Bankruptcy bill will be effective only if the govt beefs up benami law and matchmakers

The government has done well to introduce a bankruptcy Bill in the Lok Sabha and wisely with hindsight as a money bill lest it is indefinitely held up in the Rajya Sabha like GST but it will have to simultaneously provide for the following: •Matchmakers, so to speak, whose job it would be to find new promoters for running the defaulting company as a going concern; and •An effective benami law to wrest the loot indulged in by the incumbent promoter. Without these two mechanisms in place, the bankruptcy code will be only as effective as a superb police force sans a fair and quick judicial system. [caption id=“attachment_2556732” align=“alignleft” width=“380”] PTI[/caption] A steel plant or an expressway would come to a screeching halt may be as a work in progress or continuous process plant switched off. Both are colossal national wastes. Both have resources locked up. Both have workers itching to resume work. Both have waiting customers. And both have governments waiting for revenue by way of taxes trickling in. It is not enough to eject a defaulter just as it is not enough to bring a no-confidence motion against a government which is why the German law requires a no-confidence motion and confidence motion to be voted as a package. In a business context it is equally important to find a new promoter who doesn’t have his eye on the prime properties and whose cunning plan is not to indulge in asset stripping sooner or later. There are agencies like merchant bankers/investment bankers who have information about potential suitors raring to go for a long haul of revival and putting the business back on rails. Asset Reconstruction Companies (ARCs) who buy defaulters’ businesses particularly receivables at a deep discount have so far done justice neither to themselves nor to the banks selling in distress. It would be advisedly better to invite global tenders for reviving businesses gone bust. It doesn’t matter if a business is revived by a desi or a foreigner because a lot rides on its revival. It makes eminent business sense to revive and run an idle business rather than put up a new plant. Idle facilities are a national waste. The Prime Minister’s make in India dream need not necessarily be realized with fresh plants; it can be realized with revival of idle facilities as well. In fact that would be a better course. The National Company Law Tribunal (NCLT) is proposed to be tasked with dealing with defaulting companies including performing their last rites if needed. The Modi government like its predecessors has forgotten to dovetail recovery proceeding against the marauding, buccaneer promoters with the business rehabilitation exercise. True, the company law authorizes the liquidator to file misappropriation cases against such marauders but it would be advisedly better to carry on the two exercises concomitantly. Such a unified exercise would have several good things going for it. When a promoter is grilled by the NCLT about the failed business, it would but be appropriate to grill him about his own personal fortunes and empire given the fact that sick-company-rich-promoter syndrome is too stark a fact of Indian business life to be glossed over or separately addressed. A company’s suppliers and creditors may be more than willing to spill the beans to the NCLT about the shenanigans of the promoters including benami dealings in their desire to salvage their dues to the maximum which they might not once their appetite is sated or they lose interest. Indeed NCLT should be the ideal agency to enforce the benami law in the anvil because should it be able to call the promoter’s bluff and recover the benami properties, the money will go back to where it  belonged—the company whose rehabilitation efforts would resultantly get a boost. The Modi government must craft a benami law with the same dispatch with which it crafted the bankruptcy code and integrate the two. A company’s bankruptcy is often brought about by the bloating assets of its buccaneer promoter. Of course, crafting a new benami law won’t be easy but then the 1988 law that has been junked can hold out lessons in shaping the new law.