Page 52 - BANKING FINANCE JULY 2016

FEATURE
Rajya Sabha
passes
Bankruptcy code
T he Rajya Sabha has passed the Insolvency and
Bankruptcy Code Bill, enabling a single law to
deal with distressed companies, their promot-
ers, creditors, employees and other stakehold-
ers for the first time in India.
The law - which will ensure a time-bound process of wind-
ing-up a company or limited liability entity, a 'Fresh Start' solvency Act, 1909 and Provincial Insolvency Act, 1920. In
for debt-laden individuals under a certain threshold and
temporary transfer of management of the troubled entity
into the hands of resolution professionals - was passed by
the Lok Sabha.
Speaking during the debate on the Bill in the Upper House
on Wednesday, Minister of State for Finance Jayant Sinha
called it a "historic legislation". "We are changing the In-
dian economy. We will do so while protecting the people
who matter most. The way this law is being set up, it pro-
tects the workers. We are trying to create a robust safety
net."
The move was hailed by experts, dubbing it as an impor-
tant reform measure of the Narendra Modi government.
"This law rebalances the equation between the debtor
and the creditor and puts the power back in the hands of
the creditor," said Cyril Shroff, managing partner at Cyril
Amarchand Mangaldas.
"After GST (Goods and Services Tax), and land reforms,
this is the most important regulation and the government
deserves credit for this," said Varun Gupta, partner at
Deal Advisory, KPMG. "It brings troubled companies into a
common process. Earlier the promoter, creditors, share-
52 | 2016 | JULY
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holders, employees, everyone had to go through a sepa-
rate process. That has been streamlined."
The law is expected to help banks deal with about Rs 8
lakh crore of stressed assets and will streamline the exist-
ing insolvency process, which has so far depended on 11
separate laws. The law repeals the Presidency Towns In-
addition, it amends laws such as the Companies Act, 2013,
and the Recovery of Debts Due to Banks and Financial In-
stitutions Act, 1993, among others.
"The objective of the new law is to promote entrepreneur-
ship, availability of credit, and balance interests of all
stakeholders by consolidating and amending laws relating
to reorganisation and insolvency resolution of corporate
persons, partnership firms and individuals in a time bound
manner and for maximisation of value of assets of such
persons and matters connected therewith or incidental
thereto," said an official statement by the Finance Minis-
try. The government expects the new framework to help
improve India's position in the World Bank's ease of doing
business ranking.
The law allows the setting up of an insolvency regulator,
for oversight over insolvency professionals who will carry
out the bankruptcy process. Debt Recovery Tribunals will
be the adjudicating authority for individuals and unlimited
liability partnership firms and the National Company Law
Tribunal will adjudicate for companies and limited liability
entities.
"Implementation will be a challenge. There is a significant
amount of work still to be done in creating the insolvency
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