The Insolvency and Bankruptcy Code (IBC) was first introduced in 2015. It came into force in 2016 seeking to create a single framework of law for insolvency and bankruptcy. The process of resolving insolvencies was previously a lengthy one without providing an economically viable arrangement. Hence, the bankruptcy code offers a one-stop solution aimed at protecting the interests of small investors. The process of doing business would be less complicated as well.
The Insolvency and Bankruptcy Code (IBC) Amendment Bill in 2019
Since 2016, the code has gone through 3 times of revision with the latest changes pointing towards various sections and the introduction of a new section. On December 11, 2019, the Union Cabinet approved amendments to the IBC Bill seeking to:
Streamline the Corporate Insolvency Resolution Process (CIRP)
Protection of last-mile funding, intending to boost investment in financially distressed sectors
L Viswanathan, Partner, of a law firm Cyril Amarchand Mangaldas, said, "The IBC Amendment Bill contemplates providing priority in repayment to last-mile funding. Debts that would be eligible for this priority are to be notified. Such debt will have priority of payment in both resolution and liquidation processes under the Insolvency and Bankruptcy Code. Once the Bill is approved and the necessary notifications are in place, such notified last-mile funding will stand on an equal footing with funding provided, and costs incurred by creditors, during the insolvency process”.
What missing in the bill introduced by the Finance Minister Nirmala Sitharaman is cross-border insolvency framework.
Despite this, Uday Bhansali, President-Financial Advisory, Deloitte India was not disappointed but expressed confidence in the reform becoming a reality soon. While commenting on other aspects of the bill, he said, "The proposal in the bill that criminal cases of the previous promoter do not apply to the successful bidder is a significant one. So is the proposal that permissions and licences will continue even after the IBC process. This will avoid the need to reapply for licences and permissions and save the successful resolution applicant a lot of management time and overhead”.
What IBC Amendment Bill 2019 has for the real estate sector?
Real estate developers welcome this move of the government. By initiating Corporate Insolvency Resolution Plan (CIRP), the centre brings new hope for home buyers and a certain category of financial creditors. It protects the buyers from criminal proceedings against previous promoters of the bankrupt firm. The bill gives hope to help avoid disruption in real estate projects, carried out by selective individuals.
Gaurav Gupta of SG Estates and Joint Secretary, CREDAI-NCR (the apex body of all registered real estate builders in India) said, “It’s a welcome step. This will stop the misuse of the law and ensure that it is used only in genuine cases in the larger interest of homebuyers and real estate companies. Earlier, in some case it was being used as an arm twisting tool against developers and jeopardizing the interest of genuine homebuyers”.
The bill, however, announced a condition for the homebuyers. It states that the insolvency action can be initiated only if 10 percent or 100 homebuyers, whichever is lower, are required for moving an insolvency petition against a real estate developer.
Expressing disappointment on the same, Abhay Upadhyay, President, Forum for People's Collective Efforts (FPCE), said, "It is unfortunate and the interests of homebuyers have been compromised. This forum (NCLT), for all practical purposes, will be unavailable for homebuyers as it may be difficult for them to muster the requisite number. When the purpose of the earlier amendment to categorise homebuyers as financial creditors have not yet been achieved, then what was the compulsion for the government to make things difficult for homebuyers other than pressure from developers? As it is, very few of them decide to take a legal recourse".