RS passes amendments to insolvency code Govt: Priority is to keep companies growing rather than to liquidate

Initiating the debate on the Bill, Congress member Vivek Tankha said the government should protect only those businesses which are affected by the pandemic and not all defaulters. (LSTV/PTI Photo)

Rajya Sabha on Saturday passed amendments to the Insolvency and Bankruptcy Code, replacing an ordinance promulgated by the government in June to suspend for six months and extend up to one year initiation of bankruptcy proceedings against companies to “protect them from Covid-related stress”.

Finance Minister Nirmala Sitharaman said the ordinance was promulgated to protect companies from defaults occurring after March 25. Replying to a nearly two-hour debate, in which Opposition parties picked holes in the Bill and criticised the government for promulgating several ordinances during the lockdown period, she said the insolvency proceedings against corporates which defaulted on loans prior to March 25 will continue and the amendment will not stall those cases.

She also said that the government had promulgated ordinances because it “responds to the developing situation on the ground” and argued that it is a responsive government’s duty to show that it is with the people of the country.

A statutory resolution moved by CPI(M)’s K K Ragesh against the Bill was defeated through a voice vote. Ragesh asked why the government, which was saving businesses and corporate, was not applying the same logic in the case of farmers. “Farmers are also bankrupt. Why is the Government not taking any responsibility or initiative in waiving off farmers’ loans?” he said.

Initiating the debate on the Bill, Congress member Vivek Tankha said the government should protect only those businesses which are affected by the pandemic and not all defaulters. Sitharaman said the Bill “does not provide any protection against frauds”.

Arguing that the government’s intention was right, TMC’s Dinesh Trivedi said the Bill was a “hastily drafted, ill-worded piece of legislation” which would defeat its own purpose. “While the intended objective of the Bill is to provide protection to the debtor in this unforeseen serious turndown in the economic situation, it will only result in rapid value erosion of the capital employed – own capital and also borrowed capital,” he said.

Sitharaman said the IBC is working well as it ensures that most of the “resolutions are happening to make the company a going concern only rather than liquidated… priority is to keep the companies to be a growing concern rather than liquidate at the earliest”. She said the law provides for carrying out insolvency and bankruptcy proceedings against corporate debtors as well personal guarantors together.

She said 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.

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