RC Government Plan NMAT 2023

Directions (1-5): Read the following passage and answer the following questions.

 Government plans to amend IBC to ring-fence buyers of stressed assets from prosecution. While the amendments will help ring-fence buyers, aspects like cross-border insolvency remain to be addressed.  The recent amendments to the Insolvency and Bankruptcy Code (IBC) approved by the Union Cabinet can go a long way in addressing some of the gaps in the resolution process. Crucially, the proposed Bill has sought to provide a clean slate to buyers of stressed assets, by shielding them from prosecution for offences by previous promoters.

By way of insertion of Section 32A in the Code, the amendment seeks to provide immunity to the corporate debtor and its assets, from an offence committed prior to the commencement of the insolvency process. In other words, it seeks to ring-fence the corporate debtor and property from offences committed by the previous management or promoters. At a time when there have been growing concerns over investigative agencies initiating action against companies after the completion of the resolution process (Bhushan Power and Steel), the amendment offers much needed clarity and relief to prospective buyers. At the same time, the Bill requires the corporate debtor or other persons to extend cooperation to investigating authorities. Importantly, the immunity will only apply in cases where the resolution plan has resulted in a change in management or control of the corporate debtor. While the amendment seeks to release the corporate debtor from the liability of the offence, it continues to hold the concerned persons responsible for the offences and they can be prosecuted.

In a bid to check frivolous insolvency applications, the Bill also seeks to raise the minimum threshold for initiating the process, in the case of financial creditors represented by an authorised representative. In the case of home-buyers for instance, the application for initiating insolvency process has to be filed by at least 100 creditors or 10 per cent of such creditors, whichever is lower. The Bill also clarifies that licences, permits, concession, clearances, etc., in force cannot be suspended or terminated during the moratorium period, provided there is no default in payment of dues. This is critical to ensure that the company is maintained as a going concern and value is preserved. The Bill has also sought to allow the resolution professional to continue to manage the company in case the process is delayed beyond the 330-day deadline.

While the recent amendments and the Supreme Court ruling in the Essar Steel case

upholding the rights of the secured creditors, should help smoothen the IBC process, there are several other aspects that require closer scrutiny. To curb frivolous insolvency applications, increasing the default threshold — currently at a mere ₹1 lakh — is critical. The Bill did not include the much awaited cross border insolvency framework, which is imperative to deal with cases like the Nirav Modi scam. The global web of shadow entities Nirav Modi used for perpetrating the $4 billion fraud, only goes to show how lenders or government agencies may be incapable of recovering anything in such cases. Holding defaulters responsible in the eyes of the law is one thing; bringing them to book is another thing altogether.

Q1. What protection do the IBC amendments provide to customers of bad loans?
(a) Protecting buyers from getting prosecuted for the offences committed by previous promoters.
(b) Giving them a clean slate to write on
(c) Addressing the issues of buyers to get better returns
(d) Bringing changes in the amendments to benefits banks
(e) None of these

Q2. On what condition does the bill provide immunity to the corporate debtor and property?
(a) Giving a clarity to the potential victims
(b) Change in management or control from the corporate debtor due to the resolution plan
(c) Commencing the insolvency process
(d) Need of extension in cooperation from the debtors’ side
(e) None of these

Q3. How does the Bill deals with the senseless insolvency applications?
(a) Initiating the process without any paper-work
(b) Paving way for the authorized representatives
(c) Mandate to file insolvency application by around 10% of home-buyers
(d) Uplifting the minimum limits in order to begin the process
(e) Both (b) and (c)

Q4. What are the guidelines of the Bill in case of no payment dues during moratorium period?
(a) Non-termination and Non-Suspension of Licenses, concession, permits etc. forcibly
(b) Lowering the suspension rates
(c) Maintenance of values and concerns
(d) Both (b) and (c)
(e) None of these

Q5. What are the issues that still need to be addressed?
(a) Non-inclusion of framework for cross-border insolvency
(b) Curbing the senseless insolvency by increasing the default limit from 1Lakh.
(c) Both (a) and (b)
(d) Bringing the defaulters before the law
(e) None of these

Solutions

S1. Ans. (a)

Sol. Refer to the first paragraph, the hint can be drawn from the lines, the proposed Bill has sought to provide a clean slate to buyers of stressed assets, by shielding them from prosecution for offences by previous promoters.

Hence, option (a) is the right answer choice.

S2. Ans. (b)

Sol. Refer to the second paragraph, the hint can be drawn from the lines, Importantly, the immunity will only apply in cases where the resolution plan has resulted in a change in management or control of the corporate debtor.

Hence, option (b) is the right answer choice.

S3. Ans. (e)

Sol. Refer to the third paragraph, the hint can be drawn from the lines, In a bid to check frivolous insolvency applications, the Bill also seeks to raise the minimum threshold for initiating the process, in the case of financial creditors represented by an authorised representative. In the case of home-buyers for instance, the application for initiating insolvency process has to be filed by at least 100 creditors or 10 per cent of such creditors, whichever is lower.’

Hence, option (e)[Both (b) and (c)] is the right answer choice.

S4. Ans. (a)

Sol. Refer to the third paragraph, the hint can be drawn from the lines, The Bill also clarifies that licences, permits, concession, clearances, etc., in force cannot be suspended or terminated during the moratorium period, provided there is no default in payment of dues. This is critical to ensure that the company is maintained as a going concern and value is preserved.

Hence, option (a) is the right answer choice.

S5. Ans. (c)

Sol. Refer to the last paragraph of the passage, the hint can be drawn from the lines, While the recent amendments and the Supreme Court ruling in the Essar Steel case upholding the rights of the secured creditors, should help smoothen the IBC process, there are several other aspects that require closer scrutiny. To curb frivolous insolvency applications, increasing the default threshold — currently at a mere ₹1 lakh — is critical. The Bill did not include the much awaited cross border insolvency framework, which is imperative to deal with cases like the Nirav Modi scam.

Hence, option (c)[Both (a) and (b)] is the right answer choice

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