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Parliament's Standing Committee on Finance has said that payments due to MSMEs who are operational creditors to a corporate debtor should be cleared on a priority basis during the course of the resolution process.
In its report tabled in the Parliament on Wednesday on the the Insolvency and Bankruptcy (Second Amendment) Bill, 2019, the Standing Committee said certain amendments in the bill may cause over-regulation of suppliers, particularly of MSME suppliers.
The committee believes that over-legislation through the bill must be avoided and the process of delegated legislation through formulation of rules by Insolvency and Bankruptcy Board of India (IBBI) be followed to strike a harmonious balance between the needs and concerns of stakeholders.
"In this context, the Committee would like to emphasise that the payments due to MSMEs, who are operational creditors not included in the Committee of Creditors (CoC), should be ensured on priority in the course of the resolution process itself before the liquidation stage kicks in. The Committee would therefore recommend that the Clause 5(b) (2A) should accordingly be deleted," the report said.
It said that just to make the IBC process smoother and in hope of a probable revival, suppliers cannot be burdened with overly restrictive conditions.
It recommended that market forces should resolve whether a supplier decides to supply to a corporate debtor, as there are limited resources available and each supplier has a limited capacity, which needs to be channelised and allocated in the best interest of the economy and not directed solely towards keeping the corporate debtor alive.
Clause 5(b)(2A) of the bill says: "The supply of goods or services that the interim resolution professional or resolution professional, as the case may be, considers critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except if such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified."
On the protection of new promoters of a corporate debtor from prosecution for wrong doings by the former management, the panel, in its report, said that it is in agreement with the intent of this amendment to safeguard the position of the resolution applicant by ring-fencing them from prosecution and liabilities under offences committed by erstwhile promoters.
The Insolvency and Bankruptcy Code represents a transformational framework not only for the resolution of defaulting corporate debtors, but more importantly in establishing powerful incentives to avoid default altogether, said the committed headed by BJP member Jayant Sinha.