By Ruma Dubey

It is a landmark Bill – the Bankruptcy Bill. Passed by both houses in this session itself, it could not have come at a more opportune time. Just when Mallya sits in the cool confines, safely ensconced in London, cocking a snook at all lawmakers and the entire country, this Bill becomes all the more relevant. Maybe, if the Bill had been there earlier, Mallya could have been put behind bars? Well, that’s really expecting too much from a political and bureaucratic system which is used to crony capitalism but at least he would have been held responsible much earlier. The bill assumes immense significance in this era of bad loans and mounting NPAs, giving more teeth and claws to the legal system.

So as the weekend comes calling, let round it off by understanding this very important legislation, a Bill, if implemented right, could change the face of entire banking industry for the better.

Before we get onto the synopsis of the Bill, first things first – who exactly is a bankrupt? That we all know – someone who cannot repay his debts and puts up his hands, saying he is broke. So what happens when he goes broke? The creditors scamper around trying to scavenge whatever is left over after the grand party but most of the times, the individual or the company goes scot free. Yes, cases are registered but the entire legal system is clogged with pending cases thus the debtor almost always gets away scot free and the banks write it off as an NPA. Just to put this fact in complete perspective – the Debt Recovery Tribunals are sitting on a backlog of cases worth Rs.4 trillion and from FY13 to FY16, less than 20% of the cases were resolved.

It is not as though till date there was no law protecting from such debtors – in fact there are many – apart from laws from British times which help deal with individual debtors, there are specific bodies like Recovery of Debt Due to Banks and Financial Institutions Act, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), the Sick Industrial Companies Act and some more. What this bankruptcy Bill will do is bring all this under one umbrella thus ease the process of bringing the guilty to the book. According to the World Bank, it currently takes four years to resolve a bankruptcy case in India; this Bill aims to reduce it to one year. 

Highlights of the Insolvency and Bankruptcy Code, 2016:

• Bankrupt individuals would be barred from contesting elections
• Under the new law, a debtor could be jailed for up to five years for concealing property or defrauding creditors.
• It will strengthen hands of lenders to recover outstanding debts by setting a deadline of 180 days for companies to pay or face liquidation.
• Consolidate all existing laws on bankruptcy and insolvency.
• To cover individuals, companies, limited liability partnerships and partnership firms.
• To use the existing infrastructure of National Company Law tribunals and debt recovery tribunals to address corporate insolvency and individual insolvency, respectively.
• To create Insolvency Professionals who will specialize in such cases, assist creditors, manage liquidation process. These professionals will in turn be certified by a newly created Insolvency Professional Agency.
• It will also create Information Utilities who will collect, collate and disseminate financial information related to debtors.
• The entire operation of insolvency and bankruptcy through these various newly created agencies will be overseen by a regulator - Insolvency and Bankruptcy Board of India.
• Bill can resolve cross-border insolvency through bilateral agreements with other countries.
• To have shorter time frames for speedier resolution.
• Bankruptcy applications to be filed within three months from earlier six months.
• Best news in the bill - workers’ salaries for up to 24 months will get first priority in case of liquidation of assets of a company,"Šahead of secured creditors.
• Money due to employees from PPF, gratuity fund will not be included in the estate of the bankrupt company or individual.

This is change in the right direction. We can sit and debate till the cows come home about the crony capitalism, the red tape, the legal system and reasons why this Bill could be rendered clawless and toothless. But the fact remains that presence of this law will surely keep the individuals and promoters on their guard and they will really have to think through very well if they want to do a “Mallya”.