Gehlot writes to PM, seeks amendments in bankruptcy law to protect state enterprises

Rajasthan Chief Minister Ashok Gehlot has written a letter to Prime Minister Narendra Modi asking him to safeguard the assets of state government and interests of workers in the eventuality of insolvency of a government enterprise.

Gehlot requested the Prime Minister to make suitable amendments in the Insolvency and Bankruptcy Code (IBC), 2016.

Pointing out the discrepancies in the law, he said that the objective of the code should be to restart locked down or sick industrial units and thus protect the interests of workers employed therein as well as save the state properties.

However, many provisions of the law are against the interests of the workers and the state, he said.

In the event of liquidation of an enterprise, IBC provides for payments of salaries and wages to the workers and other employees for 24 months. Such meagre payment would not be enough for workers facing livelihood crisis and would cause unrest amongst them, Gehlot said.

This can sometimes cause law and order issues, he added.

Any government enterprise would consist of the investment of government land, building and other invaluable assets into it. But in the circumstances of liquidation of such units, IBC provides no priority for repayments against these investments and other dues, he said.

It is a serious howler in the law, Gehlot said.

In the event of liquidation of the enterprise, the process of sale of bank loans lack transparency. In such a case, the government would have no option but to depend upon Asset Reconstruction Company (ARC) and resolution professional for valuation of properties of the sick unit, he said.

The Chief Minister stated that in most of the cases, the ARC would buy original bank loans at the lowest payment and file its claims before the resolution professional by hiking the loan price manifold.

As a result, the ARC, which generally would be a private company, would pay a small amount and would become the sole proprietor of all the assets of the sick unit, including the land, building and other properties, he said.

He stated that the liquidation of state enterprises could be kept out of the scope of IBC.

If the law is not properly amended, several government enterprises could be sold off to private companies on paltry payments and the state as well employees and workers would face loss of their due rights, he said.