The government plans to introduce amendments to the Insolvency and Bankruptcy Code (IBC) in the upcoming Winter Session of Parliament to incorporate provisions for cross-border insolvency, a senior government official said Monday.
Provisions for cross-border insolvency would enable Indian firms to claim their dues from foreign companies, while allowing foreign creditors to recover loans from Indian companies, sources said.
Apart from foreign creditors, this would also help foreign branches of Indian banks to recover their dues in India.
A government panel, in its report on cross border insolvency last year, had suggested adopting the UNCITRAL or United Nations Commission on International Trade Laws on cross-border insolvency. The Winter Session of Parliament will start from November 18 and continue till December 13.
Section 227 of IBC to enable NBFCs’ resolution
While introduction of cross-border insolvency provisions within the IBC will enable lenders in pursuing resolution in cases where assets of borrowers are spread across the world, the Centre is planning to notify Section 227 under the Code to enable resolution of financial service providers, such as NBFCs. These measures will help in effective resolution of cases that are currently stuck because the insolvency law does not provide clear mandate for resolving such complex cases.
Meanwhile, the Centre may look at using provisions in the IBC for resolution of the financial service providers.
Insolvency and Bankruptcy Board of India (IBBI) Chairperson MS Sahoo said that Section 227 of the Code allows the government to notify certain financial service providers for the purpose of insolvency resolution proceedings in the manner as may be prescribed.
“It is possible to resolve some financial service providers at least those which resemble normal corporate debtors,” he said, speaking to reporters on the sidelines of a conference on insolvency law organised by industry body Confederation of Indian Industry.
Sahoo said it is entirely for the Centre to decide whether Section 227 of the IBC should be invoked or not, and that such decisions have to be taken in consultation with the financial regulators — such as the Reserve Bank of India.
Last week, sources in the government told The Indian Express that the Centre plans to notify rules under Section 227 of the IBC, which will allow the National Company Law Tribunal (NCLT) to order a resolution plan for non-banking finance companies (NBFCs) too.
Currently, resolution of stressed financial institutions cannot be taken up under the IBC. The notification will allow existing consortium of lenders and the existing resolution professional to take the financial service provider or the NBFC to the NCLT and seek a resolution plan that is binding on all parties.
As the existing mechanism of Inter Creditor Agreement has not been successful in finalising resolution plans for stressed NBFCs, resolution through the NCLT mechanism is being seen as binding on all creditors.
On whether there are plans to have a threshold for homebuyers to seek resolution, Sahoo said there is nothing rigid and if there are difficulties, then those would be addressed.
“Initially, homebuyers were not financial creditors. Then, a need came up and the government decided to make them financial creditors … If there are difficulties in implementing that, then the government is also willing to address the difficulties. There is nothing rigid … If there are difficulties, then let us address the problems,” the IBBI Chairman noted.