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Directions: Read the given passage and answer the following questions based on the passage.

On Wednesday, the government said it would amend the 2016 insolvency law, a signature reform of Prime Minister Narendra Modi’s first term. Investors will cheer.
 The legislation was getting mired in frustrating legal delays and bizarre judgments, threatening to scare off global investors from a $200-billion-plus bad-debt clean up. The last straw was the recent order by the insolvency tribunal judges in the $6 billion sale of Essar Steel India Ltd. to ArcelorMittal. The judges ruled that secured creditors would have no seniority over unsecured creditors and suppliers.
 As I have noted, the order would have reduced an assured 92% recovery rate for financial lenders to just 61%. While it has already been appealed by State Bank of India and other lenders in India’s Supreme Court, it’s helpful that the government has decided to get off the side lines. If the top court had upheld the tribunal’s verdict – on the grounds that the law wasn’t clear about how sale proceeds would be divided banks would have had to kiss goodbye to substantial recoveries, step up bad-loan provisions and push more salvageable debtors into liquidation, leading to unnecessary job losses. New Delhi had no option but to step in before the July 22 court hearing.
 The tweak it proposes “to fill critical gaps in the corporate insolvency resolution process" will explicitly hand power over distribution of proceeds to creditors’ committees. That should return some common sense to a process that would have required financial creditors to share the money from any new buyer of a bankrupt business equally with miscellaneous suppliers and other unsecured lenders.
 As for urgency, delay tactics by large business families loath to lose their prized assets have pushed bad debt resolutions such as Essar to more than 600 days; the intent was to wrap up cases in 270 days. Now the Modi government wants the clock to keep ticking even during appeals. Cases have to be admitted speedily and concluded in 330 days flat.

Q:

As per the passage, what would have been the effects of the decision of the tribunal judges over the banks?

  • 1
    The usable assets and resources would be swiftly redeployed to the banks and the lenders.
  • 2
    The recoveries of the loan provided by the banks would be far-fetched idea leading to the liquidation of debtors.
  • 3
    The banks would need to seek the permission from the government before lending the loans to the corporates and the businesses.
  • 4
    Both (b) and (c)
  • 5
    None of these
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Answer : 2. "The recoveries of the loan provided by the banks would be far-fetched idea leading to the liquidation of debtors."

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