The government plans to create a mechanism to facilitate coordination among various regulatory authorities and courts to speed up liquidation of sick companies. The ministry of corporate affairs looks to set up a special purpose vehicle (SPV) that will allow all authorities involved in the liquidation process to pool in data to a central repository, reducing procedural delays. It is already working on a simple exit scheme for sick firms that will be ready in less than a year.
Liquidation in India is a long-drawn process, which takes up to 10 years under the current rules, leading to complete erosion of asset value for the distressed firms.
“The proposed SPV will create an in-house system of data management and coordination to minimise excessive dependence on private vendors,” said an official with the ministry of corporate affairs, who asked not to be named.
The exit management plan will be electronically maintained. It will set up an independent in-house system of data management, which will replace the current system of engaging external IT vendors to do the work.
The corporate affairs ministry already has an effective e-filing and data management system called MCA-21, which has Tata Consultancy Services (TCS) as partner-operator. It wants to ensure that in case of exigencies like premature termination of contract with the software firm, the implementation of the project is not affected.
World over, insolvency procedures help entrepreneurs close unviable businesses and start new ones. This ensures that the human and economic resources of a country are continuously re-channelised to efficient use, increasing the overall productivity of the economy.
The Indian system provides neither an opportunity for speedy and effective rehabilitation nor for an efficient exit. The process for rehabilitation, regulated by the Sick Industrial Companies (Special Provisions) Act through the institutional structure of Board for Industrial and Financial Reconstruction (BIFR) is subject to delays and does not provide a balanced or effective framework for all stakeholders.
Apart from the courts, various authorities involved in the liquidation of sick enterprises includes office of official liquidators (OL), which forms under the ministry of corporate affairs, BIFR –– which is a body under the finance ministry.
In this context, for your as well as your readers’ benefit, I reproduce below the response received on your previous release dt. 5 May on “Government may increase BIFR benches” :
“TDS Says:
“May 5th, 2010 at 12:49 pm
While in India the term “quasi judicial” has totally been rendered a misnomer and superfluous, there no doubt was a need for additional Benches of the BIFR which, pardon me for saying, all along suffered from the absence in considerable number of persons with hands-on and proper experience and expertise in, as well as exposure to, handling/analysis of accounts/balance sheets, etc., and administering taxation/financial laws. This body has long become a very sure haven, as most specialised bodies inter alia like the SFIO, for the generalists of all generalists, the IAS, and, also partly for the officers trained mainly in handling government accounts based in general in the “single entry system”.
Expertise and competence apart, the selection of Chairman and Members, as well as the officers sent on deputation/staff working in the Board has never been transparent and, as usual with all such bodies with the so called quasi judicial bodies, corruption is the only thing which is transparent-and., of course, rampant. Having the case of a company “somehow or other” brought under the jurisdiction of the BIFR has itself a very bigbusiness, the reason being the statutory protection stipulated against the recovery of any state and central taxes due from any (defaulter)company whose case comes to the Board.
Moreover, it is also public knowledge, to the utter chagrin of small/individual share holders of many such companies, cheated for years, that once a company’s matter is within the jurisdiction, the management starts illegally denuding the undertakings/factories of its assets.
One only hopes that the FM and the BIFR are aware of all this.
“[Read more: https://www.taxguru.in/corporate-law/government-may-increase-bifr-benches.html#ixzz0nUsgCkti“
Read more: https://www.taxguru.in/company-law/amnesty-scheme-for-defunct-companies-soon.html#ixzz0nVyHn0FF
The government’s plans plans to create yet another “mechanism to facilitate coordination among various regulatory authorities and courts to speed up liquidation of sick companies” and “ to set up a special purpose vehicle (SPV) that will allow all authorities involved in the liquidation process to pool in data to a central repository, reducing procedural delay” is not particularly welcome. This is so as we all know from a long history of Indian administrative and bureaucratic culture the every new outfit is meant to accommodate defeated politicians of the ruling alliance and the powerful and influential bureaucrats to continue to remain in Delhi., apart of course from the usual and customary monetary allurements.
The SICA and the BIFR laws could be easily amended for this purpose to ensure that:
(1) SICA is administered NOT by one ministry with a vested interest but by an inter-disciplinary board and/or
(2) The BIFR must have at least two serving officers from the CBDT as members, as well as
(3) The state of affairs and the deliberations of the BIFR are made absolutely transparent.
There is a conviction among the honest officers of the tax departments as well as the stake holders (including the hapless employees of the units who are not insured by the corrupt unions) in the so-called sick companies that the companies are deliberately and with ulterior motives rendered “sick” with the connivance inter alia of the lenders (read:bankers) merely to defraud the public. And they also believe that such criminal motives form part of a an essentially capitalist conspiracy of the ruling class-the politicians, the bureaucrats, and the businessmen who are the second bread givers to the latter.
One sincerely hopes that our Leftists intellectuals spare some time from their secular and revolutionary activities to ponder over these mundane things too.
Does anyone really want easier and quicker solution? It is in everybody’s interest to delay the process-naturally for pecuniary reasons-and all involved are interested in taking advantage, as explained in this very context a few days ago in these columns!