Lok Sabha passes insolvency law amendments, FM Sitharaman says it will help save viable businesses

Responding to the Opposition’s criticism about some economic offenders fleeing the country, she said a law was enacted in 2018 to confiscate properties of fugitive economic offenders.

The Lok Sabha last Wednesday debated the Insolvency and Bankruptcy Code, 2025, as reported by the Select Committee, with the NDA MPs commending it as a draft law to resolve insolvency and Opposition MPs saying it would not serve the purpose.

The Insolvency and Bankruptcy Code, 2016 provides a time-bound process to resolve insolvency among companies and individuals, said PRS Legislative Research in its analysis of the Code. The Amendment Bill aims to address procedural delays that the Code has faced till now.

The Bill removes the liquidator’s powers of admitting or rejecting claims and determining their value. It offers to the committee of creditors (CoC) the power to appoint or remove the liquidator and supervise the liquidation process, setting up a Creditor-Initiated Insolvency Resolution Process (CIIRP) that permits an out-of-court commencement of insolvency proceedings by select financial institutions.

“For liquidation proceedings, the Code grants the liquidator quasi-judicial powers with respect to claims. This is to ensure finality of claims as rights get extinguished once assets are distributed under liquidation. However, the Bill removes these powers of the liquidator, who must now act under the supervision of the CoC,” PRS said in its analysis. “CIIRP may only be initiated by select financial institutions specified by the central government.”

BJP MP Anurag Thakur said during the debate that the legislative framework before the Narendra Modi government came to power led to delays and it took as many as seven years to either revive or shut down a sick company. He said the matters would reach the courts, which would lead to another delay of 10-15 years.

He said all the 12 public sector banks, 11 of which were in a bad shape earlier, are in profit today because of reforms of the Modi government. The BJP MP said former PM Atal Bihari Vajpayee’s government brought down non-performing assets (NPAs) from 16 % to 7.8 %; these again went up to 11-12 % in the UPA government days, after which they are now as low as 2.3%.

Taking an oblique dig at Leader of Opposition Rahul Gandhi, he said the Congress had “the biggest NPA of democracy”.

Countering Thakur, Trinamool Congress MP Saugata Roy pointed out that Nirav Modi, Mehul Choksi and Vijay Mallya were declared fugitive offenders and could not be brought back. He said the new Bill was not sufficiently strong and would not be able to solve the problem; that companies were swindling banks’ money and the law needed to be tightened.

Kalanadhi Veeraswami of the DMK said the law was benefitting a select few, distributing national assets to them. He said the NPAs were rising and the amounts were not being recovered.

Congress’s Rahul Kaswan said the government was constantly amending its own law brought in 2016, and why this was so if the law was not a failure. He said creditors have direct financial interests and cannot be allowed to oversee liquidation. He said liquidation as a process has lost its independence in the Bill, and would lead to biased decision-making. He asserted that the Bill did not constitute a reform. Kaswan said a minimum level of protection for MSMEs was required in the Bill.

Abhay Kumar Sinha of the RJD said the Bill would benefit big corporations but harm the small entrepreneurs of Bihar.