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India panel clears insolvency law, sets stage for passage
[NEW DELHI] An Indian parliamentary panel approved a bill aimed at overhauling century-old bankruptcy regulations, taking a key reform measure aimed at improving ease of doing business closer to implementation.
The panel, comprising members from the ruling as well as opposition parties, proposed that the Insolvency and Bankruptcy Code should include laws to seize overseas assets of defaulting companies and individuals. The legislation, which makes it easier to wind up a dying company or recover dues from a defaulter, could be passed in the current session of parliament that ends on May 13, Finance Minister Arun Jaitley said.
The bankruptcy code is key to fulfilling Prime Minister Narendra Modi's poll promise of improving ease of doing business in India and revive the government's stalled reform agenda.
World Bank data show that creditors in India recover about 25.7 US cents on the dollar in the 4.3 years it takes to resolve insolvency compared with 80.4 US cents in the US in less than half that time, which deters lending and investment.
"Given that many corporate transactions and businesses today involve an international and cross-border element, the implications of cross-border insolvency cannot be ignored for too long," the panel said in its report tabled in parliament.
It also wants Life Insurance Corp and Infrastructure Development Finance Company to be included in the list of lenders apart from banks.
Kingfisher Airlines, whose founder Vijay Mallya is now under pressure from authorities to return to India and pay 90 billion rupees (S$1.82 billion) of dues to banks, is the latest example of how the existing web of complex insolvency laws is affecting companies and lenders. Mr Mallya, who is now in London, has said he isn't a "wilful defaulter" and was making efforts "in all sincerity" to repay loans.
The legislation proposes an insolvency regulator, lays down the procedure for early identification of financial distress in companies, and prescribes time-lines for their revival or shutting down. Insolvency issues can be dealt with in as little as 90 days and a maximum of 270 days.
Among other measures to hasten recovery of bad loans, India is planning to change rules, allowing debt recovery tribunals to limit cases to two hearings and give a ruling within 30 days of the final hearing.
Mr Jaitley had introduced the legislation in December before it was referred to the parliamentary panel. Mr Modi, whose 2014 election win was cheered by investors looking for quick economic reform, has since back tracked on a key legislation aimed at making land acquisition easier while the national sales tax remains stuck in parliament due to a blockade by opposition parties.