Finance Minister Arun Jaitley on Tuesday (22 December) introduced in the Lok Sabha the Insolvency and Bankruptcy Bill, 2015, which proposes a single bankruptcy code with deadlines for processing insolvency cases, saying progressive legislation for reform should not be delayed by referring it to various parliamentary committees for scrutiny.
“I don’t want to see it passed as a Money Bill, without proper discussion. But I also can’t afford to have it go from committee to committee as people continue to suffer because of political chess playing,” he told the Lok Sabha.
“This is a progressive piece of legislation with the aim that assets lying in business that can’t function don’t get wasted, while stakeholders like workmen and creditors get first right on these assets.
“Just as entry into business should be easy, rather than assets being wasted, an easy exit also should be made available,” the finance minister added.
Elaborating on the progressive nature of the new bankruptcy code, Jaitley said the order of priority had been changed in the bill’s “waterfall provision”, whereby workmen and secured creditors would have first right on the assets, before the tax authorities.
The bankruptcy bill also provides for creation of an Insolvency and Bankruptcy Fund and an Insolvency and Bankruptcy Board of India to regulate insolvency professional, agencies and information utilities.
The proposed law aims to reduce delays in resolution of insolvency cases and improve recoveries of amount lent to companies. The draft bill has proposed a timeline of 180 days, extendable by another 90 days, to resolve cases of bankruptcy.
The new bankruptcy code will help India in the World Bank’s Ease of Doing Business ranking. India is currently ranked at 136 on this count in the 189-country ranking.
The current set of competing codes on the matter often results in the bankruptcy process dragging on for years, inflating costs for the parties concerned. Resolving a bankruptcy case can take on an average over four years in India.
The bill is a money bill, and Rajya Sabha will have a limited role in its passing, unlike the Goods and Services Tax (GST) Bill that has stalled because the ruling NDA does not have the numbers in the upper house.
Highlights of the bill:
- Consolidates into a single law a host of legislation that deals with the subject
- Allows operational creditors like employees to also call for insolvency resolution
- Proposes Insolvency Regulator to exercise regulatory oversight over insolvency professionals, insolvency professional agencies and informational utilities
- Moots two separate Insolvency Adjudicators — one with jurisdiction over companies and the other over individuals
- Proposes fast-tracking resolution of insolvency cases and improve recoveries of amount lent to companies within a timeline of 180 days, extendable by another 90 days
- Moots “Fresh Start” process for indigent individuals with income and assets lesser than specified thresholds
- Proposes insolvency information utilities which would collate, authenticate and disseminate financial information from listed companies and creditors of companies.
