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Parliament has cleared the Insolvency and Bankruptcy Code (Amendment) Bill. The Rajya Sabha approved amendments to the legislation that bars owners of defaulting firms from bidding to buy back assets when they are auctioned as part of the bankruptcy proceedings.
Already cleared by the Lok Sabha, the Bill sailed through with comfort in the Upper House despite objections from Opposition members on issues related to “haircuts”. They also wanted the government to identify willful defaulters of bank loans, an issue on which Finance Minister Arun Jaitley did not broach upon while replying to the debate.
The government had earlier passed an ordinance to keep out such persons who have willfully defaulted, are associated with non-performing assets, or are habitually non-compliant. Finance Minister Jaitley said the proposed changes in rules would help streamline the process of selecting buyers for stressed assets.
Given that this was a new learning experience and the government had entered into an unchartered territory as far as bankruptcy and insolvency code is concerned, he said the government would continue to modify the law dealing with the issue. The government, Jaitley said, has been encountering situations which were not anticipated earlier and assured the House that it would continue to take corrective action.
The Bill seeks to replace an ordinance which was promulgated in November to prevent unscrupulous persons from misusing or vitiating the provisions of the Insolvency and Bankruptcy Code (IBC). The ineligible persons or entities will include undischarged insolvent, willful defaulter and those whose accounts have been classified as non-performing assets. These persons, however, can become “eligible to submit a resolution plan” if they clear all the overdue amounts with interest and other charges relating to their NPA accounts. Those defaulters who had participated in the insolvency proceedings before November 23 can also bid for stressed assets provided they clear their dues in a month
Responding to the concerns of the members, he said the whole effort was to make the banking sector robust and detach it from politics. He said during the insolvency process, banks and unsecured creditors will have to take some “haircut” and if the same management comes back, nothing would change.
The objective of the Bill is to allow creditors to move to the National Company Law Tribunal (NCLT) in case of insolvency. He said the resolution process had been started and more than 500 cases disposed of.
Initiating the debate, former Finance Minister and Congress leader P Chidambaram supported the Bill but pointed to various clauses, which he said, would deter Indian companies from participating in the process. “I think one should have been a little more rigorous in the exclusion clauses. One should have kept exclusion to a very, very small number which definitely must be excluded. But I am afraid by making the clauses so broad, so over-inclusive, practically everybody in the financial world is likely to be excluded,” Chidambaram said. A major concern was lack of bidders, he added.
