On the Insolvency and Bankruptcy Code- In Parliament

Gaurav Gogoi on the Insolvency and Bankruptcy Code, in Parliament

The Insolvency and Bankruptcy Code is definitely one of the more constructive steps taken by the previous Government. We all want that our banks get rid of the issues with respect to non-performing assets, have access to credit that they can further lend to the other sectors.

It is definitely a big task for the Insolvency and Bankruptcy Code when it started in 2015 initially and then culminated in 2016, that close to Rs.10 lakh crore were stuck in debt in the market, primarily in the sectors of steel, cement, infrastructure, housing and jewellery.

It is a new legislation and, as the Honourable Minister says, we will learn from experience. The situation is dynamic because there are multiple stakeholders and multiple tribunals involved and they are all interpreting the law- sometimes in sync with what the Government intended to do and sometimes out of sync. Therefore, the Government from time to time has brought amendments. This is the third round of amendments. Close to 54 clauses have been amended. We are here as a constructive opposition and we want this Code to succeed. We want to, therefore, support the Government whenever amendments which are necessary are brought before the Parliament. But one also needs to take a step back and look at the larger economic and macro-economic scenario of our country.

For 2019-20, many experts initially stated that our growth figure would be 7.2 per cent. Recently, the Asian Development Bank has moderated it and brought it to seven per cent. And, certain economics experts would not be even surprised if later on growth further slips to 6.8-6.9 per cent.

We have to realise that the last quarter was not good for the Indian economy, and what is not good for the Indian economy affects all of us. The Economic Survey had called for a virtuous cycle of savings and investment. But the reality is that savings is muted, demand is muted. And even though there was a lot of effort by the Government to give a spin to the latest Budget as the Big Budget, the reaction of the Sensex, the reaction of the market shows that they are not impressed.

Manufacturing has been one of the slowest growing areas. Its growth has dropped to 3.1 per cent from 6.4 per cent in the previous quarter. Manufacturing carries 77 per cent in overall growth contribution, but its growth rate unfortunately is very small.  All of this gives an indication as to where the Indian economy is.

Nonetheless, coming back to the IBC, it has been close to three years now. If you review these three years, the performance has been a mixed bag. I do not want to blame anyone as to why the performance has been so mixed.

But certainly, there are vested interests at play. As the hon. Minister said, litigation is taking time. Originally, the Code envisaged that there would be 270 days for resolution plus 90 days extension, but we are nowhere close to those deadlines if you really look at the big cases that are stuck in the insolvency process. But if you look overall, what is the track record? Close to 2,157 cases are in the corporate insolvency resolution process. Out of 2,157 cases, only 117 applications have the resolution plans approved. Close to 474 applications have gone into the liquidation process. Nobody wants to see liquidation. We want to avoid liquidation because it adds to high unemployment. The lenders have not got their money back. In case, tomorrow, if a real estate company goes into liquidation, what happens to home buyers who have invested their life savings, one dreads to imagine.

There are certain cases that have not been mentioned by the Finance Minister. The judgement of the NCLT, when it treats operational and financial creditors at par, is out of sync. Essar Steel has been stuck for a long time. Therefore, as the hon. Minister said in her opening remarks, she is bringing amendments, which brings clarity to the Committee of Creditors, talking about mergers and amalgamations as part of the resolution plan. She has revised the deadline to 330 days. There is a vote for home buyers in the CoC, which is a welcome step because we want the home buyers to have a voice in the CoC.

The hon. Minister has also mentioned about section 13 and section 53, which talk about the liquidation value. All of these amendments are welcome nonetheless the issues remain. There are certain clarifications that I want from the hon. Finance Minister. No doubt, the NCLT and the NCLAT are completely overloaded. Various media reports say that only 14 NCLTs are functional and two are yet to start and we do not have enough members. Initially, there were 27 members, whereas the target was 60. But I read the hon. Finance Minister’s reply in the Rajya Sabha, where she said that 26 new members have been added, which is a welcome step. But as we look in hindsight, may be this is a step which is somewhat late and maybe we should have prepared for this in advance.

My question to the hon. Minister is even though you have these 26 new judicial members, you are taking on their training, you are looking at various courts in Delhi and across the country, and you are renovating the interiors, as you have mentioned in your reply in the Rajya Sabha, do you honestly believe that after this, we will stick to the 330 days deadline? Or, do you envisage that again, we might have to show flexibility as the Supreme Court says and you might make an amendment later on that extends the deadline from 330 days to may be 390 days, I do not know. Are you confident that the Government has taken enough steps with respect to improving the infrastructure and the human resource of the NCLT that the 330 days deadline is met? That is very essential.

Another issue with the entire insolvency process is the issue of vested interests. It is quite unfortunate, Madam, to see the kind of haircuts that are taking place today. There is a company called Electrosteel, where the realisation of the resolution was only 40 per cent of the amounts that were due to the secured creditors, that means, a 60 per cent haircut. There was another company called Bhushan Steel, where the realisation was only 63 per cent. There was another company called Monnet Ispat, where the realisation was only 26 per cent. In the case of Essar Steel, the plan has not come yet. It is still stuck in court. And then, there is Alok Industries, where the resolution is 17 per cent, that means, an 83 per cent haircut. I am not going into the origins of why these companies are in the insolvency process but surely the amount of haircut that is being allowed must give the Government a cause for concern. After the haircut has been awarded, a big company comes and buys up the smaller company and the same bank which was initially due for money, gives the bigger companies a loan to buy those smaller companies, like, Alok Industries.

Does this pattern not create doubt in the Government’s mind that the system has been gamed or the system has been fixed? There have been cases where the resolution applicant has not even infused money. There have been cases where somebody won the bid and failed to pay. So, what will the Government do in such matters?

I also want to ask the Government about the case of Jet Airways. Right now, in a court in the Netherlands, two creditors won a judgement in the Dutch High Court, saying that Jet Airways owes them money. As of now, our Insolvency and Bankruptcy Code does not have provisions for cross-border insolvency. What are we going to do for that? Are we going to look at the United Nations Commission on International Trade Law?

The most tragic is the issue of home buyers. The home buyers in 2018 Ordinance got the status of financial creditors. Now, they have got a vote, but real estate overall needs a sectoral approach. I want to ask the hon. Finance Minister what her plan is to revive the real estate sector. Who is going to buy those companies which are in insolvency? Who is going to be the white night that comes to buy a company that is going into insolvency after haircut and give the home buyers their due? The interest of the home buyers and the interest of the lending banks of these real estate companies are at opposite ends. The home buyer wants his flat. He has invested his life savings in a flat and it has been 10 or 15 years. You talk about Jaypee Infratech or you talk about Amrapali, the home buyers want their flats. But the banks which have given loans to these real estate companies do not care about the flats; they do not care about the assets; they either want to take over the assets of the company or they want their money back. So, the interests of the homebuyers and the banks are completely divergent. How do section 53 and section 30 solve this? I would like the hon. Finance Minister to answer how the Government would solve this. God forbid, a real estate company goes into liquidation and the homebuyers are left high and dry.

The hon. Finance Minister used the previous Supreme Court judgements which might have talked about economic flexibility, but nonetheless there is a case which is going on in court. The Government has brought in amendments to section 53 and section 30 making them retrospective in certain aspects? Will this stand the test of time? Will this stand up to a court challenge? Merely by using the words like ‘economic flexibility’, I do not think the Government has enough merit to use the paraphrasing of those Supreme Court judgements. It is bringing in amendments to section 53 and section 30 and this is something that will be looked forward to.

The MSME sector needs a complete overhaul from this Government because most of our employment is generated in the MSME sector. There is also an amendment which this government brings which makes the resolution plan binding on the Central Government, the State Government, and the local Government. There are mixed views on that. Some say that this is necessary and this is a good practice that the Central Government, the State Government and the local Government should be bound to the resolution plan. But, what will happen if in certain cases the Government wants to recover money from a private sector company? It has various means because the Government is powerful. Let us not deny that; let us call a spade a spade. The Government of India is powerful. Why should it be bound to a resolution plan that a private body or the Committee of Creditors decides? Just for example, the R-com owed some money to the Department of Telecom and the owner of R-com wanted to sell it to Jio. The Government of India intervened and prevented that sale.

So, RCOM was forced to pay back its dues to the Department of Telecom before it was bought by Jio.  It shows that the Government has tremendous power.  Therefore, the Government should introspect whether it wants to be bound by this Clause.  What the resolution plan says is God’s gospel. 

I do not want to take too much of your time, hon. Chairperson.  As I said, it is a dynamic legislation.  More amendments are likely to come.  If it is good for the economy, if it is going to reduce the stress in our financial sector, if it is going to reduce the stress in our public sector banks, as a constructive Opposition we will always support the Government.  While we congratulate the Government for the way it is taking forward the Insolvency and Bankruptcy Code, let us not forget the larger macroeconomic slump that India currently is facing, the unemployment challenges that we face, and the plight of the home buyers in the real estate sector.  Thank you very much.  

Published by mpgauravgogoi

Member of Parliament, Kaliabor Lok Sabha.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: