In case the debtor fails to service his debt on time, he has to make way for somebody else, Jaitley said.
Finance minister Arun Jaitley called for strong credit discipline asking all defaulting companies to repay their loans or face the possibility of losing control of their companies.
Jaitley while speaking at seminar in Mumbai, organised jointly by Ministry of Corporate affairs (MCA), National Foundation for Corporate Governance (NFCG), and Insolvency and Bankruptcy Board of India (IBBI) said, "The intent of the Insolvency and Bankruptcy Code (IBC) — the new bankruptcy law — is not the liquidation of assets, but to preserve their value, either through existing promoters or through bringing in new promoters or partners. However, in case the debtor fails to service his debt on time, he has to make way for somebody else. "
He said that he hoped that the newly-passed IBC does not meet the fate of the Civil Procedure Code amendment. When Jaitley was the law minister an amendment to the Civil Procedure Code introducing strict timelines, could not pass the muster, leaving Indian courts with 'two standards'.
"When timelines are made for the executive, they (courts) normally maintain these are binding. But when timelines are made for judicial institutions, the courts have conventionally held that these are only directional," he said.
He hopes the newly-passed Insolvency and Bankruptcy Code, which lays stress on time-bound resolution of bad assets of banks, does not meet a similar fate, he said.
Talking further about the IBC, he said it has reversed the relationship between debtor and creditor, adding that the old regime where the creditor would get tired chasing the debtor and end up getting nothing, is now over. "For years, we lived in a system which allowed debtors to allow their assets to be rusted," Jaitley recalled.
"If a debtor has to survive, he will have to service his debt, or he will have to make way for somebody else. I think this is the only correct way to get business done. This message has to be loud and clear," the minister said.
As per the IBC framework, a National Company Law Tribunal (NCLT) has to decide within 14 days on whether or not to admit a company for insolvency resolution proceedings. Once a company is admitted, the lenders and borrowers should mutually arrive at resolution plan within 270 days failing which the assets of the company will be liquidated. —With Agency inputs
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