December 29, 2017
Saugata Roy speaks on The Insolvency and Bankruptcy Code (Amendment) Bill, 2017
FULL TRANSCRIPT
Sir, I rise to speak on the Insolvency and Bankruptcy Amendment Bill, 2017, which has been introduced to replace the Ordinance promulgated on November 23, 2017. This Bill seeks to amend the Insolvency and Bankruptcy Code, 2016.
Now, the Insolvency and Bankruptcy Code was brought to this House in 2015, referred to a Select Committee of both Houses of Parliament, after which the report was submitted and the Bill was passed. It had the support of all parties since it came through a Joint Committee. It beats me why, within one year, it became necessary to bring in an amendment.
Sir, what I want to say is that this Ordinance is a desperate step by a desperate government. The government’s problem is serious because, according to the Minister, the Gross Non Performing Assets of Scheduled Commercial Banks were Rs 8.2 lakh crore as of September 30, 2017.
Under the Insolvency and Bankruptcy Code, the Reserve Bank has said 12 companies, which are the fund based outstanding amount greater than Rs 5000 crore with 60 per cent or more, are classified as non-performing to initiate insolvency process under the IBC Code. These companies which are big defaulters include S.R. Steel, Bhushan Steel, Lanco, Alok Industries, ABG Shipyard and JP Infratech. Already action has been initiated under IBC code and 12 companies have been referred to the NCLT under this.
What is this Insolvency and Bankruptcy Code? When a company is going insolvent then an insolvency professional will be appointed, who will ask for applications so that the resolution process can be initiated. The new National Company Law Tribunal has been formulated on this.
Now what does this amendment brought by Mr Jaitley say? It has certain restrictions on ineligibility to be a resolution applicant. One is ineligible to submit a plan if he
- is an undischarged insolvent,
- is the wilful defaulter identified by RBI,
- his account has been identified as NPA for more than a year,
- he has been convicted of an offence,
- he has been disqualified as a director under Companies Act, and,
- he has been prohibited from trading insecurities.
These are the people who will be ineligible to apply for resolution of a company.
This resolution plan has to be approved by 75 per cent of the majority of the creditors committee, subject to any condition specified by the Insolvency and Bankruptcy Board. Also, it provides the committee of creditors for approving a resolution plan submitted before the promulgation of the Ordinance where the plan has been submitted by a person ineligible to be a resolution applicant. This means that you are limiting the number of resolution applicants by putting certain conditions. And now there is also a penalty to say any person contravening provisions of the court will be penalised, punishable with a fine ranging between Rs Rs 1 lakh and Rs 2 crore.
Now, to me this Bill appears to be a overkill. IBC was alright; now they have broadened the people ineligible. I will tell you what will happen because of this. Sir, the category of people barred is too broad and list the very objectives of the original code. It is opportune to remember here that Insolvency and Bankruptcy Code is not intended to serve as a liberal instrument of liquidation, that is, not to close down factories. It is to revive factories. It is to provide an enabling legal framework for the organisation and insolvency resolution of corporate persons in a time-bound manner for maximisation of value of assets of such persons.
Now, the amendment risks being an instrument of blunt force that hurts more than it helps. It has been pointed out that not all bad loans are a result of malafide intent on the borrowers part, specifically in cases when companies have ended up struggling to serve its debt as a result of unpredictable external factors that adversely impacted their operations and finances. Barring the promoters of such firms from a chance to restructure and turn the business around, merely because the loans have turned sore, is unfair to both the entrepreneur and enterprise itself.
For instance, steel companies are among the worst hit in the wake of global downturn in commodity prices and depressed demand. Some of the promoters of the steel makers were considering participating in a bid to restructure the debt and business, hoping to run them again by widening the scope. It considers eligible and ineligible participants in the resolution process and worse, making the amendment retrospective to cover even those cases already referred to the NCLT. The Centre may have ended up by throwing out the baby along with the bath water.
Sir, I want to say that the government has done too much. It has barred to many people and it will hamper the resolution process under IBC. The current Ordinance is a dangerous shortcut. It relieves the banks from judging the promoters and guides them to a faster – even if financially less attractive resolution – in many cases. In terms of policy objectives, Government of India has moved towards minimising a willful defaulter from entering the fray, but this move would have been justified if the virtue of keeping defaulter at bay was far higher than the genuine scene of driving away defaulting but genuine promoter.
This Ordinance, as I said, would throw out the baby along with the bath water. You are actually not improving the situation in a case, where the economy is already in doldrums. Sir, this morning the Minister said, “The economy is in a serious condition. The rate of growth have fallen to 5.7%.” And I am just pointing out.
Sir, you are from rural area. Agricultural growth, in last two quarters had been 2.3% and 1.7%. Total farm loans last year was Rs 8.5 lakh crore last year, and Rs 9.5 lakh crore this year. So in spite of that, agriculture is not growing. It is a difficult situation. I think that the minister needs to have a fresh look at the Bill instead of making at the original Bill, so that they do not spoil the chance of the recovery of these companies which are already closed.
Lastly, with this the government has brought another Bill called the Financial Resolution and Deposit Insurance Bill, which is before a Standing/Joint Committee. That is more dangerous because it gives a bail-in provision that would jeopardise the deposits of common people. There have been protests against that Bill already.
The problem with lawyers as ministers is that they think that the solution to every problem is enacting laws. They should not. I would request them to desist from these unnecessary laws. Rather, they should implement whatever laws are already there to solve the problems.
Thank you, Sir.
