Terming the bankruptcy code as the "biggest economic reform" after proposed GST, the Finance Ministry today said it will promote jobs, availability of credit and ensure timely resolution of financial distress of companies.
The Rajya Sabha today passed the Insolvency and Bankruptcy Code, 2016. The Lok Sabha had cleared the bill last week.
"This is considered as the biggest economic reform next only to GST," a Finance Ministry statement said.
The Code has enabling provisions to deal with cross border insolvency and an Insolvency and Bankruptcy Board of India would be established to exercise regulatory oversight over insolvency professionals, insolvency professional agencies and information utilities.
"Some business ventures will always fail, but they will be handled rapidly and swiftly. Entrepreneurs and lenders will be able to move on, instead of being bogged down with decisions taken in the past," it added.
The objective of the new law is to promote entrepreneurship, availability of credit.
Minister of State for Finance Jayant Sinha tweeted: "History is written today as Rajya Sabha passes Bankruptcy Bill! Thank you to MPs and officers who worked on the bill".
"Bankruptcy code: Will make India a more attractive investment destination and greatly improve ease of doing business," Economic Affairs Secretary Shaktikanta Das tweeted.
Terming it as a "huge and game changing reform measure", Das said the Code creates framework for timely revival or resolution of companies in distress and will help all stakeholders.
The ministry in the statement said that the code will also balance the interests of all stakeholders by consolidating and amending the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner and for maximisation of value of assets.
As per the new law, when a firm defaults on its debt, control shifts from the shareholders/promoters to a Committee of Creditors.
The Committee would have 180 days in which to evaluate proposals from various players about resuscitating the company or taking it into liquidation.
"When decisions are taken in a time-bound manner, there is a greater chance that the firm can be saved as a going concern, and the productive resources of the economy (the labour and the capital) can be put to the best use," the ministry said.
The Code will ensure clear, coherent and speedy process for early identification of financial distress and and resolution of companies and limited liability entities if the underlying business is found to be viable, the statement said.
Under the law, there would be two distinct processes for resolution of individuals, namely- Fresh Start and Insolvency Resolution.
Also Debt Recovery Tribunal and National Company Law Tribunal will act as Adjudicating Authority and deal with the cases related to insolvency, liquidation and bankruptcy process.
"The Insolvency and Bankruptcy Code is a comprehensive and systemic reform, which will give a quantum leap to the functioning of the credit market," the ministry said.
It would take India from among relatively weak insolvency regimes to becoming one of the world's best insolvency regimes.
"It lays the foundations for the development of the corporate bond market, which would finance the infrastructure projects of the future," it said.
The passing of this Code and implementation of the same will give a big boost to ease of doing business in India, it added.
With the passage of the Code by Parliament, there would be one law dealing with bankruptcy while doing away with at least 12 different legislations, some of which are centuries old.
"Bankruptcy code: it's a big day for economic reforms in India. The country moves ahead towards higher growth," Das said, adding it will also promote entrepreneurship and innovation.
