Insolvency and Bankruptcy law powerful enough to teach willful defaulters a stern lesson
New Delhi, December 30: The Lok Sabha on Friday unanimously passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2017, which disqualifies wilful defaulters and existing promoters from bidding for stressed assets of companies undergoing insolvency proceedings.
Notably, the Insolvency and Bankruptcy Code (Amendment) Bill, 2017 was passed in Lok Sabha by a voice vote after a reply by Finance Minister Arun Jaitley. In a reply, Finance Minister Arun Jaitley slammed Congress UPA government of hiding the real figure of NPA by restructuring the assets.
Hitting out at Congress member Gaurav Gogoi, Minister Arun Jaitley said that NPA was a legacy problem and was mainly on account of the reckless lending undertaken by the banks during the UPA regime. Earlier, Congress member Gaurav Gogoi said that NPAs, which were low during the UPA regime, have got massive hike during the rule of the BJP government.
Responding to Gogoi, the Finance Minister accused Congress UPA government of hiding the real figure of NPA by restructuring the assets. He said, "But I am sorry that Gogoi has still not taken cognizance of what the problem is. How did this problem of NPAs happen in such a big magnitude?"
"Gogoiji has studied in good educational institutions of the world and he must have many times heard of the proverb that there were three types of lies i.e lies, damned lies and statistics. Today he has himself become a victim of the third one," the Minister noted.
Meanwhile, countering allegations of opposition that the government had not taken adequate steps to bring down non-performing loans in the banking system, Minister Jaitley informed that all the loans involved under Insolvency and Bankruptcy Code are those which were given before 2014.
The Finance Minister said, “The high levels of NPA at present are due to window dressing and due to evergreening of loans. This situation has arisen because loans were restructured and not classified as NPAs. The problems were shoved under the carpet and these came to light because of the asset quality review initiated by RBI in 2015.”
Importantly, the bill replaces an ordinance that was brought in last month seeking to bar wilful defaulters, defaulters whose dues had been classified as non-performing assets (NPAs) for more than a year, and all related entities of these firms from participating in the resolution process.
The Insolvency and Bankruptcy Code (Amendment) Bill, 2017
The Ordinance amends the Insolvency and Bankruptcy Code, 2016 to prohibit certain people from submitting a resolution plan (specifying details of restructuring a defaulter’s debt). These persons include: (i) wilful defaulters, (ii) disqualified directors, (iii) promoters or management of the defaulting company, and (iv) any person who has committed these activities abroad.
The Ordinance bars an insolvency professional from selling the property of a defaulter to any such person during liquidation.
Key Issues and Analysis
The Ordinance prohibits certain persons from submitting resolution plans as it may be considered undesirable to let them take charge of the company. However, this may reduce competition among applicants seeking to resolve the company and result in lower recoveries for creditors.