India’s Rajya Sabha (Council of States or Upper House of Parliament) passed a new bankruptcy code on Wednesday.
The insolvency and bankruptcy code, earlier passed by the Lok Sabha, will strengthen lenders to recover outstanding debts by setting a deadline of 180 days for companies to pay or face liquidation.
Currently, over 70,000 liquidation cases are pending in debt recovery tribunals and courts.
India’s Lok Sabha (House of the people or Lower House) passed the Insolvency and Bankruptcy bill (2016) that would enable faster exits for financially sick companies or help them restructure their businesses. The bill, which was introduced in Parliament in December 2015, will now be put to vote in the Rajya Sabha (Upper House) of the Parliament before becoming a law.
The bill was passed by the government after accepting all the recommendations proposed by the joint committee of Parliament, some of which include:
- provisions to address cross-border insolvency through bilateral agreements with other countries
- shorter time frames for each step in the insolvency process right from filing a bankruptcy application to the time available for filing claims and appeals in debt recovery tribunals (DRTs), National Company Law Tribunals (NCLTs) and courts
- timeline for filing bankruptcy applications would be within three months rather than the earlier time periodse of six months
- last date for filing of claims is specified at 21 days
- wages due to workers would receive first priority over secured creditors
- funds owed to employees from the provident fund, the pension fund and the gratuity fund are refrained from being included in the liquidation estate assets and estate of the bankrupt
The new code covers companies, individuals, limited liability partnerships and partnership firms and replaces existing bankruptcy laws. Under existing laws in India, it takes about 4 years to resolve a bankruptcy (as per Wold Bank’s ease of doing business report), whereas, the new law aims to reduce this time frame to about one year.