Parliament on Thursday approved changes in the Insolvency and Bankruptcy Code (IBC), providing greater clarity over the distribution of proceeds of the auction of loan defaulting companies, with the Lok Sabha passing the Bill with voice vote. Seven sections of the code are being amended.
The Bill was passed by Rajya Sabha on Monday.
The Insolvency and Bankruptcy Code (Amendment) Bill, 2019, gives the committee of creditors of a loan defaulting company explicit authority over the distribution of proceeds in the resolution process, and fixes a firm timeline of 330 days for resolving cases referred to the IBC.
The amendments would also bring in more clarity on various provisions, including the time-bound disposal for resolution plan at the application stage, as well as the treatment of financial creditors, Finance Minister Nirmala Sitharaman said.
“Once the Corporate Insolvency Resolution Process (CIRP) begins, it has to be completed in 330 days, including litigation stages and judicial process,” Sitharaman said, citing the proposed amendments.
The approved resolution plan would be binding on Central and state governments as well as various statutory authorities.
Sitharaman said the proposed amendments also respond to issues pertaining to financial creditors in the wake of a recent ruling with respect to financial and operational creditors.
Recently, the National Company Law Appellate Tribunal (NCLAT) had ruled in the Essar Steel Ltd’s case that the Committee of Creditors (CoC) had no role in the distribution of claims, and brought lenders (financial creditors) and vendors (operational creditors) on par.
Sitharaman quoted a Supreme Court judgment to say that there is no longer a “defaulter’s paradise” with implementation of the code. She also said the provisions of the Bill empower home buyers. “The government will endeavour to do full justice to them,” she said, adding that the government was also looking at ways to resolve the issue concerning buyers of flats from JP Group of companies.
On issues concerning Jet Airways, the minister said that the stakeholders were free to work out a resolution plan and they were not obliged to use the IBC, which is optional.
Earlier, participating in the debate, Gaurav Gogoi of the Congress said the performance of the IBC has been a mixed bag. He also raised concerns about the liquidation of companies, especially firms in the real estate sector, that put home buyers’ life savings at risk.
M Srinivasulu Reddy of the YSRCP referred to the death of Cafe Coffee Day founder V G Siddhartha and said industries are sick because of business failures. “The government is working towards ‘ease of doing business’, whereas there is an increase in ‘difficulties in doing business’,” he said.