The government won’t extend the insolvency regime to new sections of the economy, but will work to stabilise the current corporate insolvency framework with necessary legislative and administrative changes, a senior official told FE.
The ministry of corporate affairs (MCA) is planning to take introduce amendments to the Insolvency and Bankruptcy Code in the Monsoon Session of Parliament, with this objective in mind.
According to the source, the IBC changes with regard to real estate insolvencies would ensure that there is no misuse of provisions. The MCA would to hold consultations with the Real Estate Regulatory Authority over the proposed amendments. “We have to ensure that the proposals don’t turn into an incentive for real estate developers (for asset stripping),” said the official.
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As part of the amendments, the MCA had proposed a special insolvency regime for real estate under which the resolution process would be restricted to only those projects where the default has occurred, and would not extend to the entire company or other solvent projects. Experts had, however, raised concerns over this pointing out that this could enable developers to take the easy way out and announce a project as insolvent if they felt it did not have enough commercial value.
Official sources indicated that the proposal to extend pre-packaged insolvency to smaller firms would also be taken up. The pre-packaged framework, which allows only the debtor to trigger its own bankruptcy process and promoters to retain the control of the MSMEs during the resolution period, is currently available for micro, small and medium enterprises but has not worked very well so far. “There is a view that pre-packaged insolvency can be extended to smaller companies and the limit is notified by the government,” said the source.
The IBC already has provisions for the “fresh-start process” for individual insolvency but these have not been implemented. The provisions provide for a debt waiver up to Rs 35,000 to the poor who don’t own houses, earn up to Rs 60,000 a year and have assets up to Rs 20,000 each.
The MCA had, in January this year, invited comments from the public on the changes being proposed to the IBC. Officials said that a number of public comments have already been received and discussions have also been held with the Insolvency and Bankruptcy Board of India (IBBI).
The Bill was earlier expected to be introduced in Parliament in the Budget session but will now be taken up in the Monsoon Session. Amendments to the Companies Act are also likely to be tabled then.
However, the proposed digital competition Bill that aims to regulate anti-competitive behaviour by Big Tech firms may take longer. Officials said that discussions of the expert panel with stakeholders on the proposed Bill is now complete and the it now has to firm up views on whether ex ante regulation on Big Tech firms is required.
“The report is likely to be finalised by the end of May,” said the officials, adding that it would then be followed up with internal deliberations within the MCA. The fifth meeting of the panel took place on Thursday.
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It also has to be seen that there is no overlap between the proposed digital competition Bill and the Digital India Bill as well as Consumer Protections Act.
Following recommendations of the Parliamentary Standing Committee on Finance, the MCA had set up a high-level panel to review the existing Competition Act and the need for an ex-ante regulatory mechanism for digital markets through a separate legislation. Ex ante regulations mean identifying issues in the market and making preventing regulations to address them.