Union finance minister Nirmala Sitharaman. (PTI)
Union finance minister Nirmala Sitharaman. (PTI)

FM Sitharaman tables bankruptcy code bill aimed at small firms

The Insolvency and Bankruptcy Code , a reform enacted in 2016, amalgamates various laws relating to the insolvency resolution of business firms. It lays down clear-cut and faster insolvency proceedings to help creditors, such as banks, recover dues and prevent bad loans
By Zia Haq
PUBLISHED ON JUL 26, 2021 06:27 PM IST

Finance minister Nirmala Sitharaman on Monday introduced the Insolvency and Bankruptcy Code (Amendment) Bill 2021, or IBC, in Lok Sabha aimed at reworking some of the processes to deal with small businesses going belly up. The bill was necessitated by the financial stress wrought by the pandemic.

Sitharaman, who was supposed to make an explanatory statement, tabled the bill amid pandemonium, as Opposition members resumed noisy protests over various issues no sooner than the House began its proceedings.

President Ram Nath Kovind had invoked the Insolvency and Bankruptcy Code (Amendment) Ordinance on April 4. An ordinance is a law promulgated when Parliament is not in session.

The IBC, a reform enacted in 2016, amalgamates various laws relating to the insolvency resolution of business firms. It lays down clear-cut and faster insolvency proceedings to help creditors, such as banks, recover dues and prevent bad loans, a key drag on the economy.

Also Read | New restrictions on insolvency resolution professionals

The government had made some changes to bankruptcy processes to account for the financial shocks of the pandemic, as India witnessed a rare recession last year.

The finance ministry had increased the minimum default threshold for initiation of bankruptcy proceedings from 1 lakh to 1 crore to save especially small, micro and medium enterprises. Such firms make up over half of India’s manufacturing gross domestic product (GDP) and are the largest source of regular employment. GDP is a gauge of national income or output.

The government had also suspended filing of applications in case of defaults for a calendar year from March 25 2020. These measures constituted a relaxation of IBC processes.

As part of measures aimed specifically at small businesses, the ones hardest hit by Covid-19, the government promulgated the IBC ordinance, which now needs to be passed by Parliament.

Under these measures, the government introduced so-called “pre-packages” as an insolvency-resolution process. This allows for a prior bankruptcy-resolution agreement between a creditor, such as a bank, and an investor without initial approval from the National Company Law Tribunal, the bankruptcy regulator.

“Many business here have closed. I am trying to open mine, but the main fear is ‘what if Covid comes back’. Who will want to sink money again,” said Yashwant Dubey, a bearings maker in Partapur industrial estate, a small business hub near Meerut, Uttar Pradesh.

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