The Lok Sabha on Thursday gave its nod to the Insolvency and Bankruptcy Code, 2016, that seeks to improve the ease of doing business in the country.
The measure seeks to overhaul the laws regulating insolvency amid a surge in bad loans. The bill will now go to the Rajya Sabha for its consent.
Piloting the legislation, Minister of State for Finance Jayant Sinha called it "transformational" and one that will restore the balance of power between the promoters and creditors.
It also seeks to amend the laws, including the Companies Act, to become an overarching legislation.
Officials and experts say the passage of the legislation before May 31 can help India improve its rankings in the World Bank's "ease of doing business index".
At present, on the parameter of resolving insolvency, India is ranked 136th among 189 countries.
Once it gets the Rajya Sabha nod, the new law will give the banks "more confidence" to lend for long-term projects such as roads, ports and power plants, officials said.
The new legislation contains amendments to the original Code introduced in December 2015 as suggested by a joint parliamentary panel.
The new Insolvency and Bankruptcy Code aims to slash the time it takes to wind up a company or recover dues from a defaulter.
Bharatiya Janata Party sources told IANS that the bill will boost Prime Minister Narendra Modi's 'Make in India' programme and attempts to improve the ease of doing business, as promised by the National Democratic Alliance dispensation to the foreign investors.
The new code seeks to replace the existing century-old bankruptcy laws and provide a time-bound process for resolving insolvency issues.
It will cover individuals, companies, limited liability partnerships and partnership firms.
The government expects the bill to get the Rajya Sabha approval since members from the upper house too were part of the joint committee set up on the issue.
"There were 12 laws, some of which were more than 100 years old, to tackle insolvency and now there will be one law. We will be able to quickly move up the World Bank rankings," Sinha said while replying to the debate in the house.
The bill, after its introduction in December last year, was referred to a joint committee of both houses. The committee, which submitted its report last week, proposed a number of changes.
The parliamentary panel also recommended that money due to workers and employees from the provident fund, pension fund and gratuity fund should not be included in the assets of estates under liquidation.
Members speaking during the debate on Thursday underlined that the "implementation" of the new code will be key to its success and future roadmap.
Reacting to the passage of the bill, Naresh Makhijani, head of financial services at international accounting firm KPMG India, said: "The news about the passage of the code brings a ray of hope for lenders in India for a speedy and meaningful resolution to the burgeoning distressed assets in the Indian banking system."
"It is a landmark legislation which creates common process for all creditors to interact with a company that has defaulted on its obligation and should go a long way in speeding up the resolution process for stressed assets in the country."
--IANS
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