Lok Sabha passes Bankruptcy Bill

K. R. Srivats New Delhi | Updated on January 20, 2018 Published on May 05, 2016

Minister for State for Finance Jayant Sinha speaks in the Lok Sabha onThursday   -  PTI


‘Transformational’ legislation will help improve ease of doing business

The Lok Sabha on Thursday passed the Insolvency and Bankruptcy Code Bill 2016, which is seen as a “transformational” legislation that will help improve India’s ranking in the World Bank’s ‘Ease of Doing Business’ index.

Replying to the discussion on this Bill, Jayant Sinha, Minister of State for Finance, told the Lok Sabha that the Government had “in toto” accepted the report of the Joint Committee of Parliament that went into the Insolvency and Bankruptcy Code Bill.

This would lead to “friction-free” market processes that will help create jobs, Sinha added.

Accepting the Joint Committee report in toto meant that the new legislation has also provided for cross-border insolvency (which was not covered in the original Bill introduced in 2015).

The Bill has also strengthened workmen rights as well as creditor rights. It has sought to provide a better deal for workmen in the waterfall (priority of repayment of dues post liquidation).

The Bill ensures that there won’t be any “cherry picking” on the category of persons and that everybody (workmen, secured creditors etc) will get liquidation proceeds on a pari-passu basis, according to Sinha.

Sinha described the new legislation, as “transformational” and highlighted that it could pave the way for much broader and deeper debt markets in the country.

He also expressed hope that the new legislation would reduce the need for “personal guarantees” of promoters while availing bank loans.

Sinha was responding to the concern expressed by Member of Parliament Jayadev Galla that banks have started “tightening on promoters” and were “insisting on personal guarantees”. Galla felt that banks should not be insisting on personal guarantees.

Wilful defaulters

Sinha highlighted that proceedings against ‘wilful defaulter’ will be independent of bankruptcy. The process of action against ‘wilful defaulter’ will be “criminal” action, he said.

He said that wilful defaulters (in the banking system) are being identified and as on date over 7,000 such defaulters have already been identified.

A wilful defaulter is one who does not pay back bank loans and also siphons off funds advanced by banks to deploy them for other uses.

Asked about the status of asset reconstruction companies (ARCs) in India once the Insolvency and Bankruptcy Code gets enacted into a law, Sinha said that ARCs will have a role to play.

Status of ARCs

“The ARCs will be a valuable element of the new ecosystem being put in place by us,” Sinha said.

The government had recently allowed up to 100 per cent foreign direct investment in ARCs.

Published on May 05, 2016
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