The government today rejected the opposition's charge that it has come out with an ordinance to amend the Insolvency and Bankruptcy Code (IBC) to favour a big corporate house.
The government today rejected the opposition’s charge that it has come out with an ordinance to amend the Insolvency and Bankruptcy Code (IBC) to favour a big corporate house. Replying to a debate on the Insolvency and Bankruptcy Code (Second Amendment) Bill 2018, Finance Minister Piyush Goyal said the govermment brought the ordinance to ensure speedy resolution of stressed assets and for the benefit of homebuyers and the MSME sector.
The bill was approved by the Lok Sabha by a voice vote, after the opposition walked out in protest alleging that the minister had not given a proper reply to the issues raised by them. Leader of the Congress Mallikarjun Kharge and several others alleged that the ordinace was brought to facilitate the acquisition of Alok Industries by Reliance Industries.
“People want the government to respond immediately and that is what is appreciated,” he said, adding “we want resolution and not liquidation” of ailing companies. Goyal said all provisions of the bill were prospective and not retrospective to benefit any company and it was the NCLT, which in its wisdom, had decided to refer back the issue of acquisition to the Committee of Creditors (CoC).
The minister said that he was not competent to discuss the conduct of the NCLT. The amendments propose to reduce the minimum voting threshold for the CoC to 66 per cent, from the existing 75 per cent for key decisions — a provision which the opposition said was aimed at benefiting one corporate house.
The bill also aims at giving relief to the homebuyers by recognising their status as financial creditors, thus giving them due representation in the CoC and making them an integral part of the decision-making process. Goyal said the government would come out with regulations and evaluation matrix which will help CoC to decide on insolvency issues.
He said that under the previous regime of SARFAESI and BIFR, the resolution cost was 9 per cent and recovery was 25 per cent after taking into account 4-6 years. In the IBC regime, he said, the cost was less than one per cent and the recovery was over 55 per cent. Moreover, the changes brought about in the IBC were based on a parliamentary committee’s recommendations.
The minister also said that certain exceptions in the code have been made to help speedier resolution of stressed assets in the MSME sector. He assured the House that the government will not denationalise the public sector banks, while on the other hand, do everything to strengthen them.
Kharge alleged that the ordinance was brought by the government to help the Reliance Industries to acquire Alok Industries. “You brought this ordinance in haste. You do not respond with such alacrity during floods. The minister’s reply is not proper. We protest and walk out,” he said while leading the walkout. Earlier, several opposition members demanded that the bill may be referred to a Standing Committee.
Participating in the debate on the measure, Congress member Veerappa Moily said the National Company Law Tribunal (NCLT) had become “an instrument for siphoning off funds” of the treasury as banks were taking huge haircuts and corporates were buying out insolvent companies for paltry sums.
“Be fair and refer the bill to the Standing Committee. Because you got stuck up in the NCLT, you brought in the bill. The Ordinance is tainted and sending it to the Standing Committee will remove the taint,” he said, adding that the “greed” behind bringing the bill is to “loot the banks”. Moily, a former Corporate Affairs Minister, said if the bill was referred to the Standing Committee, then it would submit its report within 15 days.
Moily is now the Chairman of the Standing Committee on Finance. N K Premachandran (RSP) said the promulgation of the IBC (Amendment) Ordinace was a “clear case of crony capitalism”, saying it intended to benefit a particulate industrial house. “Alok Industries owed Rs 30,000 crores to banks, Reliance Industries bought it in Rs 5000 crore, banks loss was Rs 25000 crore,” he asserted, while alleging that undue haste was shown by the government in bringing the bill.
Questioning the government’s urgency in bringing the IBC Ordinance when the Monsoon Session was just a month away, P Venugopal (AIADMK) said a perception was being built that the government has brought in the amendment bill to facilitate one corporate house. “The IBC is being amended in haste to allow Reliance Industries to take over Alok Industries…. In the name of NPA clean-up, the government should not be seen as supporting crony capitalism,” Venugopal said.
Saugata Ray (TMC) said the government was leading the country to a ‘blind alley’ and the IBC should not be seen as a panacea for all illness. “Mr Goyal, our caretaker Finance Minister, we can’t see the banking sector collapse… I support the Congress demand of referring the bill to the Standing Committee,” Ray said. He said under the resolution process, banks were taking huge haircuts and the IBC is leading to “crony capitalism”.
Citing the resolution process of the Alok Industries, Ray said the Reliance Industries could not acquire the company at the first instance since the resolution plan got less than the required 75 per cent vote. “The IBC amendment bill brought by the government lowers the minimum vote requirement for passing the resolution to 66 per cent from 75 per cent in the original act. Just for 66 per cent vote, you can acquire a company. Just for Reliance Industries, Government has brought an Ordinance,” Ray said.
The TMC member said in case of Bhushan Steel takeover by Tata Steel, the banks had taken 40 per cent haircut and lost Rs 21,000 crore. In case of Vedanta buying Electrosteel, the haircut was 60 per cent and the banks lost Rs 8,400 crore. As regards Alok Industries, banks have taken a 83 per cent haircut and the loss is to the tune of Rs 25,000 crore, he claimed in the House. The other members who participated in the debate included Subhash Baheria (BJP), P S Chandumajra (SAD), J P Narayan (RJD) and Dushyant Chaoutala (INLD).