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December 30, 2017

Insolvency and Bankruptcy Code Amendment Bill passed in LS


Insolvency-and-Bankruptcy

On December 29, 2017, Lok Sabha passed the Insolvency and Bankruptcy Code Amendment Bill.

The bill seeks to replace an ordinance which was promulgated in November to prevent unscrupulous persons from misusing or vitiating the provisions of the Insolvency and Bankruptcy Code (IBC).

Speaking in the parliament, Union Finance Minister Arun Jaitley said, “Loan defaulters can participate in bidding under the insolvency proceedings after paying due interest and making their bad loan accounts operational. The government cannot allow loan defaulters to merrily walk back by paying a fraction of the due amount.”

The bill allows defaulting promoters to be part of the debt resolution process, provided they repay the dues in a month to make their loan account operational and the resolution happens within the overall time frame specified in the code.

The bill has also sought to bring any individual who was in control of the Non-Performing Assets (NPA) under the ambit of the insolvency code. It also allows guarantors of insolvent firms to bid for other firms under the insolvency process.

“The high levels of NPA at present are due to window dressing and due to ever greening 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,” Jaitley added.

Blaming the Congress for ignoring the NPA problem, Jaitley said, “What was below the carpet has now come above the carpet. The amendment to the Bankruptcy Code became necessary to prevent defaulters from taking advantage of the situation to come back into the management by paying a fraction of amount. We have tried to fill in that gap, that is the objective if we had not done this, all such defaulters would have rejoiced because they would have merrily walked back to these companies by paying only a fraction of the amount and that is something, which besides being commercial imprudent, would also be morally unacceptable. That's the real rationale behind this particular bill."

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