Mumbai: Finance Minister Arun Jaitley on Saturday assured debt-laden companies that the objective of the new insolvency law is not to banish them but to save them while ensuring that “debts are serviced”.
“The old regime by which the creditor would get tired of chasing the debtor and end up recovering nothing is over now. If a debtor has to survive, he will have to service his debt. Or, he will have to make way for somebody else,” he said, exhorting borrowers to develop a credit culture.
The new regulations are viewed by some as giving upper hand to lenders who are reeling under Rs 8 lakh crore of non- performing assets (NPAs) or bad loans. PSU banks alone account for about 75 per cent of the total bad loans. “The ultimate objective really is not liquidation of assets, (but) to save these businesses, get either the existing promoters with or without new partners or new entrepreneurs to come in and make sure that these valuable assets are preserved,” Jaitley said. Addressing a CCI-summit on insolvency and bankruptcy here today, he said the law now sides more with the lenders, as the slew of changes in the existing laws is aimed at speeding up the NPA resolution.
“It’s not just one law we’ve changed. We’ve changed the DRTs (debt recovery tribunals) procedures, we’ve changed the provisions of Sarfaesi Act by providing a liberalised regime for ARCs. The cumulative effect of all these laws is that the message in the legislation is loud and clear: the debtors will certainly have to make sure that their debts are serviced,” Jaitley said. “And if you don’t, there is an effective alternative mechanism by which you exit or you take in a partner and or an alternative mechanism by which the business can be saved,” he added. He said the bankruptcy code was necessitated by the failure of DRTs to effectively perform their duty after the initial success, as when enacted the Sarfaesi (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act was successful in to get NPAs drastically down in the initial two-three years.
“I think IBC has significantly reversed the defaulting debtor-creditor relationship,” the minister said. Admitting that all the defaults are not wilful, he said the reasons for insolvency can be many.
“It could be genuine business losses because of a particular sector of the economy or a company getting into difficulty. It could be a case of mismanagement, it could also be a case of deliberate mismanagement including some malfeasance on behalf of the promoters.” But then DRTs began to be less effective as envisaged, the minister noted, which led to the new law.
He also said it is too early to take a call on the functioning of the NCLT (National Company Law Tribunal). “9-10 months may be too short a period to have a knee-jerk reaction on what improvements are required. We will have to wait for additional period of time.”
The minister also promised to make special efforts to ensure that the infrastructure at NCLT is also strengthened and brought in consonance with the requirement of the law.
Commending on the thus-far success of the IBC, he said “the new regime under the IBC has significantly reversed the defaulter-debtor relationship,” as we have lived in a system for many years which protected debtors and allowed assets to rust away. (PTI)
