The Lower House of the Parliament  cleared the Insolvency and Bankruptcy Code (Amendment) Bill, 2021 aimed to amend some of the provisions of the Insolvency and Bankruptcy Code (IBC), 2016.

The bill was introduced in Lok Sabha by Union Corporate Affairs Minister Nirmala Sitharaman on Monday amid ruckus by the Opposition. It will replace an ordinance that amended the insolvency law in the country. Sitharaman helms both finance and corporate affairs portfolios in the Union Cabinet.

The legislation, which was was promulgated by President Ram Nath Kovind on April 4, a pre-packaged resolution process for stressed micro, small and medium enterprises (MSMEs) was introduced under the Code.

Under a pre-packaged process, main stakeholders such as creditors and shareholders come together to identify a prospective buyer and negotiate a resolution plan before approaching the National Company Law Tribunal (NCLT). All resolution plans under the IBC need to be approved by NCLT.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2021 provisions for a prior bankruptcy-resolution agreement between the creditor such as banks and an investor without initial approval from the NCLT, the bankruptcy regulator. Under these amendments, the government had notified the threshold of a default not exceeding Rs 1 crore for initiation of the pre-packaged resolution.  

The government said it will ensure “quicker, cost-effective and value maximising outcomes for all the stakeholders, in a manner which is least disruptive to the continuity of their businesses which preserves jobs”. 

The amendment was necessitated by the Covid-19 pandemic as it took a toll on the crucial MSME sector, a key contributor to the economy and provider of jobs.