IBC provisions to protect companies from ending up in liquidation: FM Sitharaman

Cases involving corporate debt resolution totalling Rs 5.13 lakh crore were disposed of even before entering insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) as of July 31, according to finance minister Nirmala Sitharaman.

“The ecosystem created because of the IBC ensures that companies are resolving problems even before they have to go to the NCLT (National Company Law Tribunal) and sit with the resolution,” Sitharaman said, during a discussion on the IBC amendment bill in Rajya Sabha on Saturday.

The upper house of Parliament passed the bill, which seeks to replace the ordinance imposing the suspension of certain sections of the IBC for six months from March 25, extendable up to a year.

On June 5, the ordinance suspending sections 7, 9 and 10 of the IBC was promulgated as part of the measures taken under the Atmanirbhar Bharat package to protect companies from the impact of the pandemic.

While section 7 enables a financial creditor to initiate insolvency proceedings against a corporate debtor (CD), section 9 grants these powers to operational creditors and section 10 enables the CD to initiate proceedings.

Since the IBC’s inception in 2016, some 2,789 cases under section 7 totalling Rs 1.96 lakh crore of debt, 11,581 cases under section 9 amounting to Rs 1.64 lakh crore and 140 cases under section 10 aggregating to Rs 1.53 lakh crore were disposed of before entering the NCLT, the minister said.

Pushing for the bill to be passed, Sitharaman said the provisions of the bill were aimed at protecting companies from ending up in liquidation as finding resolution applicants in the current circumstances would be difficult.

As an added clause, section 10A of the ordinance prohibited initiation of insolvency proceedings on the basis of any default occurring within the suspension period at any point in the future.

Responding to opposition members’ questions regarding this section, Sitharaman said the recovery path for companies may take a year or several years depending on their strengths and the nature of the industry and hence, they must be protected during this period as well.

“If the company is pushed into insolvency when it is recouping the loss itself, the objective of the ordinance is lost and that is why we have designed it in this fashion.”

The government will announce on Thursday whether the suspension, ending on September 25, will be extended or not, she added.