The government’s move to amend the Insolvency and Bankruptcy Code (IBC) was largely to clear its legislative intent and not to encroach on the Supreme Court’s domain, Finance Minister Nirmala Sitharaman said on Monday.
She was replying to a debate on the amendments to the code in the Rajya Sabha.
“In spite of the global headwinds, we have brought such reforms. It is not being done exclusive of the court and it is not certainly eroding into the court’s domain,” the minister said.
The Rajya Sabha later passed the IBC amendment Bill, which has been changed for the third time since its inception three years ago.
Sitharaman said the National Company Law Appellate Tribunal’s (NCLAT’s) interpretation in the Essar Steel case to treat secured lenders and operational creditors on a par defeated the spirit of the IBC.
She said the Supreme Court itself has said that economic laws require flexibility and experimenting. “If courts are saying this, why are we hesitating. We are using our legislative mandate… Amendments are being brought as we gain experience from time to time,” Sitharaman said.
The NCLAT had recently ruled in the Essar Steel’s case that the Committee of Creditors (CoC) had no role in distribution of claims and brought lenders (financial creditors) and vendors (operational creditors) on a par.
The Supreme Court had then ordered a stay on the NCLAT’s ruling. The government has amended the Act in a timely and speedy manner to address “very serious interpretative problems,” the minister said.
Batting for the IBC, the finance minister quoted the Supreme Court saying that “Defaulter’s paradise has been lost to the IBC.” She said that the code had given a new lease of life to companies in the ICU (intensive care unit). Around Rs 1.24 trillion had been realised from the approval of 117 resolution plans.
The minister said financial creditors were getting on an average 43 per cent of claims against getting nothing if defaulting companies were never taken up under the IBC.
She said the IBC had turned out to be the most effective mechanism for cases under the Board for Industrial and Financial Reconstruction (BIFR). She said of the total 475 corporate insolvency cases which yielded to liquidation, 349 were earlier under BIFR.
Talking about the amendment to the timelines where a 330-day limit has now been introduced for resolution process to be finalised, including the time taken for litigation, the minister said several of the top 12 IBC cases have been pending for more than 600 days.
She also assured all bidders that no criminal proceedings with be taken up against the winning applicant and only the corporate debtor will be held liable for such proceedings.
Reiterating the stance of the government that a resolution plan will be binding upon the Centre, state and local authorities, Sitharaman asserted, “No further claim will be made by the government once a resolution plan has been approved.”
Sitharaman told Parliament that a total of 6,079 cases got disposed of even before admission. “It meant an amount of Rs 2.84 trillion being redressed. That’s the indication of an effective mechanism,” she said.