Changes in the Insolvency Laws: Need of the Hour
Feb 04, 2020 Real Estate News
On January 13, 2020, the highest court of India accepted the hearing of petitions filed by the homebuyers against the government’s move to introduce a provision to the insolvency case which makes it difficult for the homebuyers to get the resolution.
On December 11, 2019, the Union Cabinet approved the amendments in Section 7 of Insolvency and Bankruptcy Code (IBC). The amendment states that it will require at least 10 percent of total homebuyers in a project or 100 of total allottees to initiate a corporate insolvency resolution process against the builder. This can make it difficult for small creditors to start the insolvency process against the builder.
The Supreme Court has asked the Centre to respond to the objection raised by the buyers who believe that the new provision goes against the Article 14 (equality before law) and Article 21 (protection of life and personal liberty) of the Constitution.
Other sections of over three-year-old insolvency are also to be amended, and a new Section is to be inserted, ‘remove certain difficulties being faced during the insolvency resolution process, to realise the objects of the Code and to further ease doing of businesses.’
The Cabinet also decided to amend the Code that prohibits the central and state agencies from seizing the asset of the entity, for the criminal offences of the previous owner after the resolution process is over. This is done to provide the ease of doing business to companies that successfully bid for the stressed companies.
The Insolvency and Bankruptcy Code (Second Amendment Bill), 2019, will also limit the scope of financially unstable companies to take part in the bidding process.
As of now, the wilful defaulter and entities that are not financially strong are barred from bidding under the insolvency law. The companies or entities that have their accounts classified as non- performing asset (NPA) for one year or more and have been unable to settle their overdue and interest before submitting the resolution plan are not eligible to take part.
Centre has announced that license and permits granted to the debtors will not be cancelled during the moratorium period. This provides a much-needed cushion to the corporate debtors.
Its time changes are made to the Code so that the homebuyers do not suffer in the hands of the builders.
We list down the changes that are needed in the Code:
IBC Section that stands amended:
On December 11, 2019, the Union Cabinet approved the amendments in Section 7 of Insolvency and Bankruptcy Code (IBC). The amendment states that it will require at least 10 percent of total homebuyers in a project or 100 of total allottees to initiate a corporate insolvency resolution process against the builder. This can make it difficult for small creditors to start the insolvency process against the builder.
The Supreme Court has asked the Centre to respond to the objection raised by the buyers who believe that the new provision goes against the Article 14 (equality before law) and Article 21 (protection of life and personal liberty) of the Constitution.
Other sections of over three-year-old insolvency are also to be amended, and a new Section is to be inserted, ‘remove certain difficulties being faced during the insolvency resolution process, to realise the objects of the Code and to further ease doing of businesses.’
The Cabinet also decided to amend the Code that prohibits the central and state agencies from seizing the asset of the entity, for the criminal offences of the previous owner after the resolution process is over. This is done to provide the ease of doing business to companies that successfully bid for the stressed companies.
The Insolvency and Bankruptcy Code (Second Amendment Bill), 2019, will also limit the scope of financially unstable companies to take part in the bidding process.
As of now, the wilful defaulter and entities that are not financially strong are barred from bidding under the insolvency law. The companies or entities that have their accounts classified as non- performing asset (NPA) for one year or more and have been unable to settle their overdue and interest before submitting the resolution plan are not eligible to take part.
Centre has announced that license and permits granted to the debtors will not be cancelled during the moratorium period. This provides a much-needed cushion to the corporate debtors.
Its time changes are made to the Code so that the homebuyers do not suffer in the hands of the builders.
We list down the changes that are needed in the Code:
IBC Section that stands amended:
- Section 5(12): Deals with the insolvency commencement date
- Section 5(15): Defines interim finance
- Section 7: Talks about the initiation of corporate insolvency resolution process by financial creditors
- Section 11: Talks about persons not entitled to make application
- Section 14: Talks about the moratorium
- Section 16(1): Says interim resolution professional should be appointed within 14 days from the insolvency start date
- Section 21(2): Says the committee of creditors should comprise of all financial creditors of the corporate debtor, including homebuyers
- Section 23(1): Talks about the responsibilities of the resolution professional
- Section 29A: Talks about persons not eligible to be a resolution applicant
- Section 227: Allows the govt to notify FSPs or categories of FSPs for the purpose of insolvency and liquidation proceedings
- Section 239: Deals with powers to make rules
- Section 240: Spells out the powers of the board
- 1. Section 32A: To specify the resolution process
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