Lok Sabha passes Insolvency and Bankruptcy Code Bill

The Lok Sabha on Friday March 6, 2020 passed the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019 and the Minerals Laws (Amendment) Bill, 2020 even after both the house observed uproar by the opposition members demanding discussion on the Delhi violence.

The amended Insolvency and Bankruptcy Code Bill was moved by Union Finance Minister Nirmala Sitharaman.

The Bill is an amendment of the Insolvency and Bankruptcy Code, 2016

In December 2019, the Union Cabinet had approved a proposal to promulgate an ordinance to amend the Insolvency and Bankruptcy Code (IBC) 2016.

The amendments will remove certain ambiguities in the IBC 2016 and ensure smooth implementation of the code, an official statement said.

The move is aimed at easing the insolvency resolution process and promoting the ease of doing business. Aimed at streamlining of the insolvency resolution process, the amendments seek to protect last-mile funding and boost investment in financially-distressed sectors.

Under the amendments, the liability of a corporate debtor for an offence committed before the corporate insolvency resolution process will cease.

The debtor will not be prosecuted for an offence from the date the resolution plan has been approved by the adjudicating authority if a resolution plan results in change in the management or control of the corporate debtor to a person who was not a promoter or in the management or control of the corporate debtor or a related party of such a person.

The amendments are aimed at providing more protection to bidders participating in the recovery proceedings and in turn boosting investor confidence in the country's financial system.

Highlights of the Ordinance The Code allows creditors to initiate an insolvency resolution process if a company defaults on its payments. The Ordinance introduces an additional threshold for certain classes of financial creditors, including allottees of real estate projects, for initiating the resolution process. At least 10% of them or 100 such persons have to jointly initiate the process. The Ordinance empowers the resolution professional to require suppliers to continue providing goods and services. This provision will not apply if the debtor has unpaid dues arising from such supplies during the moratorium period. The Ordinance provides that the company will not be liable for any offense committed prior to the insolvency resolution process if there is a change in the management or control of the company. Under the Code, the insolvency resolution process commences when the Insolvency Resolution Professional (IRP) is appointed. The Ordinance states that the IRP must be appointed on the date of admission of the application by NCLT, which will be considered as the insolvency commencement date. Key Issues and Analysis In the case of defaults by real estate developers, the insolvency resolution application should be filed jointly by at least 100 homebuyers or 10% of their total number. The rationale for adding such a threshold only for certain creditors is unclear. Further, a homebuyer wishing to initiate the process may not have details of other allottees. The Ordinance empowers the resolution professional to require suppliers to continue providing goods and services during the moratorium period. This provision overrides the agency of suppliers to negotiate and decide whether to continue a contractual arrangement. It may also force the supply of goods and services even if the supplier finds it risky or unviable. In order to balance the rights of the suppliers, the Ordinance provides that suppliers have to continue supplying only if their current dues are paid. In other countries, additional safeguards are available. These include the right to seek a payment guarantee, and court-granted permission to terminate the contract in cases where the supplier demonstrates that continuation will cause hardship.

Read more at: https://www.taxscan.in/lok-sabha-passes-the-insolvency-and-bankruptcy-code-second-amendment-bill-2019/51655/

Highlights of the Ordinance The Code allows creditors to initiate an insolvency resolution process if a company defaults on its payments. The Ordinance introduces an additional threshold for certain classes of financial creditors, including allottees of real estate projects, for initiating the resolution process. At least 10% of them or 100 such persons have to jointly initiate the process. The Ordinance empowers the resolution professional to require suppliers to continue providing goods and services. This provision will not apply if the debtor has unpaid dues arising from such supplies during the moratorium period. The Ordinance provides that the company will not be liable for any offense committed prior to the insolvency resolution process if there is a change in the management or control of the company. Under the Code, the insolvency resolution process commences when the Insolvency Resolution Professional (IRP) is appointed. The Ordinance states that the IRP must be appointed on the date of admission of the application by NCLT, which will be considered as the insolvency commencement date. Key Issues and Analysis In the case of defaults by real estate developers, the insolvency resolution application should be filed jointly by at least 100 homebuyers or 10% of their total number. The rationale for adding such a threshold only for certain creditors is unclear. Further, a homebuyer wishing to initiate the process may not have details of other allottees. The Ordinance empowers the resolution professional to require suppliers to continue providing goods and services during the moratorium period. This provision overrides the agency of suppliers to negotiate and decide whether to continue a contractual arrangement. It may also force the supply of goods and services even if the supplier finds it risky or unviable. In order to balance the rights of the suppliers, the Ordinance provides that suppliers have to continue supplying only if their current dues are paid. In other countries, additional safeguards are available. These include the right to seek a payment guarantee, and court-granted permission to terminate the contract in cases where the supplier demonstrates that continuation will cause hardship.

Read more at: https://www.taxscan.in/lok-sabha-passes-the-insolvency-and-bankruptcy-code-second-amendment-bill-2019/51655/

Highlights of the Ordinance The Code allows creditors to initiate an insolvency resolution process if a company defaults on its payments. The Ordinance introduces an additional threshold for certain classes of financial creditors, including allottees of real estate projects, for initiating the resolution process. At least 10% of them or 100 such persons have to jointly initiate the process. The Ordinance empowers the resolution professional to require suppliers to continue providing goods and services. This provision will not apply if the debtor has unpaid dues arising from such supplies during the moratorium period. The Ordinance provides that the company will not be liable for any offense committed prior to the insolvency resolution process if there is a change in the management or control of the company. Under the Code, the insolvency resolution process commences when the Insolvency Resolution Professional (IRP) is appointed. The Ordinance states that the IRP must be appointed on the date of admission of the application by NCLT, which will be considered as the insolvency commencement date. Key Issues and Analysis In the case of defaults by real estate developers, the insolvency resolution application should be filed jointly by at least 100 homebuyers or 10% of their total number. The rationale for adding such a threshold only for certain creditors is unclear. Further, a homebuyer wishing to initiate the process may not have details of other allottees. The Ordinance empowers the resolution professional to require suppliers to continue providing goods and services during the moratorium period. This provision overrides the agency of suppliers to negotiate and decide whether to continue a contractual arrangement. It may also force the supply of goods and services even if the supplier finds it risky or unviable. In order to balance the rights of the suppliers, the Ordinance provides that suppliers have to continue supplying only if their current dues are paid. In other countries, additional safeguards are available. These include the right to seek a payment guarantee, and court-granted permission to terminate the contract in cases where the supplier demonstrates that continuation will cause hardship.

Read more at: https://www.taxscan.in/lok-sabha-passes-the-insolvency-and-bankruptcy-code-second-amendment-bill-2019/51655/

The Mineral Laws (Amendment) Bill, 2020 was moved by Parliamentary Affairs Minister Pralhad Joshi for consideration and passing. The Bill seeks amendment to the Mines and Minerals (Development and Regulation) Act, 1957 and to amend the Coal Mines (Special Provisions) Act, 2015.

In the second leg of the budget session 2020-21 three bills have been passed so far including the Direct Tax Vivaad Se Vishwas Bill which was passed on March 4, 2020.