Lok Sabha clears Bankruptcy Bill to curb new NPAs

Wisened after the Vijay Mallya episode, the Centre on Thursday indicated that it plans to enter into cross-border treaties to confiscate overseas assets of wilful defaulters and recover dues of banks, as the Lok Sabha passed a Bill that seeks to update existing laws in this regard.

Amid concerns expre-ssed by members over rising instances of wilful defaults as highlighted by the case of liquor baron Vijay Mallya, minister of state for finance Jayant Sinha said that the bankruptcy framework and the normal procedure against them would continue in a parallel manner.

He was replying to a debate on the Insolvency and Bankruptcy Code Bill that seeks to update and consolidate existing laws, which was approved by the Lok Sabha afterwards, and will now go to the Rajya Sabha.

The legislation is a “transformational building block” for the economy and there would be one law dealing with bankruptcy while doing away with at least 12 different legislations, some of which are centuries old. This will also make the whole process more “transparent”, Mr Sinha said.

The new framework would help in improving India’s position in the World Bank’s ease of doing business ranking, he said.

To a query on whether the new legislation would help in taking the overseas assets of wilful defaulters, Mr Sinha said in this regard first cross-border treaties need to be put in place.

“We have to make cross-border treaties. We have to have an understanding with other nations that we are taking action on this defaulter. When we have a good law like this in which the other nations will be clear that by due process of law we are taking action, then they will also believe us and they will cooperate with us in attaching the assets and properties in their countries,” the minister informed.

According to Mr Sinha, India has already discussed the matter with other countries. “They have said that when we have such a law in the country, then such attachments and confiscation will be easily done... This law will help,” the minister said.

Earlier, several members questioned what the government proposes to do in the event of cases like “Mallya syndrome”.

Mr Sinha said “employees and workmen” would have first right during liquidation of assets under the law.

“We have made sure that workmen, employees, who in manycases have no other means of support, are right on top of the waterfall... On the waterfall, you cannot cherry pick,” he said referring to provisions in the law.

Under this legislation, the government comes only after them, he said and emphasised that “we want people to come first”.

Touching upon various aspects of the legislation, the MoS Finance said it would re-address the powers of borrowers and creditors as well as bring in more transparency in the bankruptcy process. At present, the information about the process is fragmented, he added.

As per this law, information utilities would be created to provide creditors with information about borrowers such as how much money has been borrowed.

The information utilities would be regulated by the bankruptcy board and the information would be “almost real time”, he noted.

On the issue of those wilfully defaulting on loans, Mr Sinha said the process of going after wilful defaulters is independent of the bankruptcy process.

“For example, suppose somebody has not defaulted, but we know they are infact diverting fund, siphoning fund away, we can immediately start taking action on them. We can file an FIR and we will pursue them through the investigative agencies.”