Amendments In Insolvency And Bankruptcy Code To Protect Interest Of All Stakeholders

After leading real estate developers, Jaypee and Amrapali announced insolvency, the Insolvency and Bankruptcy Board of India has amended the rules to mandate that any resolution plan proposed for the company has to categorically show how it will protect the interest of all the stakeholders.

This amendment was introduced to ensure that the interest of not just financial lenders and creditors are safeguarded but also the interest of all the stakeholders will be protected, including homebuyers. After a company is admitted for insolvency, creditors committee is the key decision body and banks are a crucial part of it.

With the introduction of these rules, the bank and the creditors will have to ensure that they do not just protect their own interests. They have to ensure that the interest of all the other stakeholders is also taken care of.  

Prior to the amendment, the rules only gave paramount importance to the interest of the financial and operational creditors and like can be seen in case of Jaypee and Amrapali, there was no assurance for homebuyers. Homebuyers were left in a lurch. They would get their money only after the claims of financial creditors are settled.

Before the amendment, according to the insolvency and the bankruptcy code, the resolution plan was binding on the debtor, i.e., the company against whom the insolvency proceedings are commenced, but there was no statutory obligation in the rules to protect the interest of the stakeholders other than financial creditors.

This new amendment has fixed the loophole in the legislation wherein there was no provision to protect the interest of the homebuyers. With these changes in the rules even the interest of the other stakeholder than financial and operational creditors will be taken care of.  

After the revised rules, the National Company Law Tribunal (NCLT) will decide on the final resolution plan considering the bids received by all the stakeholders.

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