Banks, Institutions Seek Changes In Companies Bill
Public sector banks (PSBs) and financial institutions (FIs) have made a strong pitch for changes in the Companies (Amendment) Bill, 2001, so that the promoters of the companies that have become sick are charged with the responsibility of drawing up a reconstruction plan for reviving the fortunes of those companies.
These financial entities have sought more teeth for the proposed National Company Law Tribunal, including the power to hand down rigorous imprisonment (RI) in place of only a simple imprisonment (SI) of three years and a steeper penalty against a maximum Rs one lakh that has been proposed, so that the promoters are deterred from acting against interests of creditors, shareholders and employees.
In a presentation made to the law makers today, the bankers stressed on the importance of compulsory debtor-oriented reconstruction of sick companies (the onus for which will lie with the promoters only). In case the promoter fails to come up with a viable reconstruction plan, creditors should be able to press for either summary winding up or be able to sell off the ailing enterprise to an interested buyer to recover locked up funds.
They pointed out that judicially imposed revival plans had very low rates of success (as low as five per cent) and that the winding up procedure under the current regimen was excruciatingly long, taking sometimes as long as 20 years.
The legal committee of the Indian Banks' Association (IBA) headed by V P Shetty, chairman and managing director (CMD), UCO Bank, in a presentation to the parliamentary committee on Home Affairs in New Delhi, has pointed out that the definition of a "sick company" under the newly introduced Part 6A in the Industries (Development & Regulation) Act was very narrow and would serve no purpose.
The new definition is flawed as it considers only ancillary companies, which have more than 50 per cent of their output going in as input to the manufacturing sector, as fit for rehabilitation and revival to the exclusion of all other large companies and small and medium enterprises (SMEs).
The IBA legal committee, comprising S S Kohli, CMD, Punjab National Bank, V Leeladhar, CMD, Union Bank of India, Birendra Kumar, deputy managing director, State Bank of India and K C Chowdhary, chief executive, IBA, has reasoned that "industrial sickness" had its genesis more in socio-economic factors such as managerial failure, low capitalisation, flawed costing/pricing of products and poor marketing than in macro-economic issues.
The bankers averred that the decisions of NCLT, which is to replace the Board for Industrial and Financial Reconstruction (BIFR), the Appellate Authority for Industrial and Financial Reconstruction (AAIFR), the Company Law Board (CLB) and the jurisdiction of the high courts, should be appealable in the high courts else there could be constitutional difficulties. Further they argued against the setting up of a separate NCL Appellate Tribunal as it will only lead to delays in reviving and rehabilitating sick units.
They also sought the appointment of ombudsmen to monitor the functioning of the 10 NCLT benches and also to ensure fast disposal of cases.