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Bankruptcy law to protect workmen and creditor rights: Sinha

The Rajya Sabha on Wednesday passed the Insolvency and Bankruptcy Bill, which will facilitate the ease of doing business, protect important stakeholders like workmen, creditors and will help to revive and liquidate assets quickly.


This Bankruptcy Bill is a historic legislation that will transform the Indian economy, said Minister of State for Finance Jayant Sinha.


Speaking to CNBC-TV18’s Rituparna Bhuyan, Sinha said that this bill will help creditors lend at lower rates due to protection and will create a robust safety net for workers.


It will also enable workmen to initiate the insolvency process and strengthen rights of creditors.


The law will also impact cases which have been going on before this pre-Bankruptcy code and the company revival process can kick off before it goes into bankruptcy.


Public sector undertakings (PSUs) will be subject to the same laws like other companies under the Bankruptcy law.

Below is the transcript of Jayant Sinha’s interview with CNBC-TV18’s Rituparna Bhuyan.

Q: You have also moved amendments to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi Act) and DRT Acts as well. All these acts will now be in sync. Can you explain what would it mean for the Indian economy when all these acts get implemented in sync?

Sinha: This was historic legislation and it was very satisfying to find that there was consensus on this in the Lok Sabha and today in the Rajya Sabha as well. This historic legislation will profoundly transform the Indian economy because it will make three very important things possible.

The first is, we will be able to take assets that are dysfunctional, defunct, that are not being rejuvenated quickly and enable those assets to be revived quickly or to be liquidated quickly so that the process of creative destruction can move faster and that will really help the economy.

Number two, we will protect important stakeholders in this. These include workmen who will have upto 24 months of protection as well as creditors who will find that their creditor rights are very significantly strengthened and because their creditor rights are significantly strengthened they can lend with a lot more conviction and they can lend with lower rates because they know how the recovery proceedings will happen if bankruptcy is triggered.

So, that also is very important that we are protecting these very important stake holders in this fashion.

Number three, because the recovery process is going to work so much better we think that it will stimulate the creation of a much deeper, more liquid corporate debt market because it is now possible to price what a recovery will look like and because creditor rights are now very well clarified through the waterfall process that we have setup.

Q: What about existing cases where there is wilful default. For example we have case of Vijay Mallya, can the provisions of this code be also applied to existing cases?

Sinha: If creditors so desire they can invoke bankruptcy proceedings in all existing cases except for those that are with appellate courts for example the Supreme Court. For all other proceedings it will be possible for us to be able to invoke this bankruptcy process and to put these assets into this resolution.

Q: Going by your experience as a banker, do you think there would be strong triggers enough for creditors or say for an employer to initiate bankruptcy proceedings? Are the provisions strong enough that will give someone that trigger to initiate such proceedings?

Sinha: The provisions are very strong. All stakeholders virtually have the ability to invoke bankruptcy – the workmen can do it, operational creditors can do it, financial creditors can do it. Once they invoke the bankruptcy process then it is very well laid out and it is time bound. So, we think in fact that what we will see in this is that we will see a lot of pre-emptive negotiations because this set of rights is available for creditors for workmen and so on.