Union Cabinet approved an Ordinance to amend Insolvency and Bankruptcy Code (IBC).
What was the significance of amendments made in the IBC?
The Ordinance was passed to ameliorate the effect of IBC proceedings on the real estate sector and small and medium enterprises (SMEs).
As both these sectors are major sources of growth in the Indian economy.
This amendment will increase the stability and transparency in the real estate sector and it’s a step towards government’s aim of 'housing for all' by 2022.
Another major amendment was done in the Real Estate (Regulation and Development) Act of 2016 to grow and modernise the real estate sector which will increase thesecurity for home-buyers.
The concerns of the SMEs’ have been addressed by allowing promoters of companies with turnover up to Rs 2.5 billion to bid during the IBC process.
Also restrictions on promoters’ bids have been put in place in order to ensure that they do not game the system to their advantage.
What are the other challenges?
After the amendment, Home buyers will be treated as financial creditors whose representatives must approve the resolution plans for the company that has been taken to the NCLT.
This will affect the autonomy of the Banks as the home-buyers might seize control of the process, given their shares in investment.
It is also unclear how the representative of home-buyers will be chosen, and what it means for the effectiveness and smooth functioning of the committee of creditors.
But these restrictions might also affect the SMEs and force many companies to go into liquidation with a consequent loss in value.
