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.