<b>XI LOK SABHA DEBATES, <i> Session IV (Budget) </i> </b> XI LOK SABHA DEBATES, Session IV (Budget) Tuesday, March 04, 1997 / Phalguna 13, 1918 (Saka)
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Type of Debate: GOVERNMENT BILLS
Title: Industrial Reconstruction Bank (Transfer of Undertakings and Repeal) Bill. Motion for Consideration TEXT : THE MINISTER OF FINANCE AND MINISTER OF COMPANY AFFAIRS (SHRI P. CHIDAMBARAM):I beg to move:
"That the Bill to provide for the transfer and vesting of the undertakings of the Industrial Reconstruction Bank of India to and in the Company to the formed and registered as a Company under the Companies Act, 1956, and for matters connected therewith or in incidental thereto and also to repeal the Industrial Reconstruction Bank of India Act, 1984, be taken into consideration."
The Industrial Reconstruction Bank of India was constituted under the Industrial Reconstruction Bank of India Act, 1984. The Charter of the bank stipulates that it shall function as the principle credit and reconstruction agency for industrial revival and coordinate similar work of other financial institutions as well as assist and promote industrial development and rehabilitate industrial concerns. Subsequently, in 1985, Parliament enacted the Sick Industrial Companies (Special Provisions) Act, SICA, with a view to ensure timely detection of sick and potentially sick companies, speedy determination of suitable measures in respect of such companies and for enforcement of these measures. Under the provisions of SICA, the Board for Industrial and Financial Reconstruction, BIFR, was set up in 1987. With the enactment of SICA and setting up of BIFR, the coordination and catalytic role for rehabilitation has become strongly institutionalised in BIFR. Currently, financial institutions and commercial banks are nursing sick units in their own portfolio. Keeping in view that the role of IRBI as principal agency for reconstruction and rehabilitation of sick units was no longer relevant, it was felt that there is a need to redefine the role and functions of IRBI and if possible transform it into a full-fledged all purpose development financial institution.
Hon. Members will recall that in my Budget speech last year, I promised to bring a law to transform IRBI into a full-fledged financial institution and all sections of the House welcomed that proposal and supported me.
Presently, IRBI's profitability and other parameters had been adversely affected due to its asset structure having got heavily burdened with non-performing assets and implementation of provisioning norms prescribed by the Reserve Bank of India.
In fact, if I may refer to some ratios of the IRBI, it would be seen that they are very adverse. The earnings per share is only five paise; the book value per share is Rs.10.08; the notional debt service coverage ratio is only 1.79; the reserves as a proportion of equity is 0.01 and the percentage of NPS is as high as 32.1. Hon. Members are aware that several changes in the financial sector during the last five years or so have made it vital for the financial institutions to raise funds largely from the capital market. This poses great difficulties for IRBI which has hitherto not have to be competitive in resource mobilisation. IRBI's survival in the existing financial system would, therefore, depend crucially on its ability to mobilise resources, equity as well as debt, competitively and transmute these into high quality assets. IRBI, if it is continued in its present form, would not be in a position to garner adequate resources for growth and would continue to remain uncompetitive vis-a-vis other all India financial institutions. It is also necessary to give IRBI greater functional autonomy and operational flexibility in its operations.
The Bill also empowers the Central Government to reduce equity capital of IRBI and/or convert equity into redeemable preference shares. This is being done so that a part of the non-performing assets can be written off and another part can be converted into preference shares. This will clean up the balance sheet. This will also enable us to infuse more capital into the Company as well as raise capital in the market.
One of the questions that was put to me when I was sitting here was: `What do you propose as authorised capital of IRBI?' I am happy to inform the House that as of now in the Memorandum and Articles of Association of the proposed Company, I propose to have an authorised capital of Rs.1,000 crore for the IRBI. This will make it a huge financial institution based in Calcutta. Its headquarters will remain in Calcutta as I promised in my last Budget Speech. It is necessary that eastern India has a full-fledged financial institution just as Mumbai today has more than one full-fledged financial institution. It will help in the development of industry in the eastern part of India, including Assam and the North-East.
We appointed CRISIL, one of our rating agencies to look into the situation of IRBI and suggest various options. They examined all the options and recommended certain options. The Board of IRBI finally chose the option that it should be converted into a Company and that its capital should be restructured and fresh capital infused into the Company. The Government has accepted this suggestion.
Since this promise was made in last July and since I am anxious that the new Company should be inaugurated in Calcutta before the 31st of March, I could not lose time. I was hoping that I would get legislative time in the last Session of Parliament. In the last Session of Parliament, I did not get legislative time. The only way I can get legislative time is - to get this done before March - to use the intervening break to make an Ordinance so that the preliminary work on drafting of Memorandum and Articles of Association is complete. As soon as this Bill is passed in this House and in the Rajya Sabha, I hope to travel to Calcutta. With all the Members from Bengal and other parts there, we hope to get this institution going before the 31st of March.
I think, this is a welcome step. It will be a great boon to IRBI. Otherwise, IRBI would become sick in a few months. IRBI should not become sick. IRBI should be converted into a full-fledged institution and we should be able to complete this process before the end of the financial year.
I request the hon. Members to cooperate in passing this, what I consider, a very important Bill to raise an institution which was founded in different times, for a different purpose and convert it into a strong full-fledged financial institution for industrial investment and development in that part of India.
Thank you.
(ends)
JUSTICE GUMAN MAL LODHA (PALI): Hon. Deputy-Speaker, Sir, I stand to vehemently oppose the Bill proposed by the hon. Finance Minister.
Sir, whatever objects and intentions which the hon. Minister of Finance has given in the statement, if precisely put, means that IRBI have become uneconomic, failed, collapsed and there are bad debts up to an extent of 35.10 per cent, as the hon. Minister has put it, and which comes to Rs.74.30 crore as declared in the Financial Memorandum. To camouflage this, the terminology or phraseology `non-performing assets' has been used. We want that this bank should take rebirth after Rs.74 crore, which is the Government money, is wiped off or written off. This august House should put a seal on it that we approve of writing off the bad debts of Rs.74 crore.
Now, the people of India would like to know as to why this is being written off. The hon. Minister of Finance has not said a word as to who are the business houses who have taken this Rs.74.30 crore. This is the public money. This is the money of the Government which means the people and they are answerable to the people. Why have they lost this money? Why has it become bad debt? Why could they not recover it? Why have they given it? Is it on account of favouritism or nepotism or corruption? How was it paid without ensuring security and without ensuring that it would be repaid? Where has this money gone?
Unless it is explained to the people, it would not be proper for us to put a seal and write off those bad debts. It is a device and it is an attempt to write off the bad debts in the form of converting the statutory bank into the company. Therefore, I strongly object to it. I object to the modus operandi to befool the people of India, to betray the people of India and to commit breach of trust of the people's money and thereby commit a serious offence against the people of India.
Secondly, Sir, the Financial Memorandum says the reduction of capital would be made. It is well known that under the Indian Companies Act permission of the High Court has to be taken for reducing the capital. The High Court has to decide whether to allow the company to reduce its capital or not because reduction of capital has got serious and adverse financial consequences. This means that they are reducing the capital and they are virtually liquidating it, that too without the permission of the High Court by this device of converting the statutory bank into a company under the Indian Companies Act.
My next objection is that this device should not be allowed because they want the verdict of this august House. This House is ceased of the matter and this House must read between the lines as to what are the nefarious designs and what is the ulterior motive. We should understand this mala fide modus operandi to oblige those persons who have taken Rs.75 crore. Who are those persons? Would the hon. Minister give the list to the House? I am certain that he would not give. He may give the reasons. He will give many reasons. He being an eminent advocate, would be able to give various reasons which prima facie seems to be correct. But if a probe is done, we will find that the object is to oblige those persons who have taken Rs.75 crore and want to go scot free.
Therefore, this House should oppose this Bill vehemently. Whatever had happened to IBRD, the same thing would happen to this also. One after the other, this will go on happening. You would first create a company -- a statutory company of a company under the Companies Act, then wind up or convert it into another company and then you would say that there are non-performing assets worth Rs.100 crore or Rs.75 crore and so on and so forth. This device must stop. I would give an example here.
I was in Chennai some time ago in connection with the work of a Committee of the Parliament. In Chennai, it was talked about and it is on record that there is one bank known as the Indian Bank. That bank has squandered the money to the extent of some thousands of crores of rupees. The Chairman and Managing Director of that bank and the persons who were in charge, gave money to some airlines, to some other persons or some other bogus companies, without getting a resolution to that effect passed. Thus, thousands of crores of rupees were squandered, not in just thousands or lakhs. I am saying this on the basis of the First Information Report which has been recorded in the court. Cases have also been filed against one time Chairman of that bank and other persons who had entered into a conspiracy. That type of a conspiracy or that type of an offence had been committed because of which an FIR had been lodged. Now, an effort is being made to cover it up by setting up a committee. We should find out whether it was on account of a mala fide intention of the Chairman and the Managing Director or it was on account of the failure of the system.
A new phrase was coined like `system's failure', for obliging Shri Harshad Mehta and others at the time of securities scam. They said, "Look here, the Ministers had not committed any wrong; the Ministry had committed wrong; and therefore, the Ministries' wrong is failure of system and not a mala fide act of commission or omission." This type of a device which is being adopted to befool the people should not be allowed to succeed.
Just prior to this discussion I have said about this and the hon. Finance Minister has not given any reply or has not spoken a word about that. This type of a device is very well prevalent in this country. I have pointed out another thing also. The Unit Trust of India is a Trust having the money of crores of people which is the whole life time savings of poor people like peons or clerks, like pension, provident fund, etc. But that money has been squandered by them. In the stock exchange, by artificially creating a rise in the price of the shares - in collusion and conspiracy with the bosses in the Unit Trust of India - they got those shares purchased by the Unit Trust of India and people's money was squandered. Thus the share market collapsed. Now, the investors in the Unit Trust of India are looking forward for refund. But they said that they did not have any money.
Here, the Finance Minister had got tight lips; he did not say a single word to mention why it has happened like that or how it has happened and what the Government is doing about that. The Finance Minister is a watchdog and a sentinel of all these fiscal matters or transactions. Here, people's hard-earned money is involved. On account of these various devices, big business bosses are making juggleries in the stock exchange; squandering, playing and gambling with people's money and people's fortunes. Thousands of persons have committed suicide on account of that.
It is because suddenly the market collapses and suddenly, there is artificial rise in prices and they remain as silent spectators sitting on the Treasury Benches. Holding the responsibility as Finance Minister of the country , it is his duty to safeguard it. But nothing is done. Now, this is another device. I therefore, strongly oppose it. I would appeal that this must be withdrawn and at least, a closure must be put to squandering of public money. The House has to put a seal on such non-performing assets, a phrase which has been coined to conceal bad debts, to conceal nepotism, favouritism and corruption in giving loans to a few persons either on account of personal or political influence and then they are declared as non-performing assets. I would, therefore, submit that this Bill should not be passed and it must be vehemently opposed.
The other day, a mention was made that the Standing Committee is seized of it. If the Standing Committee is seized of it, then the report of the Standing Committee must be obtained and thereafter, it must be considered. In any case, I vehemently oppose it and I appeal to the hon. Members to defend the interest of those undefendable persons who are not in the House, who are sitting in the various cities, towns and villages of this country and watching as to how the leaders of the people act and react - each one representing 15 lakhs of people - to this game of bad debts, this game of hide and seek and squandering of public money.
With these words, I vehemently oppose this Bill.
(ends)
MR. DEPUTY-SPEAKER: Kumari Mamata Banerjee may speak now.
SHRI RAM NAIK (MUMBAI NORTH): Sir, I am on a point of information. This is the original Bill and all such original Bills are required to be sent to Standing Committee. There was a proposal. We had discussed it. At that time, the hon. Speaker had said that he will examine the point. Now, we would like to know the Government's reaction to that and then, the discussion can be continued.
MR. DEPUTY-SPEAKER: There is no check for you to speak.
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SHRI RAM NAIK (MUMBAI NORTH): That is why, I am not opposing your speaking; you can continue. My only point is, before the Minister replies, we must know about that position so that the debate can go on in a proper way.
MR. DEPUTY-SPEAKER: I will check up.
KUMARI MAMATA BANERJEE (CALCUTTA SOUTH): Sir, I am grateful to you for allowing me to speak. I am not opposing the views of Shri Ram Naik. What I said was, before their party started this discussion, they should have appealed to the House and then, we could have discussed it unanimously. There is no harm in that. In my mind, I also think that instead of discussing this Bill today in this House, it should have been discussed in the Standing Committee first. It is because all finance-related Bills are important Bills. So, it is a lacuna only on the part of the Government to have brought this Ordinance and then coming to the House for passing it. So, it is better that instead of bringing this Ordinance and get it passed immediately or hurriedly, it should have been discussed in the Standing Committee. Only for this purpose, the Standing Committee is set up by the Parliament itself. Of course, sometimes circumstances prevent the Government to bring this Ordinance to the House. It is a fact. But I have seen that this time, Government has brought so many Ordinances within these two months. I do not know the number of such Ordinances. Then, what is the need of this Parliament? I may tell you that I am really hurt to see such type of things. This is an important finance-related Bill. They come to Parliament with Ordinances. I am not blaming Chidambaramji because circumstances might have prevailed upon him to bring this Bill before the House to replace the Ordinance issued by the President. That is all right. But when the Standing Committee on Finance is there, why is it not referred to it? I do not know the reason.
I can give you one example. Lokpal Bill was introduced in Lok Sabha. As a Member of the Standing Committee on Home Affairs, I raised this matter in that Standing Committee as to why it should not be referred to the Standing Committee.
First, it should come to the Standing Committee. We will discuss it. We will give our suggestions. Then, it should be discussed in the House.
Our Standing Committee has been kind enough. They have accepted our proposal. Now, we are discussing it as a Standing Committee. After that, it will come to the Parliament. That is the system. That is the tradition. There is no harm in doing it.
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