New territory, says Arun Jaitley as House passes Insolvency Bill

Jaitley arrives in Parliament Tuesday. (Express Photo/Prem Nath Pandey)

As Rajya Sabha cleared the Insolvency and Bankruptcy Code Amendment Bill Tuesday, Finance Minister Arun Jaitley said the government has entered unchartered territory and would continue to modify the law. “Insolvency and bankruptcy is an area in which it is only in recent years that we have chartered into. It is a learning experience,” Jaitley said in his reply to a 2½-hour debate.

The bill, passed by Lok Sabha last week, seeks to replace an ordinance promulgated in November to prevent unscrupulous persons from misusing the Insolvency and Bankruptcy Code. Those ineligible to bid for resolution of insolvent entities will include undischarged insolvent, wilful defaulter and those whose accounts have been classified as nonperforming assets. These persons, however, can become “eligible to submit a resolution plan” if they clear all dues with interest and other charges relating to their NPA accounts.

Jaitley said the whole effort was to make the banking sector robust and detach it from politics. “You need a strong banking system. You need banks which are able to lend money to large industries, to infrastructure projects, to small industry, for educational loans… It is all part of the economy that you need a robust banking system,” he said.

The minister said during the insolvency process, banks and unsecured creditors will have to take some haircut and if the same management comes back, nothing would change. The objective of the bill is to allow creditors to move to the National Company Law Tribunal in case of insolvency. “We have now started that resolution process… There are several hundreds of them and almost more than 500 have been disposed of.”

Initiating the debate, former finance minister P Chidambaram supported the bill but highlighted clauses that would, he said, deter Indian companies from participating in the process. “I think it is important that the finance minister takes note of a few suggestions I wish to make now and reflect on them whether somewhere, in the course of drafting, the amending bill has not become over-inclusive and may, in fact, become counterproductive to the object of going through the insolvency resolution process,” he said.

“Firstly a person convicted for any offence punishable for imprisonment for two years or more. This could be a completely non-financial crime… and you are keeping him out. It can be argued that anyone who has been convicted should be kept out. But I think the purpose of this bill is not to enforce a general rule of morality. The purpose of this bill is to ensure that resolution takes place of a company that has become insolvent. I think this is over-inclusive. This should have been confined to crimes arising out of certain specific acts, particularly, acts which pertain to finance and economy,” he said.

Naresh Agrawal (SP) asked if the bill would help check NPAs of banks. AIADMK’s A Navaneethakrishnan supported the bill, saying agri loans and educational loans should be excluded from the purview of NPAs. Sukhendu Sekhar Roy (Trinamool) stressed the need to identify wilful defaulters.

Attacking the government for not being serious on recovery of NPAs that are estimated to have touched Rs 10 lakh crore, D Raja (CPI) sought to know “why the government is afraid of corporate companies” and not publishing the names of defaulters. Congress MP Jairam Ramesh raised concern about lenders taking “big haircuts” or discounts on claim value of NPAs and asked if this is going to be a “norm”.