Rajya Sabha on Saturday passed the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020, which seeks to replace the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020.
This ordinance, which was promulgated on June 5, had prohibited the initiation of insolvency proceedings for defaults arising during the six months from March 25, 2020 (extendable up to one year).
Simply put, no insolvency proceedings can be initiated by either the corporate debtor or any of its creditors for defaults arising during this six-month period beginning March 25.
The ordinance came in response to the Covid-19 pandemic, which had created uncertainty and stress for businesses for reasons beyond their control. It was also felt that during the Covid-19-induced lockdown, it may be difficult to find an adequate number of resolution applicants to rescue the corporate debtor who may default in discharging their debt.
Replying to the discussions on the Bill, Finance Minister Nirmala Sitharaman detailed the reasons for the government to have brought in an ordinance in this matter.
She asserted that IBC is a critical part of businesses now and it is important for everyone to understand this. The Finance Minister said that the intention of IBC is being well served and the top priority of the code in terms of keeping companies as “going concerns” is being well served.
Sitharaman reeled out data on recoveries under various routes — Lok Adalat, DRTs, SARFAESI and IBC, to show how the proportion of recoveries under IBC at 42.5 per cent was the highest. It was j5.3 per cent for Lok Adalat; 3.5 per cent for Debt Recovery Tribunals and 14.5 per cent for SARFAESI.
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The Finance Minister also defended the provision in the Bill to cap the suspension of sections 7, 9 and 10 for one year. By putting the upper limit of one year, the government is ensuring that excessive delegation does not go to the executive and also that Parliament approval would be necessary if the suspension were to be extended beyond one year, she noted. “I would rather not remove (the one-year cap) it. This is a restraint we have put for ourselves,” she said.
With the six months timeline for the suspension coming to an end on September 25, Sitharaman indicated that a formal announcement on the way forward will be made on September 24.
She also asserted that the amendments brought through the ordinance was not intended to protect promoters from their fraudulent transactions.
To a question on whether MSMEs have lost an effective recovery tool due to the suspension of sections 7, 9 and 10 of IBC during the six months from March 25, she replied in the negative.
“IBC is not a recovery law. Its main purpose is to save companies and keep them as going concerns,” she said.