The government is unlikely to achieve its “internal” target of introducing a bankruptcy code in Parliament in the winter session slated for November, as the Viswanathan committee preparing the final report is still in the process of tying up many loose ends in the proposed legislation.
Knowing this, the Department of Industrial Policy and Promotion (DIPP) recently wrote to the Prime Minister’s Office and the cabinet secretariat to expedite the process, official sources told FE. The DIPP is the agency coordinating the government’s ‘ease-of-doing-business-in-India’-initiatives, a key element of which is a bankruptcy legislation that meets global standards. The proposed law is meant to enable easier closure of unviable businesses and ensure a quick turn-around without wasting the assets created.
The code is aimed at addressing the failure of existing corporate rescue regimes including Sick Industrial Companies Act and Bureau for Industrial and Financial Reconstruction, but sources said the issues still under discussion include whether it will be a comprehensive code replacing all other existing relevant legislations or if it will co-exist with the Sarfaesi Act.
Another main outstanding issue is the treatment of provisions regarding cross-border insolvencies in the country.
The panel is debating the merits and demerits of putting in the code the protocols developed by the G20 (group of 20 major economies), the Basel Committee on Banking Supervision and the United Nation’s UNCITRAL Model Law on Cross-Border Insolvency. Cross-border insolvency cases in this context include (i) when an Indian court wants the help of a foreign court/ representative, (ii) an overseas creditor seeking to initiate insolvency proceedings before an Indian court or (iii) in instances of simultaneous insolvency proceedings against the same debtor in different jurisdictions. Getting the law with cross-border insolvency provisions passed in Parliament could be a challenge with opposition parties raking up the sensitivities in giving equal treatment to foreign and domestic claims, sources said.
Also being debated is whether the National Company Law Tribunal (with jurisdiction over all Company Law-related issues) itself can be used for conducting insolvency proceedings or if separate bankruptcy courts need to be set up.
Besides, with a section of lawyers objecting to the proposal to include as insolvency practitioners, professionals including chartered accountants, management consultants, company secretaries and bankers, the issue might need discussions with the Bar Council of India and bar associations.
Another contentious issue is ensuring a level-playing field in the treatment of sick state-owned enterprises and private sector companies. There is a view that PSUs get a lenient treatment from lenders as against private firms as the former can bank easily on the government for bailouts and also have a separate (and allegedly ineffective) regime under the Board for Reconstruction of Public Sector Enterprises (BRPSE). The government wants to dissolve BRPSE and set up a new entity, but there are suggestions that there should be a common regime for public and private enterprises.
* The Viswanathan committee preparing the final report on a bankruptcy code is still in the process of tying up many loose ends in the proposed legislation
* Proposed law is meant to enable easier closure of unviable businesses & ensure a quick turnaround without wasting assets created