Post Insolvency & Bankruptcy Code, 100-worker units will be able to shut shop

By: |
New Delhi | May 31, 2016 7:55 AM

The existing law requires companies employing more than 100 workers to take permission from the relevant government authorities to shut down a venture.


Once the Insolvency and Bankruptcy Code, 2015, comes into effect, a company that has more than 100 workers can initiate voluntary liquidation proceedings, TK Viswanathan, the chairman of the committee that drafted the legislation and former law secretary, said on Monday.

Viswanathan added that as long as the company repaid its dues to lenders and complied with other statutory obligations, it could ask for its operations to be wound up.

The existing law requires companies employing more than 100 workers to take permission from the relevant government authorities to shut down a venture.

The NDA government has been attempting to frame a better exit policy for industry by allowing companies that employ less than 300 workers to shut down without government permission.

While this appears to have been put on the back burner once the new bankruptcy law comes into effect, this government permission no longer remains a constraint.

Chapter 59 of the code says “a corporate person in respect of whom a default has not occurred and who intends to liquidate itself voluntarily may initiate voluntary liquidation proceedings under the provisions of this Chapter”.

It adds that such a move will require a special resolution to be passed by the firm’s shareholders.

Viswanathan also observed that the new legislation would prevent companies from approaching the high courts and that the National Company Law Tribunal (NCLT) would adjudicate cases for companies and limited liability partnerships. Moreover, this would be done within a specified time period.

Companies will, however, be able to appeal to the appellate tribunal and in the Supreme Court only in cases relating to “points of law”, Viswanathan observed. He asserted that the code had overriding effect and that the new Section 238 states that the code’s provisions shall override anything inconsistent with it in any other law or any instrument having effect by virtue of any such law.

Banks have found it difficult to recover their dues from promoters since the latter have been able to delay cases in the courts, which at times have dragged on for years.

The amount of loans pending recovery in the country’s debt recovery tribunals (DRTs) stood at a cumulative Rs.4.5 lakh crore at the end of December 2015. At the end of March 2015 the amount was Rs.3.93 crore.

The code will consolidate the existing framework by repealing two Acts and amending 11 others including Companies Act, 2013, the DRT Act, 1993, and the Sarfaesi Act, 2002.

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