The cabinet recently cleared a bill to amend the Insolvency and Bankruptcy Code 2016.The government could not get the bill passed in the Parliament owing to the prorogation of the houses on December 13. Instead of waiting for the next the session, which will be the Budget Session, the ruling party intends to bring it in the form of an ordinance under section 123 of the Constitution of India. Under this section,the President has the power to pass an ordinance, when the Parliament is not in session, which will have the same effect as a law passed by the Parliament.
Currently, the bill has been sent to the President for his assent. The Insolvency and Bankruptcy Code (IBC) was introduced by the Narendra Modi government in 2016 with the objective of making the insolvency procedure easier. It consolidated all other laws in force governing the insolvency procedure, thus, simplifying the insolvency process and at the same time, making the creditors more secured. Till now 9653 cases involving a whopping amount of 3.7 lakh crore have been disposed off under the IBC process.
Notably, after the implementation of IBC, India’s rank in the World Bank’s “Ease of Doing Business Index” jumped from 108 in last year to 52 this year.The new amendment bill aims at the protection of successful resolution applicants from criminal proceedings against offences committed by previous management or promoters.This will speed up the process by securing the buyers of the stressed assets. It also lowers the rating threshold from AA to BBB+ for public sector banks to purchase high rated pooled assets. Inter alia, there are measures to ensure that corporate debtors undergoing resolution continue as growing concerns and threshold of financial creditors to prevent frivolous triggering of corporate insolvency. It means that bankruptcy cannot be invoked for small amounts now.
The main benefit of this move is the streamline of the corporate insolvency resolution process (CIRP) and the protection of last-mile funding. Also, it will remove other hurdles in the insolvency process and attract more bidders. Thus, this amendment act will protect the buyers, provide relief to the creditors and ensure the revival of the firm in a time-bound manner.
Notably, the biggest benefiter of this ordinance is Bhushan Power and Steel Ltd. (BPSL). BPSL was recently involved in fraud amounting to nearly 47,000 crores Indian rupees. It had taken loans from various Public Sector banks, primarily Punjab National Bank, which were either fraudulently taken or used in a fraudulent manner. BPSL is set to be purchased by the second-largest private steel producer, JSW Steel Ltd. The National Company Law Appellate Tribunal (NCLAT)had approved a 19,700 crores bid from JSW steel to take over BPSL, though it is currently put on stay due to the pending investigation into the allegations of fraud of money by the former owners of BPSL.
It is worthwhile to see how this ordinance, after receiving Presidential assent, changes the pattern of doing business in India, the ground reality of the suggested benefits in the amended insolvency process and what impacts it creates on the domestic market and the global market.
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This post is written by Prajjwal Gour. For more, dial 99888-17966.