NEW DELHI: Defending the decision of the Centre to suspend insolvency proceedings for an year, Finance Minister Nirmala Sitharaman on Saturday said that saving companies impacted by the pandemic was more important than facilitating recovery by creditors. “It will take years to wipe off the deep stress from the pandemic for some companies. The provisions are aimed at ensuring that a company is not pushed into insolvency when it is trying to recoup its losses,” Sitharaman told Members of Parliament during a debate in the Rajya Sabha. The Rajya Sabha on Saturday passed the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020 by voice vote. The bill is aimed at replacing the Insolvency and Bankruptcy Code (Amendment) Ordinance 2020.
The government had in June 2020, suspended provisions of the IBC for a period of 6 months through an ordinance, including initiation of insolvency proceedings.The bill will prevent creditors from initiating insolvency proceedings against companies even though dues remain unpaid, giving some time for businesses to recover from the impact of the lockdown.
“In the light of the extraordinary economic situation caused by Covid-19 pandemic, a need was felt to temporarily suspend initiation of corporate insolvency resolution process under the code, initially for a period of six months or such further period, not exceeding one year from 25 March 2020 to provide relief to companies affected by Covid-19, to recover from the financial stress without facing immediate threat of being pushed to insolvency proceedings,” said the government in a statement on the bill.
Giving a comparative figure for the recovery of NPAs of commercial banks during 2018-19, she also informed the House that Lok Adalats recovered 5.3 per cent, Debt Recovery Tribunals (DRTs) recovered 3.5 per cent and SARFAESI recovered 14.5 per cent. On the other hand, she added that the Insolvency and Bankruptcy Code (IBC0 ensured a 42.5 per cent recovery.During the debate, K K Ragesh of CPI-M asked why similar relief was not being provided to farmers who were also facing economic hardships.