New Delhi: Union Finance Minister Nirmala Sitharaman speaks in the Rajya Sabha during the ongoing Monsoon Session of Parliament, amid the ongoing coronavirus pandemic, in New Delhi, Saturday, Sept. 19, 2020. (Screen grab)
The Rajya Sabha on Saturday passed the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020, whereby fresh insolvency proceedings will not be initiated for at least six months starting from March 25 amid the coronavirus pandemic.
Replying to a debate on the Bill in the House, Finance Minister Nirmala Sitharaman said the intention of the IBC is to keep companies a “going concern” and not liquidate them.
The Bill mandates that a default on repayments from March 25, the day when a nationwide lockdown began to curb the spread of coronavirus, would not be considered for initiating insolvency proceedings for at least six months.
The bill seeks to replace an ordinance promulgated in this regard in June.
Participating in a debate, K K Ragesh of CPI (M) said Finance Minister Nirmala Sitharaman and other members have told the House that the Insolvency and Bankruptcy Code (Second Amendment) Bill has been brought to save businesses and corporates.
“Why the same logic is not applied in the case of farmers? Farmers are also bankrupt. Why is the government not taking any responsibility and any initiative in waiving the farmers’ loans?” he asked.
Ragesh said the government could have at least considered to “waive the interest on farmers loans during the moratorium period.”
DMK member P Wilson said, “There is discrimination between common man and corporate. Why is this discrimination? Is the government here for crony corporates?”
He demanded the government waive off recovery as well as repayment of all bank loans and credit card bills.
P Wilson asked for a complete waiver of agriculture term loans.
Initiating the debate, Congress member Vivek Tankha said the government should protect only those businesses which are affected by COVID-19 pandemic and not all defaulters.
He said the Section 10-A in the Bill states that no application for initiation of the Corporate Insolvency Resolution Process (CIRP) shall be filed for any default, whether COVID-19 related or not, arising on or after March 25 for a period of six months or such period not exceeding one year form such date as may be notified.
The Congress leader asked the government whether it was sure that the coronavirus pandemic would end in one year.
“When you are suspending Section 7,9,10, I think it’s a makeshift solution to a long standing problem. There is no certainty that the economy will revive in one year.”
He pointed out that Gross NPA of banks went up from Rs 2.63 lakh crore in March 2014 to Rs 10.3 lakh crore in March 2018.
“NPA and defaulting problems are pre-pandemic and Section 10-A would only postpone the problem and not solve it,” Tankha said, adding the creditors would be in a worst position with likely erosion in the value of assets.
“The entire object of IBC Code is compromised by this amendment. The Code aims to prevent wilful default by companies.
About giving relief under the IBC, Arun Singh (BJP) said, “It was very much needed. It was very difficult to find out which transaction is COVID related….If my friends can tell that these are Covid-related transactions and these are not related to that then I will be very happy. But it is simply impossible.”
Finance Minister Nirmala Sitharaman said law provides for carrying out insolvency and bankruptcy proceedings against corporate debtors as well personal guarantors together.
She was replying to a debate on the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020, in the Rajya Sabha which passed the proposed legislation to replace an ordinance in this regard with voice vote.
“The corporate debtor often has guarantors. So for comprehensive corporate insolvency resolution and liquidation we felt it was necessary that the insolvency of the corporate debtor as well as its guarantors are considered together to whatever extent it is possible,” Sitharaman said in response to some members raising the issue.
In June, an ordinance was promulgated to amend the Insolvency and Bankruptcy Code (IBC) whereby fresh insolvency proceedings will not be initiated for at least six months starting from March 25 amid the coronavirus pandemic.
Default on repayments from March 25, the day when the nationwide lockdown began to curb coronavirus infections, would not be considered for initiating insolvency proceedings for at least six months.
The minister also clarified that insolvency proceedings against corporates defaulting on loans prior to March 25 will continue and the amendment will not stall those cases.
On members’ queries about urgency to bring the ordinance in the first place, Sitharaman said that “between sessions if there is a need for ordinance because the ground situation demands it, I would think a responsive government’s duty is to at least use the ordinance to show that we are there with the people of India.”
“So to that extent I am sure the House will appreciate that as and when the government decides for ordinance it is because of that, and whenever the next session happens we come back,” she said.
Because of the COVID-19 pandemic, the minister said, businesses faced trouble.
So it was decided “that it was better to suspend Sections 7, 9 and 10 of IBC so that we can prevent corporate persons, which are experiencing distress on account of the unprecedented situation, being pushed into insolvency proceedings”.
Sections 7, 9 and 10 deal with initiation of corporate insolvency resolution process by financial creditor, operational creditor and corporate debtor, respectively.
The minister further said the IBC is a critical part of business now, and cited data to show how the code had performed.
Citing data for NPAs of commercial banks during 2018-19, she informed the House that Lok Adalats recovered 5.3 per cent, Debt Recovery Tribunals (DRTs) recovered 3.5 per cent and SARFAESI recovered 14.5 per cent.
On the other hand, IBC ensured 42.5 percent of recovery.
Sitharaman further said that most of the resolutions are happening to make the company to be a going concern only.
“Priority is to keep the company to be a going concern rather than to liquidate them at the earliest,” she said adding that 258 companies were saved from going bankrupt through the IBC process, while 965 firms went for liquidation.
“…258 companies were rescued which means employment is back again with them. Companies which have been liquidated in total, three-fourths of them were defunct and were also given liquidation solution and therefore at least loss of employment was reduced,” she said.
According to her, 258 companies rescued had assets of Rs 96,000 crore and the 965 companies sent for liquidation had assets of Rs 38,000 crore.
So in value terms, the assets rescued were about two and a half times of the assets which went to liquidation, Sitharaman said.
The IBC, which came into force in December 2016, has been amended five times.
The amendment provides for suspension of Sections 7, 9 and 10 of the IBC for at least six months and extendable up to one year from March 25, 2020.
In this regard, a new section ’10 A’ has been inserted in the IBC.