New Delhi: The Lok Sabha on Tuesday cleared amendments to the Insolvency and Bankruptcy Code (IBC) that provide relief to home buyers who, as financial creditors, will be able to decide the future of defaulting builders alongside their lenders. The IBC amendment also makes it easier for banks to agree on salvaging a failed firm from being wound up by lowering the votes needed for taking critical decisions to 66% from 75%.

The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018, seeks to replace the 6 June ordinance that sought to put these provisions into force to aid quick resolution of several bankrupt firms.

The demand from the main opposition party, the Congress, to refer the proposed amendments to a parliamentary panel was not accepted.

The Bill passed by the Lok Sabha introduces a new provision that was not part of the Ordinance—lenders deciding on a corporate rescue plan have to first seek the approval of Competition Commission of India (CCI) before finalizing the scheme.

This move is aimed at shortening the time taken for bankruptcy proceedings. The IBC allows a maximum of 270 days for lenders to clear a rescue plan, failing which the defaulting company will go into liquidation.

Interim finance minister Piyush Goyal, who moved the Bill, said the financial creditor status would help home buyers protect their hard earned savings and that the changes in voting requirements were based on global best practices.

“We looked at global best practices. In the UK, for example, a resolution plan is accepted if 51% of lenders agree. The government decided that some provisions need concessions so that more stressed assets get resolved," the minister said.

Congress members, however, alleged that lowering the votes needed to clear corporate revival plans to 66% would benefit investors who could buy stressed assets for a song. Congress MP M. Veerappa Moily demanded that the bill be referred to a parliamentary panel for review, while P. Venugopal of the All India Anna Dravida Munnetra Kazhagam (AIADMK) said it did not specify whether home buyers would be treated as secured creditors.

In his reply to the discussion on the Bill, Goyal said liquidation of companies was the last option and that the intention of the law is to save enterprises wherever possible considering the need for saving jobs.

“Whether home buyers are secured or unsecured creditors will be decided on a case to case basis by the resolution professional and the courts," said Goyal. The minister also said there was no plan to denationalize any public sector bank.

The ordinance of 6 June was valid for six months and if adopted by Parliament within this period, the amendments would continue to be in effect from the date of the promulgation of the ordinance, explained Manoj Kumar, partner at law firm Corporate Professionals.

The IBC amendments also seek to ensure that provisions enacted in January to bar wilful defaulters and those “acting jointly" with them from bidding for the bankrupt firm do not unfairly disqualify entities like asset reconstruction companies, banks and alternative investment funds.

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