New Delhi: The Congress on Friday questioned the Insolvency and Bankruptcy Code (IBC) saying it was dubbed a “game changer” and “big-ticket” economic reform by the Modi government in 2016, but had resulted in “organised loot.” “The IBC was billed as a game changer and one of the big-ticket economic reforms by the Modi government. But, the reality is that it has turned out to be worse than its predecessor the Sick Industrial Companies Act (SICA) of 1985 and its Board for Industrial and Financial Reconstruction.
The IBC was meant to rescue firms facing financial stress and save the money of financial creditors, who were mostly public sector banks. However, over the past eight years recovery under the IBC has been only 17.6 per cent while losses to financial creditors were 82.4 per cent. As many as 75 per cent of the firms that went to IBC, ended up in scrap sales. This means that the public sector banks, which had lent money to these firms lost their money, which had been deposited in the banks by the common man. Was the IBC brought in 2016 for organised loot?” Congress spokesperson Prof Gourav Vallabh said.
“The PM had claimed in 2016 that the IBC was a big reform and would result in a recovery of 100 per cent. Sadly, recovery under the IBC has been only 17.6 per cent. In fact, recovery was much better at 25 per cent under SICA, the predecessor of IBC,” he said. According to Prof Vallabh, who cited government data to support his charge, even the parliamentary standing committee on finance had in 2021 expressed concern over high throwaway sales of firms under the IBC and had suggested that a limit for the same must be worked out by the government.
The Congress leader pointed out that as per the RBI, around Rs 12 lakh crore worth of loans had been written off by the banks over the past eight years as the firms took loans, but never paid them back. “During the IBC process, asset stripping is prohibited and should be restored as fast as possible to ensure the firms do not lose their intrinsic value. By 2023, the number of such transactions was 871, amounting to Rs 2.85 lakh crore in value and what was clawed back was only 1.8 per cent,” said Prof Vallabh.
The Congress leader alleged that the IBC provisions were misused by the big corporations, which used the system to buy out sick companies at dirt-cheap prices. “For instance, the Adani Group purchased three companies under the IBC at very cheap rates to consolidate its position in the power and ports sector. These were Karaikal Port Pvt Ltd, Korba West Power Plant and Essar Power. Was the IBC meant to do this?” he questioned.
“The PM is usually abroad on a visit and we don’t know if Finance Minister Nirmala Sitharaman is aware of such organised loot under the IBC or not. But, we need to have answers from the government about what is happening,” he said. The Congress leader said that the main purpose of the IBC was to get defeated through the ongoing practice.
