Is IBC a protector of financial defaulter company?

Source: The Hitavada      Date: 11 Feb 2019 09:44:56


By B C Bhartia,

One of the major challenges being faced by Indian economy is large scale financial default by big companies. These companies not only bring our banking system into trouble but these companies also don’t pay innocent creditors. If they have to pay Rs 100 crore to bank, probably they have to pay Rs 1,000 crore to their suppliers for goods and services.

The banks have security over the assets of the company but the creditors, labours and other creditors do not have any security the big companies take huge amount of credit in form of goods and services from market.  MSMEs are the major suppliers to these big companies and under the shield of Insolvency and Bankruptcy Code (IBC) they move to National Company Law Tribunal NCLT and from there they settle with bankers.  The innocent suppliers do not get any amount or they get nominal amount.

One big company when is declared defaulter it results into thousands of small creditors getting bankrupt. It can be said that this could be one of the major reasons why Indian MSME is unable to survive. There is a law where in payments by supplies by MSMEs are compulsorily required to be made within 45 days but hardly there are any company who is making payment in 45 days.

Leave big companies, even Government departments, public sector undertakings (PSUs) and other authorities getting goods and services from MSMEs are not making payments in 45 days. There appears to be no authority to check whether payments are being made in 45 days or not and if not made then who which authority will take action on this defaulting company.

It is very surprising that Government comes in protection of these defaulting companies under the disguise of they are giving employment to so many labours but Government failed to understand that they are destroying employments of much more number of people because of non payment and closure of MSME units because of non payment of dues of MSMEs in time.Let Comptroller and Auditor General (CAG) in its report add a point as to whether the Government Department audited by it has made payment to MSME within 45 days.
Let him fix responsibility on officer who has defaulted in making timely payment to MSME. Let the banker while taking monthly stock statement get declaration from companies of amount payable to MSME above 45 days. Bank should insist to companies to clear the dues of MSMEs within 45 days. If not let that company be classified as potential non performing asset (NPA). If this is followed, we are sure our economy will boost.

(The author is National President of CAIT)