The Insolvency and Bankruptcy Code, 2016 was enacted to provide a time-bound process to resolve insolvency among companies and individuals. Insolvency is a situation where an individual or company is unable to repay their outstanding debt. Last month, the government promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 amending certain provisions of the Code. The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018, which replaces this Ordinance, was introduced in Lok Sabha last week and is scheduled to be passed in the ongoing monsoon session of Parliament. In light of this, we discuss some of the changes being proposed under the Bill and possible implications of such changes.
What was the need for amending the Code?
In November 2017, the Insolvency Law Committee was set up to review the Code, identify issues in its implementation, and suggest changes. The Committee submitted its report in March 2018. It made several recommendations, such as treating allottees under a real estate project as financial creditors, exempting micro, small and medium enterprises from certain provisions of the Code, reducing voting thresholds of the committee of creditors, among others. Subsequently, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, was promulgated on June 6, 2018, incorporating these recommendations.
What amendments have been proposed regarding real estate allottees?
The Code defines a financial creditor as anyone who has extended any kind of loan or financial credit to the debtor. The Bill clarifies that an allottee under a real estate project (a buyer of an under-construction residential or commercial property) will be considered as a financial creditor. These allottees will be represented on the committee of creditors by an authorised representative who will vote on their behalf.
This committee is responsible for taking key decisions related to the resolution process, such as appointing the resolution professional, and approving the resolution plan to be submitted to the National Company Law Tribunal (NCLT). It also implies that real estate allottees can initiate a corporate insolvency resolution process against the debtor.
Can the amount raised by real estate allottees be considered as financial debt?
The Insolvency Law Committee (2017) had noted that the amount paid by allottees under a real estate project is a means of raising finance for the project, and hence would classify as financial debt. It had also noted that, in certain cases, allottees provide more money towards a real estate project than banks. The Bill provides that the amount raised from allottees during the sale of a real estate project would have the commercial effect of a borrowing, and therefore be considered as a financial debt for the real estate company (or the debtor).
However, it may be argued that the money raised from allottees under a real estate project is an advance payment for a future asset (or the property allotted to them). It is not an explicit loan given to the developer against receipt of interest, or similar consideration for the time value of money, and therefore may not qualify as financial debt.
Do the amendments affect the priority of real estate allottees in the waterfall under liquidation?
During the corporate insolvency resolution process, a committee of creditors (comprising of all financial creditors) may choose to: (i) resolve the debtor company, or (ii) liquidate (sell) the debtor’s assets to repay loans. If no decision is made by the committee within the prescribed time period, the debtor’s assets are liquidated to repay the debt. In case of liquidation, secured creditors are paid first after payment of the resolution fees and other resolution costs. Secured creditors are those whose loans are backed by collateral (security). This is followed by payment of employee wages, and then payment to all the unsecured creditors.
While the Bill classifies allottees as financial creditors, it does not specify whether they would be treated as secured or unsecured creditors. Therefore, their position in the order of priority is not clear.
What amendments have been proposed regarding Micro, Small, and Medium Enterprises (MSMEs)?
Earlier this year, the Code was amended to prohibit certain persons from submitting a resolution plan. These include: (i) wilful defaulters, (ii) promoters or management of the company if it has an outstanding non-performing asset (NPA) for over a year, and (iii) disqualified directors, among others. Further, it barred the sale of property of a defaulter to such persons during liquidation. One of the concerns raised was that in case of some MSMEs, the promoter may be the only person submitting a plan to revive the company. In such cases, the defaulting firm will go into liquidation even if there could have been a viable resolution plan.
The Bill amends the criteria which prohibits certain persons from submitting a resolution plan. For example, the Code prohibits a person from being a resolution applicant if his account has been identified as a NPA for more than a year. The Bill provides that this criterion will not apply if such an applicant is a financial entity, and is not a related party to the debtor (with certain exceptions). Further, if the NPA was acquired under a resolution plan under this Code, then this criterion will not apply for a period of three years (instead of one). Secondly, the Code also bars a guarantor of a defaulter from being an applicant. The Bill specifies that such a bar will apply if such guarantee has been invoked by the creditor and remains unpaid.
In addition to amending these criteria, the Bill also states that the ineligibility criteria for resolution applicants regarding NPAs and guarantors will not be applicable to persons applying for resolution of MSMEs. The central government may, in public interest, modify or remove other provisions of the Code while applying them to MSMEs.
What are some of the other key changes being proposed?
The Bill also makes certain changes to the procedures under the Code. Under the Code, all decisions of the committee of creditors have to be taken by a 75% majority of the financial creditors. The Bill lowers this threshold to 51%. For certain key decisions, such as appointment of a resolution professional, approving the resolution plan, and making structural changes to the company, the voting threshold has been reduced from 75% to 66%.
The Bill also provides for withdrawal of a resolution application, after the resolution process has been initiated with the NCLT. Such withdrawal will have to be approved by a 90% vote of the committee of creditors.
Today, the National Medical Commission Bill, 2019 was passed by Lok Sabha. It seeks to regulate medical education and practice in India. In 2017, a similar Bill had been introduced in Lok Sabha. It was examined by the Standing Committee on Health and Family Welfare, which recommended several changes to the Bill. However, the 2017 Bill lapsed with the dissolution of the 16th Lok Sabha. In this post, we analyse the 2019 Bill.
How is medical education and practice regulated currently?
The Medical Council of India (MCI) is responsible for regulating medical education and practice. Over the years, there have been several issues with the functioning of the MCI with respect to its regulatory role, composition, allegations of corruption, and lack of accountability. For example, MCI is an elected body where its members are elected by medical practitioners themselves, i.e., the regulator is elected by the regulated. Experts have recommended nomination based constitution of the MCI instead of election, and separating the regulation of medical education and medical practice. They suggested that legislative changes should be brought in to overhaul the functioning of the MCI.
To meet this objective, the Bill repeals the Indian Medical Council Act, 1956 and dissolves the current MCI.
The 2019 Bill sets up the National Medical Commission (NMC) as an umbrella regulatory body with certain other bodies under it. The NMC will subsume the MCI and will regulate medical education and practice in India. Under the Bill, states will establish their respective State Medical Councils within three years. These Councils will have a role similar to the NMC, at the state level.
Functions of the NMC include: (i) laying down policies for regulating medical institutions and medical professionals, (ii) assessing the requirements of human resources and infrastructure in healthcare, (iii) ensuring compliance by the State Medical Councils with the regulations made under the Bill, and (iv) framing guidelines for determination of fee for up to 50% of the seats in the private medical institutions.
Who will be a part of the NMC?
The Bill replaces the MCI with the NMC, whose members will be nominated. The NMC will consist of 25 members, including: (i) Director Generals of the Directorate General of Health Services and the Indian Council of Medical Research, (ii) Director of any of the AIIMS, (iii) five members (part-time) to be elected by the registered medical practitioners, and (iv) six members appointed on rotational basis from amongst the nominees of the states in the Medical Advisory Council.
Of these 25 members, at least 15 (60%) are medical practitioners. The MCI has been noted to be non-diverse and consists mostly of doctors who look out for their own self-interest over public interest. In order to reduce the monopoly of doctors, it has been recommended by experts that the MCI should include diverse stakeholders such as public health experts, social scientists, and health economists. For example, in the United Kingdom, the General Medical Council which is responsible for regulating medical education and practice consists of 12 medical practitioners and 12 lay members (such as community health members, administrators from local government).
What are the regulatory bodies being set up under the NMC?
The Bill sets up four autonomous boards under the supervision of the NMC. Each board will consist of a President and four members (of which two members will be part-time), appointed by the central government (on the recommendation of a search committee). These bodies are:
How is the Bill changing the eligibility guidelines for doctors to practice medicine?
There will be a uniform National Eligibility-cum-Entrance Test for admission to under-graduate and post-graduate super-speciality medical education in all medical institutions regulated under the Bill. Further, the Bill introduces a common final year undergraduate examination called the National Exit Test for students graduating from medical institutions to obtain the license for practice. This test will also serve as the basis for admission into post-graduate courses at medical institutions under this Bill. Foreign medical practitioners may be permitted temporary registration to practice in India.
However, the Bill does not specify the validity period of this license to practice. In other countries such as the United Kingdom and Australia, a license to practice needs to be periodically renewed. For example, in the UK the license has to be renewed every five years, and in Australia it has to renewed annually.
How will the issues of medical misconduct be addressed?
The State Medical Council will receive complaints relating to professional or ethical misconduct against a registered medical practitioner. If the medical practitioner is aggrieved of a decision of the State Medical Council, he may appeal to the Ethics and Medical Registration Board. If the medical practitioner is aggrieved of the decision of the Board, he can approach the NMC to appeal against the decision. It is unclear why the NMC is an appellate authority with regard to matters related to professional or ethical misconduct of medical practitioners.
It may be argued that disputes related to ethics and misconduct in medical practice may require judicial expertise. For example, in the UK, the regulator for medical education and practice – the General Medical Council (GMC) receives complaints with regard to ethical misconduct and is required to do an initial documentary investigation in the matter and then forwards the complaint to a Tribunal. This Tribunal is a judicial body independent of the GMC. The adjudication decision and final disciplinary action is decided by the Tribunal.
How does the Bill regulate community health providers?
As of January 2018, the doctor to population ratio in India was 1:1655 compared to the World Health Organisation standard of 1:1000. To fill in the gaps of availability of medical professionals, the Bill provides for the NMC to grant limited license to certain mid-level practitioners called community health providers, connected with the modern medical profession to practice medicine. These mid-level medical practitioners may prescribe specified medicines in primary and preventive healthcare. However, in any other cases, these practitioners may only prescribe medicine under the supervision of a registered medical practitioner.
This is similar to other countries where medical professionals other than doctors are allowed to prescribe allopathic medicine. For example, Nurse Practitioners in the USA provide a full range of primary, acute, and specialty health care services, including ordering and performing diagnostic tests, and prescribing medications. For this purpose, Nurse Practitioners must complete a master's or doctoral degree program, advanced clinical training, and obtain a national certification.
