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Jayanthi Iyengar

The passage of the Securitisation Bill and the Companies (Amendment ) Bill 2000 is no doubt monumental, given the pendency rate. But they also embody the lack of clarity on as basic an issue as the government's approach to sickness.

THE Centre needs to address the issue of whether revival of sick units as a principle should be retained in the statutes. Conflicting signals are emanating from the Government, if one looks at the two Bills passed in the winter session of Parliament. These include the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Bill, often called the Securitisation Bill, and the Companies (Amendment ) Bill 2000. The passage of the two Bills is no doubt monumental, given the pendency rate in this country. But read together, they also embody the lack of clarity on as basic an issue as the government's approach to sickness.

The Securitisation Bill, among many other things, provides an easy exit route to lenders from bad loans. Since the existing legal structure for recovery of dues is laborious, the new law permits the circumvention of the Board for Industrial and Financial Reconstruction (BIFR) and the High Courts, considered to be the major stumbling blocks to quick recovery. Provisions for such circumvention are being provided in law not only for new cases but also for old referrals, which can now be legally taken out of the BIFR purview by the lenders.

Under the existing law, the BIFR oversees revival of sick units while the High Courts supervise the orderly winding up of units, particularly the distribution of liquidation proceeds among lenders according to lien. The lien is prescribed in the company law. Under it, amongst the secured creditors, the government's dues have to be settled first, followed by that of the institutional lenders, and then others. This structure clearly indicates that efforts at revival perforce must precede the loan recovery process, regardless of the time taken for recovery or the scope for asset-stripping thrown up by the existing revival process.

In India, the average time for settling civil cases is about 20 years. Add to this the resuscitation effort by the BIFR of a sick unit, and recovery of dues becomes a long-term project for lenders. From the lenders' point of view, this is too long a wait. And it is to address such issues that the new law provides for easy exit to lenders.

The Companies (Amendment) bill 2000, however, is an altogether different ballgame. It provides for the setting up of a dedicated companies court called the Company Law Tribunal (CLT). Such a tribunal would be set up subsuming the powers of the High Court and the BIFR. The courts themselves would be happy with this new dispensation as it would take some of the burden off them.

Besides, there is also the growing realisation of a need for a dedicated companies court since lack of specialisation amongst judges is resulting in few case-law-making pronouncements on corporate law matters.

This is unlike the developments on the tax and labour law front. Here new laws are being written each day in courts, forcing the government to subsume the judgments into its policy-making process. The setting up of a dedicated companies court in the form of the Tribunal is expected to address this long-felt need.

The subsuming of the BIFR into the Company Law Tribunal, the imposition of a new cess on companies to fund revival, and provisions for lenders alerting the Tribunal when they spot sickness are, however, another matter. The new cess is an unnecessary burden on companies when the principle of revival itself is being given the go by under the securitisation law. Besides, making provisions for institutions alerting the Tribunal of potential sickness in units they fund is equally redundant. Such an insertion has been made to permit the Tribunal to initiate recovery at the onset of sickness, using the corpus built through the cess, but the institutions, armed with the powers under the securitisation law, are unlikely to wait for Tribunal's intervention. Instead, they would initiate recovery at the potential sickness stage, thereby actually forcing sickness and displacement of labour on many units.

It is not difficult to guess why these conflicting principles continue to remain on the statutes. Any new law that explicitly touches labour rights is tricky business in electoral politics. Hence, the repeated reassurances by Finance Minister, Mr Jaswant Singh, in Parliament that labour interests would be safeguarded. What the Minister means by this statement is that specific provisions are being made in the new liquidation law, under which the dues to the labour would be met before meeting the dues of other creditors. Also, provisions are being made in law for inclusion of labour experts on the CLT to oversee labour interests in units being revived or wound up.

These are laudable measures when revival is an important phase in the lifecycle of a unit. However, they become meaningless, when the path to quick recovery of institutional dues would be paved with closed units and displaced workers. Economists would argue that this is a desirable goal, as jobs lost by workers in inefficient units would be offset by new jobs created by utilising funds released through the speedier recovery process. But this is cold comfort for those who lose jobs. It would also be a poor selling point for a political leadership set to face the electorate in the near future. It is because of these reasons that one has seen the passage of two Bills with conflicting content. They need to be aligned. But who wants to bell this troublesome cat?

(The author is Consulting Editor, Business Content, Jain Television.)

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