• PAGE ONE
• INDEX
• HOME

Delink insolvency provisions from company law: Chambers

Richa Mishra

NEW DELHI, Aug. 9

SEVERAL chambers of commerce and industry have suggested that the winding up provisions should be separated from the Company Law and a new insolvency Act enacted.

The chambers, including the Federation of Indian Chambers of Commerce and Industry, have been suggesting the same to the Ministry of Law, Justice and Company Affairs as well as to the high-level committee constituted for law relating to insolvency and wi nding up of companies.

Meanwhile, on the basis of the recommendations of the Eradi Committee on Insolvency Law, the Government proposes to amend the existing Companies Act, incorporating provisions for insolvency law.

``As our judicial system is more akin to that of the UK, the Insolvency Act, 1986 of the UK may be more suitable to the Indian circumstances,'' the chambers have suggested, adding that ``the said law deals with individual bankruptcy as well as corporate insolvency, which can form the basis of the modern law reframing and restructuring of the law relating to winding up of companies in India''.

The insolvency law must take into consideration the protection to creditors and to enforce their respective claims against the company under liquidation, expeditiously, effectively and fairly, industry sources told Business Line.

Further, the proposed law should also take into consideration the factors which will balance the interest of the creditors, shareholders, employees and also the State, sources said.

``It is important that full and fair opportunity should be provided to the company as an entity and its existing management to revive and rehabilitate the same,'' the chambers have said.

The Eradi committee had also recommended that a fund for revival, rehabilitation of companies and for preservation and protection of assets of the companies may be created under the supervision and control of the Government. Companies formed and register ed after the establishment of the proposed national tribunal are required to contribute annually a specified percentage, say 0.1 per cent of its turnover, immediately after commencement of the business. Existing companies have to contribute annually from the financial year immediately succeeding the year in which the tribunal is established.

``This may not be desirable. The charge is not against profits but against turnover which will put an extra burden for newly set up companies. How to define the term Commencement of Business. The same could lead to further litigations as has been our exp erience in the case of Income-Tax Act,'' the chambers have argued.

Monitoring is another issue which needs attention. ``How could the corporate sector be sure that such funds will be properly utilised,'' they have questioned.

Controversy still prevails as to whether there should be separate benches for insolvency cases in High Courts or a national tribunal as suggested by the Eradi committee, the sources said.