The Insolvency and Bankruptcy Code (Amendment) Bill, 2017, was passed in the Lok Sabha on Friday. The Bill debars willful defaulters and existing promoters from bidding for stressed assets of companies undergoing insolvency proceedings.
With the Opposition led by RSP’s N K Premachandran moving a statutory resolution disapproving the amendment Bill, specifically questioning the need for promulgation of an ordinance to effect the changes, Jaitley said the functioning of the Bill, passed in December 2016, has revealed “certain improvements…changes were necessary”.
Moving the amendments, Jaitley said: “For the first time, India has entered into this jurisprudence; it is a learning experience for us (government) also. One year after operationalising it, all stakeholders concerned have been consulted, and these amendments have been brought in.”
He said the ordinance was brought in “because a large number of cases are already pending resolution mechanism itself. If we had not immediately brought in (the Bill), even ineligible persons, who are sought to be made ineligible under this, would have started applying for the resolutions itself.”
During the debate, the Opposition claimed that there has been an increase in non-performing assets (NPA). But Jaitley called it “a legacy problem” and blamed the UPA government for giving loans to companies without any security and constantly restructuring NPAs. “For us, it is a legacy problem which we are trying to resolve,” Jaitley told the House, replying to Opposition members during a discussion on the Bill.
Explaining why the NPA situation ballooned out of control, Jaitley said that during the 2003-08 global economic boom, the then government must have held that banks were generous in their lending so that businesses grow. “But when money is lent without any security, then even intention is questionable. The fact is that all these loans were given prior to 2014,” he said.
During the discussion, Congress leader Gaurav Gogoi read out statistics which he said point towards increase in NPAs under the current government. Citing World Bank data on the percentage of NPAs of banks as a proportion of their total gross loans, Gogoi said that under UPA it had increased from only 2.7 per cent in 2011 to 4 per cent in 2013, while under the NDA it was 4.3 per cent in 2014, 5.9 per cent in 2015, and 9.2 per cent in 2016.
“The NPA issue went from being a concern to a crisis of epic proportions under your government,” Gogoi said.
Rebutting Gogoi’s statistics, Jaitley said that during the UPA’s term “NPAs were restructured but not declared as NPA, a term known as ‘window dressing’, or ‘ever-greening the loan’. You are only fooling the nation, and yourself, that it isn’t NPA,” he said. The Finance Minister said it was only after the Reserve Bank of India did an asset review of banks in 2015 that it discovered the loans shown as performing were in reality non-performing, after which it put those in the NPA category.
“The percentage didn’t increase because…Modi government came to power.. All figures that you have read out to show an increase, it’s all on your account,” he said.
“There are countries in the world that allow defaulting creditors to bid. But we have a situation in India where we have to take a decision,” he said.
The Bill replaces an ordinance that was brought in November this year. Jaitley said an ineligibility criteria had to be introduced so that defaulting promoters do not to regain control of their companies after the resolution process, as was the case until now. As a result, while banks, creditors and workers are forced to take a cut, the promoter gets away by paying only a fraction of what he owes.
Following Jaitley’s statement, Premchandran withdrew the statutory resolution to oppose it and the Bill was passed.
Earlier, Premachandran argued that the ordinance was promulgated on November 23 when Parliament was to summoned in the third week of the same month. He said: “Why did the government not wait for three weeks to bring a fresh Bill in the House instead of promulgating an ordinance? We could have waited for three weeks and would come to the House with a fresh Bill…. Promulgation of this ordinance is ultra vires to Article 123 and hence this has to be disapproved. There was no urgency, exigency or contingency or compelling extraordinary circumstance to attract Article 123…”
Opposing the amendments, TMC’s Saugata Roy said the Bill looked an “overkill”, whereas the original Bill was alright.