All you need to know about Bankruptcy Bill

On Thursday, amid the concerns of increasing number of wilful defaulters and the dismal condition of bank assets in the country, the government passed the Insolvency and Bankruptcy Code Bill that seeks that will let the government enter into cross-border treaties to confiscate the overseas assets of wilful defaulters.

The passage of the bill comes at a time when the government and several judicial agencies in the country are trying to get beleaguered businessman Vijay Mallya to reveal his overseas assets so that banks can gauge whether or not he can settle with the banks. 

After passage in the Lower house, the Bill go to the Rajya Sabha where it may face some hurdles amid heated debates between the ruling and the opposition parties, before it is eventually passed.

Bankruptcy Bill

Minister of State for Finance Jayant Sinha called the Bankruptcy Bill one law dealing with bankruptcy while doing away with at least 11 different legislations (some of which are archaic) and making the process transparent.

"The legislation is a "transformational building block" for the economy," he said. It will also make the entire process "transparent", he added.

These legislations include: Partnership Act of 1932, Central Excise Act of 1944, Customs Act of 1962, Income Tax Act of 1961, The Recovery of Debts due to Banks and Financial Institutions Act of 1993, Sarfaesi Act of 2002, Sick Industrial Companies Repeal Act of 2003, Payment and Settlement Systems Act of 2007, Limited Liability Partnership Act of 2008 and Companies Act of 2013.

The bankruptcy bill was introduced in Lok Sabha on December 21, 2015, and was later referred to the Joint Committee of Parliament.

What it entails?

-- The new code has specified a timeline of 180 days for the completion of debt recovery and reconstruction.

-- It offers a grace period of another 90 days if approved by 75% creditors. If not resolved within the specified deadline, the defaulting company would be automatically liquidated.

-- Proposes five-year jail term to debtors for concealment of property and bars bankrupt individuals from contesting elections.

-- This legislation is expected to improve India's rankings in the World Bank's ease of doing business index where it is ranked at 130th position.

-- The new law will let India forge cross-border treaties to get access to defaulters' offshore assets. India has already started discussions about this with other countries, he said. 

-- Under the new law, in the event that a defaulters' assets are diluted, employees and workmen will have the first right to the money raised. 

"We have made sure that workmen, employees, who in many cases have no other means of support, are right on top of the waterfall... On the waterfall, you cannot cherry pick," Sinha said.

-- Information utilities would be created to provide creditors with information about borrowers such as how much money has been borrowed.

The information utilities would be regulated by the bankruptcy board and the information would be "almost real time", he noted.

-- Immediate action on wilful defaulters, those diverting funds, siphoning money. 

"We can file an FIR and we will pursue them through the investigative agencies and kind of police action we can take, and they will end up in place because of the kind of laws we have," he added. 

Industry Experts’ Views

Talking about the proposed bankruptcy law, CII Director General Chandrajit Banerjee said: "The new Bankruptcy Code is quite significant as it seeks to provide a framework which will play an extremely crucial role in ensuring insolvency resolution of corporates and individuals in a time bound manner and will pave the way for capital to flow into our country."

Adding to this, Assocham President Sunil Kanoria expressed his view calling the bankruptcy bill a game-changer and said how it will help dealing with assets in a pragmatic way.

"The proof of the pudding would lie in its execution. India has the strongest laws on environment, road safety and others, but it's also important how we implement them," Munesh Khanna, Partner at PwC India said on the implementation of the Bankruptcy Bill.

Senior Supreme Court advocate, Abhimanyu Bhandari cautioned the government to watch out for pitfalls that the Debt Recovery Tribunal (DRT) Act has encountered, saying that implementation matters.

Varun Gupta, Partner, Deal Advisory at KPMG in India termed the legislation as a huge step towards ease of doing business in India.