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Last Updated : Jun 18, 2019 12:36 PM IST | Source: Moneycontrol.com

Government mulling a three-tiered debt resolution system for individual bankruptcy

In a relief to a huge section of the unorganised sector and small borrowers, people with loan amounts up to Rs 35,000 and having no asset or income might get a waive off.

Kamalika Ghosh @GhoshKamalika

The government is in the process of fixing draft norms for individual insolvency and might come up with a three-tiered debt resolution system, depending on the amount of loan borrowed.

"Individual insolvency is very different from corporate insolvency in the sense that individual insolvency is about people. So the laws need to be way more sensitive and balanced. We'll try and focus on resolution through mediation in this case," a senior official told Moneycontrol.

The government is trying to correct the present draft for individual insolvency norms, which takes on heavily from corporate insolvency, the official said.

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In a relief to a huge section of the unorganised sector and small borrowers, people with loan amounts up to Rs 35,000 and having no asset or income might get a waive off.

Currently, an insolvency petition can be filed for an amount exceeding Rs 500. However, the act of insolvency on which the petition is grounded has to occur within three months of filing the petition.

There would be two more levels for debt resolution — Rs 35,000 to Rs 10 lakh and above Rs 10 lakh.

"For loan amounts in these two slabs, borrowers will get both the options of compulsory and voluntary mediation. If no resolution is reached, it will then go to the Debt Recovery Tribunal (DRT)," the official said.

As per the present process, corporate debtors approach the National Company Law Tribunal  for bankruptcy and insolvency resolution and individual insolvency cases are referred to DRTs. Over 100,000 cases are pending in DRTs.

"It will be implemented in phases as we need to strengthen DRTs to handle that much of load. In the first phase, the focus will be on individuals who are guarantors to corporates going for the resolution process," the official said.

Till the time new rules are notified, India follows the Presidency Towns Insolvency Act of 1902 and the Provincial Insolvency Act of 1920 to deal with individual bankruptcy cases.

Under the Presidency Towns Insolvency Act, 1909, the high courts of Bombay, Calcutta and Madras have been conferred the jurisdiction to try insolvency cases and as per the Provincial Insolvency Act, 1920, those living in India other than Mumbai, Kolkata or Chennai are governed by Provincial Insolvency Act.

The Insolvency and Bankruptcy Board of India has set up a working group to formulate the strategy and approach for the implementation of provisions relating to insolvency and bankruptcy of individuals and partnership firms, under Part III of the Insolvency and Bankruptcy Code, 2016.

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First Published on Jun 18, 2019 12:36 pm
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