Making liquidation smooth was the target of Bankruptcy Code: Bhupender Yadav,

“The existing framework for insolvency and bankruptcy is inadequate…and laws are scattered when it comes to dealing with business failure. There is a need for comprehensive legislation,” said Bhupender Yadav, Chairman of the Joint Committee on the Insolvency and Bankruptcy Code.

Yadav, who chaired the Select Committee on the Constitution (122nd Amendment) Bill, 2014, for the Goods & Services Tax regime and three other critical committees in Parliament, shared his views with BusinessLine on key recommendations in the Bill, including adding a new section to deal with cross-border insolvency. Excerpts:

Was there any difference among the Committee members on issues relating to insolvency and bankruptcy? What were the key concerns?

There were no differences. The report was adopted unanimously. Actually the base was the TK Viswanathan Committee report and the code prepared by him. When it came to us we had ready background. We gave public notice and invited comments from stakeholders such as industry bodies, labour organisations.

As there was mutual understanding among members on the need for such a law and an institutional infrastructure, the rest of the aspects were taken care of. The main concern among members was to ensure timely tackling of such cases.

Delay is just one component. The larger issue is dealing with the impact of the delay, which means money getting blocked. How to ensure smooth liquidation was the target. The Committee has suggested amendments to almost 11 existing laws including those dealing with the National Company Law Tribunal and Limited Liability Partnership.

The Bill currently is silent on cross-border insolvency. Did the Committee take up any specific cases?

We have recommended insertion of new provisions relating to cross border insolvency. The Code does not have provisions to deal with it. Cross-border insolvency includes Indian financial firms having claims upon defaulting firms which are global, or global financial persons having claims upon Indian defaulting firms. It was felt that given the corporate transactions and business today the implications of cross-border insolvency cannot be ignored and not incorporating it will lead to an incomplete code. The Committee has therefore suggested incorporation of provisions dealing with it.

The Committee has recommended excluding provident fund, pension fund and the gratuity fund from the liquidation estate assets and estate of bankrupt. Was there a demand for such a provision?

The representatives of EPFO had pointed out that payment of EPF dues was not given high priority in the Bill. They said EPF dues should get priority over all other debts, including secured creditors. Similarly, Pension Fund Regulatory and Development Authority had stated that investment for old age security/pension should be given higher priority.

The Committee felt that these funds provide social safety net to workmen and employees and hence the need to be secured in the event of liquidation of a company or bankruptcy of partnership firm. Therefore all sums due to any workman or employee from such funds should not be included in the liquidation estate assets or estate of the bankrupt.

Corporate insolvency is handled by the Corporate Affairs Ministry, while individual insolvency is with the Department of Finance Services. This is a grey area. What has the Committee suggested?

We have noted this. The Committee has asked the government to take a decision so that the Code is taken up expeditiously and effective implementation takes place.

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