The Rajya Sabha passed the Insolvency and Bankruptcy Code, 2016 on 11 May even as the opposition suggested tougher measures against corporate defaulters and help banks recover $120 billion (around Rs 8 lakh crore) in troubled loans.
Prime Minister Narendra Modi had guaranteed to introduce the law in order to redress bank debts. Once the President inks the legislation, India will have a new law that will ensure time-bound settlement of insolvency, enable faster turnaround of businesses and create a database of serial defaulters.
Efforts to cut off high-profile debtors’ wings suffered a setback in March when liquor baron Vijay Mallya flew to London with bankers as breathing down his neck to repay Rs 9,000 crore loan taken for Kingfisher Airlines.
The new code will be to the advantage of the lenders so much so that they could be in a position to recover outstanding debts by setting a deadline of 180 days for firms to repay.
A majority of the parties in both Houses of Parliament supported the new law after all the amendments proposed by the joint parliamentary panel were accepted by the government.
Under the new law, a debtor could be jailed for up to five years for concealing property or defrauding creditors. Bankrupt individuals would be barred from contesting polls as well.
The courts are more often than not reluctant to sign “death warrants” against defaulting firms in a bid to protect jobs, often resulting in delays. The new law empowers creditors to decide whether a defaulter is insolvent or not, though their decision could still be challenged in the courts.
At present, more than 70,000 liquidation cases are pending in debt recovery tribunals.