(Priyanka Gupta, Intern Journalist): The Rajya Sabha today passed the Insolvency and Bankruptcy (Second Amendment) Bill, 2020 by voice vote. The bill, already in force as an ordinance, amends the IBC Code 2016 and temporarily suspends the Corporate Insolvency Resolution Process (CIRP) for a period of one year. While presenting the bill, Finance Minister Nirmala Sitharaman stated that this bill will reduce the financial stress faced by companies during the extraordinary economic situation, due to the COVID-19 epidemic, for a period of more than one year from March 25, 2020. Will temporarily suspend the corporate insolvency resolution process.
Parliamentary debate
Although the bill had the support of many members, they expressed concern that it gave them patronage. Even the willful defaulters. Congress MP Vivek Tankha said that the bill would enable companies already under the default category to use this bill as a shield. He asked the government to clarify whether it was protecting only the companies affected by COVID-19 during this period or all. In response, BJP MP Arun Singh expressed difficulty in separating companies affected by COVID-19, as all services were stopped across the country during the lockdown.
Some members also said that the bill is preventing voluntary corporate debtors from going bankrupt. BJD MP Dr. Amar Patnaik said that 260 CIRPs were initiated by corporate debaters by June 2020, but they were prevented from moving forward due to the bill. Another concern by members was that when the ban on CIRP ends, there would be a sudden rush with the IBC board, resulting in erosion of capital value. DMK MP P. Wilson welcomed the bill but said it discriminated between corporates and the common man. He asked the government why it did not offer the same facility to individuals, proprietorship entities, and partnership firms under Section 3 of the IBC. He demanded the government to waive interest rates on home loans, auto loans, agricultural loans, and credit cards. On this occasion, NCP MP Praful Patel asked the government to create more NCLT benches and work to fill the vacant posts. He also emphasized that the resolution professionals appointed under the Code are not entirely correct and should be trained.
Salient features:
CIRP’s Initiative Restriction Bill CIRP prohibits voluntary or creditors’ defaults arising during six months from March 25, 2020. This period can however be extended up to one year by the Central Government through notification. An explanation enclosed in Section 10A of the Bill clarifies that CIRP can still be initiated during this period for any defaults arising before March 25, 2020. The Liability for Incorrect Trading Bill prohibits a resolution professional from filing an application before the NCLT to contribute a personal debtor of the director or a partner of a corporate debtor to the assets of the company.
[Under normal circumstances a director or a partner of a corporate debtor may be held liable for making personal contributions. If inspite of knowing that insolvency proceedings cannot be avoided, he has not worked diligently to minimize potential losses to creditors.]
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