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Wednesday, July 18, 2018

NPA Resolution: Insolvency to save biz, not to liquidate them, says Arun Jaitley

IBC was needed as Debt Recovery Tribunals failed to perform effectively: FM

By: ENS Economic Bureau | Mumbai | Published: August 20, 2017 6:04:38 am
arun jaitley, insolvency, NPA resolution, Insolvency and Bankruptcy Code,business news (From left) Sebi Chairman Ajay Tyagi, Finance Minister Arun Jaitley and RBI Governor Urjit Patel during a conference on ‘Insolvency and Bankruptcy: Changing Paradigm’ in Mumbai on Saturday. Nirmal Harindran

Finance minister Arun Jaitley on Saturday said that the key objective of the non-performing assets (NPA) resolution is not liquidation of businesses but to save them. He also said that the old regime of lenders chasing borrowers and being unable to recover anything is over.

Jaitley, who was speaking at an insolvency summit organised by the Confederation of Indian Industry (CII) in Mumbai said that the new insolvency and bankruptcy law has significantly reversed defaulting debtor-creditor relationship.

“The ultimate objective really is not liquidation of assets, (but) to save these businesses, get either the existing promoters with or without new partners or new entrepreneurs to come in and make sure that these valuable assets are preserved,” said Jaitley.

Jaitley said the Insolvency and Bankruptcy Code (IBC) was needed, as the Debt Recovery Tribunals failed to effectively perform their duty after the initial success.

“We lived in a system for many years which protected debtors and allowed assets to rust away. The old regime by which the creditor would get tired chasing the debtor and end up recovering nothing, is now over. If a debtor has to survive, he will have to service his debt, or he will have to make way for somebody else. I think this is the only correct way by which businesses would now be done and this message has to go loud and clear,” said Jaitley.

Calling for speedy and time-bound resolution of the bad loans issue, Jaitley hoped that the mandated timelines will be adhered to for the effective implementation of the IBC.

“The legislation has strict timelines and it is important to adhere these timelines. Conventionally, Indian courts have two standards. When timelines are laid for executives, they normally maintain these are binding. When timelines are meant for judicial institutions, courts have conventionally held that these are only directory,” said Jaitley.

Gross NPAs have crossed 9.6 per cent as of March 2017, while the stressed loans ratio is over 12 per cent. The Reserve Bank of India (RBI) has named 12 of the largest defaulters in June, which together owe more than Rs 2.5 lakh crore to banks. At least 11 of them are facing bankruptcy proceedings at the National Company Law Tribunal now.

Jaitley said that the powers of the resolution professionals will have to be clearly defined by the tribunals to “ensure that the assets of the stressed companies are preserved” and “the effective functioning of a company does not come to a standstill”.

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