FM Arun Jaitley warns defaulting debtor to either pay up or lose their company

MUMBAI: Finance Minister Arun Jaitley unequivocally conveyed that the new reality in Indian business is borrowers either pay up or lose their business, and at the same time took a jibe at the judiciary for its double standards when it came to sticking to time lines.

The days of creditors chasing the borrowers endlessly are over as the new bankruptcy law is quite clear on settling defaults in a specified timeline, Jaitley told an audience in a bankruptcy seminar organised by the CII.

"Conventionally, Indian courts always have two standards," Jaitley told the audience. "When timelines are made for the executive, they normally maintain these are binding. When timelines are made for judicial institution, courts have conventionally held that these are only directive."

He recollected that as law minister, when a strict timelines were set while amending the Code of Civil Procedure, the Supreme Court said 'courts will decide their own timetable and these are only directives which are mentioned by the parliament, these are not mandatory on us.'
Jaitley illustrated this example to highlight that timelines should be adhered since speed is essence for the success of the Bankruptcy and Insolvency Code

"I do hope these do remain as mandatory as possible and these timelines are adhered to because these are essence of the law. Speed will help in the effective implementation of the law," he said.

As per the IBC framework, a National Company Law Tribunal (NCLT) has to decide within 14 days on whether or not to admit a company for insolvency resolution proceedings. Once a company is admitted, the lenders and borrowers should mutually arrive at resolution plan within 270 days failing which the assets of the company will be liquidated.

After the law was enacted in January of this year, 250 companies including 12 large companies like Essar Steel, JP Associates and Lanco have been admitted to IBC.

Jaitley said that for endless years we lived in a system that protected the debtors and allowed assets to rust away. The implementation of IBC, the FM said, would reverse the creditors and defaulting debtors relationship.

"One thing is very clear. The old regime by which the creditor would get tired chasing the debtor and end up recovering nothing is now over," said FM. "If a debtor has to survive, he will have to service his debt. Or, he will have to make way for somebody else. I think this is the only correct way by which businesses would now be done and this message has to go loud and clear," he added.

FM's comments come at a time when stressed loans if the banking sector has touched 12 per cent of the total loan book.