New Delhi: The amendments to Insolvency and Bankruptcy Code (IBC) 2016, allowing home buyers to be treated as financial creditors and seeking to set up a special dispensation for small sector enterprises, was passed by Parliament on Friday.
The bill, which was passed in Lok Sabha on 31 July, was approved in the Rajya Sabha today by voice vote. The legislation seeks to replace the 6 June ordinance that sought to put these amendments into force to aid quick resolution of several bankrupt firms.
Replying to the debate on the Insolvency and Bankruptcy Code (Second amendment) 2018 in the Upper House, finance minister Piyush Goyal said its objective was to provide resolution to small bankrupt firms and, at the same time, take stringent action against big bankrupt businesses.
He said the bill aims to ensure that all cases are led to resolution instead of liquidation. “We want faster resolution of cases. ....We don’t want liquidation. Insolvency will not help the country. Assets worth crores should put to use," he said.
The Minister said the Insolvency Law Committee, which was set up in November 2017, had submitted the report on 26 May this year and every recommendations of the panel has been accepted and incorporated in the amendments.
On the approval of a resolution plan, the Minister said the report said it should be approved by a panel of creditors by a vote of not less than 66% of the voting share of financial creditors.
For routine decisions, it should be 51% vote requirement. Goyal said the government is trying to increase the strength of NCLAT to address the pendency of cases. “The number of courts, judicial members and technical members are being increased," he said.
Besides, a group has been set up to see speedy resolution of about 40,000 cases in NCLAT that are simple in nature and can be resolved by imposing non-discretionary penalty, he added.
On a member’s query regarding less recovery of assets through the resolution process, Goyal said “there is a good recovery. ...If you look at the cases so far, 32 cases are resolved through resolution and up to 55% have been recovered."
Earlier, it used to take an average of three years to resolve a matter, it has now come down to one year. Earlier the cost of resolution used be higher at 9%, now it has come down to one per cent, he said.
He also stated that the NCLAT was an independent body and the government does not interfere in its functioning. The minister said it is not that in all cases, the promoters are wilful defaulters. Wherever promoters are wilful defaulters, the action should be taken strictly.
“Now there is fear among big borrowers that they have to repay their loans. Earlier, there was a responsibility to repay loans was on small borrowers. Big players used think it is not our problem, banks have to recover the loan. This equation has changed today," he noted.
Earlier, Minister of State for Finance P.P. Chaudhary termed the bill as a game changer for the economy. Opposing the bill, D Raja (CPI) said that frequent changes to the law is being done to help defaulters and the government wants to bail out the defaulters.
In the Bhushan Steel case, he alleged that the banks lost ₹ 21,000 crore but a corporate house gained this amount. He sought to know why the government has a “soft corner towards the corporates." “The government should bail out the poor and not the corporates. The voting requirement is reduced to 66% from 75% to help one corporate," he alleged.
Neeraj Shekhar (SP), S R Balasubramaniyan (AIADMK), Kahkashan Perween (JD-U), P Battacharya (Congress) were among others who supported the bill, but expressed concern over the government taking the ordinance route to amend various laws.
Supporting the bill, Jairam Ramesh (Congress) said that in the last two years out of 700 cases admitted under the Insolvency and Bankruptcy code only 3% have been resolved, 12% have gone into liquidation and 10% have been closed.
“In other words out of 700 cases over 500 cases are active. Now the court says within 270 days the process must be complete. So my first question to the minister is high proposition of cases which are ongoing," Ramesh said.
He said “We have passed a law which says that the whole process should be completed in 270 days. But over 75% of the cases going through some process or the other. I would urge the minister to pay close attention to it."
Ramesh said the recovery rate for banks stood at about 40%. “Now this 40% is also an optimistic figure this includes recovery in steel industry which is now on the recovery path."
He said he suspected that the recovery through this code would not be more than 30%. “This is not a very healthy figure and I urge the Finance Minister to pay close attention to the fact that the recovery is good in the steel sector. If you leave that aside, the recovery rates are not very encouraging," Ramesh said.
Ramesh also pointed out that on 12 February, the RBI had issued a circular on stressed assets and that the Finance Ministry has challenged it in the Allahabad High Court and sought to know the government’s position regarding the circular.
“This is extraordinary situation. RBI issuing a circular which is being challenged by the Finance Ministry. I would like the government to clarify the exact position on this circular," the Congress leader said, stressing that the wilful defaulters should not go scot-free. Neeraj Shekhar (SP) said what was the need for the government to bring in an ordinance in June when the House was scheduled to meet in July. Such action raises suspicion about government’s motives, he added.