New Delhi, May 6: The Lok Sabha on Thursday passed the new bankruptcy bill that proposes speedy closure of sick companies, fast action against defaulters and recovery of debt by banks.
The Insolvency and Bankruptcy Code, 2015, the first major economic reform legislation this session, was passed with the support of Opposition Congress and other parties. This comes in the wake of a whopping Rs 9,000 crore loan default by liquor baron Vijay Mallya.
Replying to a debate on the bill, Minister of State for Finance Jayant Sinha said the government was also intending to enter into cross-border treaties with other countries to confiscate foreign assets of wilful defaulters.
Once the legislation is passed by both Houses of Parliament, the government will be able to repeal 21 different laws dealing with bankruptcy and insolvency which made the process lengthy and ineffective.
“This legislation is a transformational building block for the economy and it will make the entire process more transparent,” Sinha said. He said it will also help India move up the ladder in the World Bank’s ease of doing business ranking.
According to World Bank, winding up an ailing company takes four years in India and the average recovery is only one-fourth of a dollar.
At a time when banks are toiling with a huge non-performing assets, the passage of bankruptcy code will strengthen their hands, according to legal experts.
There are 7,686 wilful defaulters in India owing Rs 66,190 crore to public sector banks (PSBs), according to the information given by the government in Parliament. The total outstanding amount in top 100 non-performing accounts with PSBs is Rs 1.73 lakh crore as on December 2015.
At a time when banks are toiling with a huge non-performing assets, the passage of bankruptcy code will strengthen their hands, according to legal experts.
There are 7,686 wilful defaulters in India owing Rs 66,190 crore to public sector banks (PSBs), according to the information given by the government in Parliament. The total outstanding amount in top 100 non-performing accounts with PSBs is Rs 1.73 lakh crore as on December 2015.
To protect employees’ interest, the bill proposes that the money due to employees from provident fund, pension and gratuity funds should be safeguarded while declaring a firm insolvent and liquidating its assets.
The bill also proposes for disqualification of anyone declared bankrupt from holding public office and contesting elections. A debtor could be jailed for up to 5 years for concealing property or defrauding creditors under the new law.
At present, bankruptcy proceedings are governed by various laws such as Companies Act, SARFAESI Act and Sick Industrial Companies Act. The entire process of winding up is very long-winded, with courts, debt recovery tribunals and the Board for Industrial and Financial Reconstruction all having a say in the process.
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