The bill was introduced in the form of a money bill, clearly aimed at bypassing the upper Rajya Sabha house, where a dominant opposition has thwarted most legislative effort attempted by the government. (Money bills do not require the assent of the upper house.)
At present, Asia’s third-largest economy has competing laws with unclear jurisdictions to deal with the liquidation or revival of companies.
This often results in the process dragging on for years, inflating costs for investors and taxpayers.
The bill, introduced by Finance Minister Arun Jaitley in the lower house, seeks to enact a single bankruptcy code.
Under current rules, even deciding whether to save or liquidate an ailing company can take years, leaving it in the hands of managers who can – and do – strip assets with impunity.
Foreign and domestic investors say the difficulty in exiting ventures is a deterrent in their investment decisions.
Jaitley over the weekend told business leaders that the government was planning to pass the bankruptcy bill in the current Parliament session that concludes on Wednesday.
Another government-opposition face-off looming?
The government’s decision to move the bankrupcty code as a money bill, however, can rile opposition parties further, who will view this as a step to circumventing the Rajya Sabha’s powers.
The Constitution defines a money bill as one “exercised for the imposition, abolition, remission, alteration or regulation of any tax”.
Former banking secretary DK Mittal conceded that there was “grey area” in terms of whether a bankruptcy law could fit within the definition of a money bill, and set this could likely set up the government on a collosion course with the opposition.
But senior Supreme Court lawyer backed the government’s move, saying that the bankruptcy code fits the definition of a money bill, since it seeks to amend tax laws such as customs or excise duties.
“If there is going to be an amendment to Union tax laws [through a bill], it becomes a classic money bill,” he told CNBC-TV18.
The former banking secretary said that while the bill was forward-looking, there will be issues that the government will need to resolve in the area of bankruptcy in the country, only after which there could be some positive impact.
“There are existing laws, such as the BIFR and the law of liquidation in the Companies Act, which has not been notified yet,” he told CNBC-TV18 in an interview.
The new bankruptcy code will “require setting up a new tribunal”, and there will be questions over existing cases and the jurisdiction over the bodies looking into them currently.
“So you will have many of those issues to be resolved before we can really start getting anything out of it,” he said.
Salve said the corporates had long lamented the absence of a strong bankruptcy code in the country and said the law would go a long way in clearing disputes over bankruptcy.
– With inputs from CNBC-TV18