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Last updated: 29 May, 2018  

Bankruptcy.Thmb.jpg IBC fine-tuning

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Bikky Khosla | 29 May, 2018

The Union Cabinet last week approved, via an ordinance, amendments to the Insolvency and Bankruptcy Code (IBC), allowing promoters of companies with turnover of up to Rs 250 crore to bid for their companies against which insolvency proceedings have begun. This is definitely good news for micro, small and medium enterprises. Since the introduction of the new IBC norms, there has been a widespread demand to ease the norms for the MSME sector, following which the IBC review panel has recently called for the same, and now the last week ordinance finally paves way for the much-awaited relaxation.

Under the current norms, promoters of all companies, irrespective of their turnover, are barred from bidding for their companies when they are referred under IBC by one or more of their creditors, as it is feared that this will allow the promoters to walk away with their stressed assets at a discount. But now this norm is likely to be relaxed for companies with turnover of up to Rs 250 crore. This is a welcome decision. Unlike in cases of large companies, it is not easy to find buyers for stressed small companies, and in absence of buyers--under the current norms--they are bound to go through liquidation once the resolution period is over. Now, this will not happen.

After all, the MSME sector is a big employment generator in India, employing more than 100 million people. Its contribution is more than a third to gross domestic product and as much as 43 percent to exports. So, the sector deserves some relaxations from the blunt and unforgiving IBC norms. However, there should be some reasonable restrictions so that unscrupulous MSME promoters are kept away and only genuine promoters are allowed to take part in the resolution process. While some experts view that law should be the same for all, I support the 'equals should be treated equally and unequals unequally' approach.

Meanwhile, according to news reports, the proposed amendment also seeks to give home-buyers the status of creditors in the insolvency process. Classifying buyers as 'financial creditors' will help them swiftly get refunds from the defaulting real estate companies. News abound in recent times about home buyers facing hardships due to incomplete projects, and the proposed measure, when implemented, will give a big relief to home-buyers. The change will also give a boost to the real-estate sector, which has long been facing hardships.

I invite your opinions.

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