New Delhi: The government on Tuesday said that it is willing to refer the Insolvency and Bankruptcy Code, 2015, to a joint committee of Parliament, effectively pushing its enactment at least to the budget session beginning in February. A final decision on whether the bill will be referred to a joint select committee will be taken on Wednesday, the last day of the winter session.

Pitching for the bill’s early enactment, finance minister Arun Jaitley, while initiating the discussion on the bill in the Lok Sabha, said it will go a long way in improving the ease of doing business in India. “I could have styled it as a money bill but I wanted a discussion on the bill because I think it is important. I recommend it should go to a select committee because most of the recommendations made by the standing committee are not accepted and the other house again refers the issue to the select committee. I request you to discuss the bill but it cannot go from one committee to the other," he said.

A money bill would have given the government the option to effectively bypass the upper house, where it is in a minority. A money bill must be passed in Lok Sabha by a simple majority but is not dependent on the Rajya Sabha’s approval. The upper house may give its recommendations within 14 days, but the Lok Sabha has the option of accepting or rejecting those recommendations.

The government said it favours referring the bill directly to a joint select committee having representation from both the houses of Parliament rather than referring the bill first to the standing committee (which predominantly has members from the Lok Sabha) and then to a select committee of the Rajya Sabha, to ensure speedy enactment of the legislation. It also pointed out that it favours this route only if the opposition is ready to allow a debate.

“All bankruptcy and solvency laws have been brought together so that in cases of insolvency, a case does not have to go to various courts. This is a step towards ease of doing business because it will allow an easy formulation of exit," Jaitley said.

He highlighted how workers will benefit: “Till now, the workers of a company were the last one to get compensation. According to this bill, they will get last one year’s salary, then secured lenders will be compensated, followed by unsecured lenders. Then will come in the tax authorities because if tax authorities take away all up front, as is the case now, there is nothing left for others."

The proposed code will cover individuals, companies, limited liability partnerships and partnership firms, and proposes a time-bound framework.

Faster resolution of insolvency will also get reflected in the World Bank’s ease of doing business rankings for next year, if the government manages to pass the legislation before 31 May, the cut-off date for data collation for the rankings. India, which has an overall rank of 130 among 189 countries, is ranked 136 in the category of resolving insolvency.

Currently it takes, on an average, over four years to resolve insolvency in India, according to the World Bank’s Ease of Doing Business report. The new code seeks to bring it down to less than a year. The bill provides for resolving corporate insolvency applications within 180 days, with an option of extending it by 90 days. It also has a clause to provide for insolvency professionals who will specialize in helping sick firms. It also provides for utilities that will collate all information about debtors to prevent serial defaulters from misusing the system. The bill proposes a regulator—the Insolvency and Bankruptcy Board of India—and an Insolvency and Bankruptcy Fund.

Arpinder Singh, partner and national leader, fraud investigation and dispute services, EY, said in a note that at present bankruptcy proceedings typically take a number of years and that by then a lot of the value of the bankrupt firm is eroded, leaving creditors with almost nothing. “Additionally, there are various routes where the parties to corporate insolvency transaction may take the case such as proceedings under (i) debt recovery tribunal for recovery of debts, (ii) winding-up petition in the high court, (iii) enforcement action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2000; (iv) Corporate Debt Restructuring, Joint Lender Forum or Strategic Debt Restructuring mechanism proposed by Reserve Bank of India," he said.

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