Terming the bankruptcy code as the "biggest economic reform" after proposed GST, the Finance Ministry said it will promote jobs, availability of credit and ensure timely resolution of financial distress of companies.
The Rajya Sabha passed the Insolvency and Bankruptcy Code, 2016. The Lok Sabha had cleared the bill last week.
"This is considered as the biggest economic reform next only to GST," a Finance Ministry statement said.
The Code has enabling provisions to deal with cross border insolvency and an Insolvency and Bankruptcy Board of India would be established to exercise regulatory oversight over insolvency professionals, insolvency professional agencies and information utilities.
"Some business ventures will always fail, but they will be handled rapidly and swiftly. Entrepreneurs and lenders will be able to move on, instead of being bogged down with decisions taken in the past," it added.
The objective of the new law is to promote entrepreneurship, availability of credit.
Minister of State for Finance Jayant Sinha tweeted: "History is written today as Rajya Sabha passes Bankruptcy Bill! Thank you to MPs and officers who worked on the bill".
"Bankruptcy code: Will make India a more attractive investment destination and greatly improve ease of doing business," Economic Affairs Secretary Shaktikanta Das tweeted.
Terming it as a "huge and game changing reform measure", Das said the Code creates framework for timely revival or resolution of companies in distress and will help all stakeholders.
The ministry in the statement said that the code will also balance the interests of all stakeholders by consolidating and amending the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner and for maximisation of value of assets.
As per the new law, when a firm defaults on its debt, control shifts from the shareholders/promoters to a Committee of Creditors.
The Committee would have 180 days in which to evaluate proposals from various players about resuscitating the company or taking it into liquidation.
"When decisions are taken in a time-bound manner, there is a greater chance that the firm can be saved as a going concern, and the productive resources of the economy (the labour and the capital) can be put to the best use," the ministry said.
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