The amendments to the insolvency law, which empowers home buyers to be recognised as financial creditors, was introduced in the Lok Sabha on Monday, even as opposition parties objected to certain changes in the Act alleging that these were intended to “help one industry”.
The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018, was introduced by finance minister Piyush Goyal. The bill replaced the ordinance that was approved by the Union cabinet in May.
The amendments to the IBC are intended to provide relief to homebuyers by recognising their status as financial creditors, thus giving them due representation in the Committee of Creditors (CoC) and making them an integral part of the decision-making process.
The bill also proposes to reduce the minimum voting threshold for the CoC to 66%, from 75% for key decisions—a provision that was opposed by BJD member Bhartruhari Mahtab. Opposition Congress and TMC also supported Mahtab, who said the decision was being taken to benefit “one industry”. Citing the resolution process of the textile firm Alok Industries, Mahtab said two major companies had jointly submitted before the CoC to acquire the company.
However, the CoC of Alok Industries could not approve the resolution plan as it got over 70% vote, as against the required 75%, the BJD member said. “The Ordinance brought by the government lowers the minimum vote requirement for passing the resolution to 66% from 75% in the original act. This is nothing but a fixed match… It is a clear case of crony capitalisation and loot of public money,” Mahtab said.
He said Alok Industry, which is worth Rs29.6 crore, is being sold for just Rs5 crore and hanks are taking 84% haircut because of the complicity of the government. “The bill is being brought just to help one industry,” Mahtab charged. Terming this as “baseless allegations”, Goyal said “the law is prospective and is not intended to benefit anyone”.
Goyal said when the IBC was first introduced in Parliament, it was discussed by the members that further “fine tuning” was required and hence a committee was set up to suggest amendments. Based on the recommendations of the committee, the amendment bill has been brought in Parliament, he added. Introducing the bill, Goyal said the IBC was initially introduced when the banking sector was going through a serious crisis because of indiscriminate lending by banks between 2008-2014.
The debt recovery laws prevailing at that time were weak and hence loan recoveries could not be made from big industrialists. As per the amendments, the Micro, Small and Medium Enterprises (MSME) sector would get a special dispensation under the Code.
The amendments also do not disqualify the promoter to bid for his enterprise undergoing Corporate Insolvency Resolution Process (CIRP) provided he is not a wilful defaulter and does not attract other disqualifications not related to default It also lays down a strict procedure for withdrawal of a case by an applicant after admission under the Code. Such withdrawal would be permissible only with the approval of the CoC with 90% of the voting share.
Source: July 23, 2018, Livemint