective Corporate Governance and effective Bankruptcy and Insolvency laws are essential factors which can complement culture of entrepreneurship and business growth by providing a structured and stable debt lending and recovery system. It inculcates a sense of financial soundness in the economy and assists the market participant in drawing the real picture by accurately assessing price, risk and consequences of non- performance and how to deal with it. Market discipline is maintained and any kind of asset deterioration gets mitigated through swift and reliable enforcement channels.
The term “bankruptcy” as believed by Mr. Justice Heath, although has Italian origin being derived from the word “banca” (banco) and “rotta” (rotto) which in literal sense means “broken bench”, its immediate origin is a Latin term “bancus ruptus”.1 Lord Coke, assigning French origin to the term;bankrupt’ said, “for banque in French is a mensa, and a banquer or exchanger is mensarius, and route is a sign or mark... and means one whole bank is removed, but a trace or mark is left behind.

Rajiv Gandhi National University of Law, Punjab

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