NEW DELHI: The insolvency and bankruptcy law has resulted in recovery of just 10 per cent of defaulted loans in case of companies other than the seven big ones referred for resolution, senior Congress leader Jairam Ramesh said in Rajya Sabha on Thursday.
Speaking on a bill to further amend the Insolvency and Bankruptcy Code to give protection to new owners of a loan defaulter company against prosecution for misdeeds of previous owners, Ramesh said of the 970 cases referred to IBC, 780 have been liquidated, indicating a mortality rate of 80 per cent.
The first objective of the IBC was to save companies but with a mortality rate of 80 per cent it is not life saving, he said.
Ramesh said against admitted claims of Rs 3.51 lakh crore, Rs 1.50 lakh crore has been recovered by way of auctioning defaulting firms to new buyers.
The recovery was 43 per cent, implying that banks took a hair cut of 57 per cent on their loans, he said.
If the big seven firms — Electrosteel, Bhushan Steel, Monnet Ispat, Essar Steel, Alok Industries, Bhushan Power & Steel and Jyoti Structures are excluded then the total recovery is 10 per cent, he said, “This means banks took hair cut of 90 per cent.”
“That is matter of great concern,” he said.
Ramesh also sought revisiting provision in the amended IBC that gives power to resolution professional to order other firms such as small and micro enterprises to continue supplying goods and services to the defaulter firm.
Under the law, a resolution professional oversees the insolvency process.
This raises the risk of default for MSME firms, he said seeking revisiting of the provision in the bill on supplying to defaulter firm.
“You should not sacrifice interest of MSME sector,” he said.
He went on to advocate a special regime for MSMEs by amending the 2006 MSME Act by allowing them to list accounts receivable above Rs 1 crore so they can invoke IBC to recover due amounts.
MSMEs face cash flow issues mostly due to delayed payments, he said.
Earlier, introducing the Insolvency and Bankruptcy Code (Amendment) Bill 2020, Finance Minister Nirmala Sitharaman said insolvency and bankruptcy code (IBC) was brought in 2016 as desired results were not coming from prevalent laws to resolve defaults.
Since 2016, several amendments to IBC have been brought to keep pace with developments in the outside world and orders passed by courts and tribunals on their interpretation of the law, she said.
She said the bill was brought in the previous Winter session of Parliament but couldn’t be passed and so an ordinance was promulgated. The present bill is to convert the ordinance into a law.
Mahesh Poddar (BJP) said the amendment to the IBC will protect current management from past mistakes of previous owners. (AGENCIES)
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