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Cabinet approves ordinance amending Bankruptcy Code
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SME Times News Bureau | 24 May, 2018
The Union Cabinet on Wednesday gave its approval to an ordinance making
amendments to the Insolvency and Bankruptcy Code (IBC) which now awaits
the President's approval, IT and Law Minister Ravi Shankar Prasad
announced here.
Briefing reporters after the Cabinet meeting,
Prasad said protocol prevented him from divulging more details of the
ordinance before its approval by President Ram Nath Kovind.
"I cannot disclose anything because it's a new legislation except to reinforce that the Cabinet has approved it," he said.
Queried
on whether the Cabinet had approved some relief measures for home
buyers as recommended by the Insolvency Law Committee (ILC), Prasad
said: "There is something called constitutional protocol. An Ordinance
till it is approved by the President... I cannot speak about the
details."
The ILC, set up by the Corporate Affairs Ministry, has
suggested that home buyers be treated as financial creditors to enable
them to participate equitably in an insolvency resolution process.
The
report of the 14-member committee, headed by Corporate Affairs
Secretary Injeti Srinivas, that was made public last month has also
suggested relaxations for micro, small and medium Enterprises (MSMEs)
under the IBC which came into force in December 2016.
Recommending
relief for home buyers stranded due to real estate projects left
incomplete by promoters facing insolvency proceedings, the panel
suggested home buyers be treated as financial creditors owing to the
unique nature of real estate financing and their treatment by the
Supreme Court in ongoing cases.
"Notably, classification as
financial creditors would enable home buyers to participate equitably in
the insolvency resolution process under the Code," the report said.
Under the IBC, 'financial creditor' refers to any person to whom a financial debt is owed.
The report also suggested that the government exempt MSMEs from application of certain provisions of the Bankruptcy Code.
"Illustratively,
since usually only promoters of an MSME are likely to be interested in
acquiring it, applicability of section 29A has been restricted only to
disqualify wilful defaulters from bidding for MSMEs," it noted.
Section 29A of the IBC sets out the ineligibility criteria for bidders.
In
this connection, the committee has suggested that only those who
contributed to the default of the company, or are otherwise undesirable,
should be ineligible from bidding for the stressed assets.
The
IBC was amended in January to prevent, among others, wilful defaulters
and those whose accounts have been classified as NPAs, or bad loans,
from bidding for acquiring stressed assets.
The gross
non-performing assets, or bad loans, in the Indian banking system have
reached the staggering level of nearly Rs 9 lakh crore.
The government has embarked on a two-pronged strategy on bad loans.
On
the one hand, it has brought in the IBC which provides for a six-month
time-bound insolvency resolution process. On the other hand, it has
approved a Rs 2.11 lakh crore recapitalisation plan for state-run banks.
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