July 29, 2019
Manish Gupta speaks on The Insolvency and Bankruptcy Code (Amendment) Bill, 2019
Sir, I rise to support this Bill. We all agree that a time comes in the economy of the country, in the lives of men and institutions when you need to take steps to correct the legal system wherever required.
Unfortunately, although I rise to support this Bill, I am constrained to point out that the parliamentary procedures that are required to give legislative legitimacy to any law or amendment has not been followed in this case. This is the most unfortunate because the previous honourable speaker who has spoken before me has pointed out certain lacunae in the Bill and therefore it would have been advantageous to send this Bill to a Select Committee for a short time so that more minds could be applied to amend this it. The point is, when you create a law, when you keep on amending it from time to time, it becomes a boring process. The wisdom is available, legal recourse, case laws are available, it needs to be incorporated into this Bill which has not been done in a scientific and structured manner.
Considering the situation in this country, the economy is in the doldrums. Our obsession with fiscal policy, with banks and financial institutions, with stock markets, with farmers is not being reflected in the Budget. So the credibility of banks is at the lower end. We have noticed that this Bill on insolvency has helped in resolving certain companies, certain debts that they have acquired.
Now at present, this law has been enacted to resolve NPAs. The total NPAs today in the country is Rs 10 lakh crore, as stated by the Government. So the ground reality is that more than Rs 3 to 4.5 crore has not been declared by the banks as NPAs. It seems that the general business community is of the view that there are thousands of such cases that can become NPAs. So this legislation has only taken care of a part of the problem, the tip of the iceberg. Hence a more comprehensive law would have been useful.
We need to look at the ground realities. On February 12, 2018, the RBI had issued a circular for solving the problem of State’s assets. Later they had modified, the Supreme Court had ordered that it be modified but the RBI’s directions and the RBI’s responsibility has only resulted in a mixed bag. So this has in fact slowed down the process of resolution. This needs to be rectified.
We have always said, we all believe that MSMEs are the future of our economy. Several states have made very good progress in this effect, West Bengal is one of them, Tamil Nadu is one of them and there are many other states. When the NABARD Act was amended in 2017, a section was inserted for the special status of MSMEs, so that banks could be refinanced by NABARD when they give loans to MSMEs. Even at that time it was an inadequate provision. I am surprised to see that in this code also a certain concession has been given to MSMEs, but the entire problem which the MSMEs face and will face if this code is used against corporate debtors, will affect them adversely. So the provision for MSMEs in this Act needs to be amended.
Sir, in the IBC – the Insolvency and Bankruptcy Code – more clarity is required. The Honourable Minister stated that engagement with stakeholders, creditors, bankers etc. is being done, where banks have taken a very large haircut in some cases, but the role of the banks is not very clear. Once they have taken the haircut, they disappear, and therefore they are not involved in the actual resolution process. It is a kind of an escape hatch that the banks are using; this needs to be plugged. Banks have to be involved till the end of the resolution so that they can contribute usefully to the economic situation.
Section 240(A), as I have already said, looks into the issues about MSMEs but the issues have not been fully addressed.
There are several other issues but time does not permit. Regarding the process that has been followed by the NCLT, we find that the courts are giving much more time and chairpersons of PSU banks have become new power centres. So this is like a crony capitalism. This code has enabled this kind of a situation to develop. If it becomes more broad-based, the entire purpose of the code will be defeated.
There are specific cases, which I am not going into, where courts have ordered extra time, an additional limit of 60 days. We feel this should be dispensed with; the sixty-day additional time frame only delays the process.
The main issue is infrastructure. Infrastructure constraints have not assisted the court. The 330-day limit, apart from the inherent power of the court, – you cannot wish away the court. There is Article 226, but apart from that the courts have an inherent power government. So this 330-day limit is not taking the process of resolution anywhere. The Government take a fresh look at this as to how to maintain the integrity of the court as well as to see that this process has some impact on the economy. This has not happened, Sir.
There are still some cases, as others have pointed out. One of the main issues is that, in this code we need not only to look at infrastructure but also at the bandwidth of the legal system; otherwise the resolution professionals, the quality of resolution professionals is very important. It is not specified in the court. Who decides who is a good professional? Who decides the quality of the professional? So there is a dearth of this, there is a lack of application on this.
Most importantly, in advanced countries, they have a mechanism by which they attend to corporate debts before the resolution process so that they don’t have to go into the IBC. We don’t have any such mechanism in this country and I would beseech the Minister to kindly look into this issue.
One of the most alarming issues is livelihood – livelihoods of workers, small businesses, suppliers, etc., who are dependent on this. Out of every four cases, only one case is resolved; the rest die or they go into litigation and then more litigation, go into liquidation. So this aspect – to what extent the process of resolution has helped with respect to the total number of such cases that will be filed in the courts – has to be looked into.