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The government has put in place the legal provisions to disallow wilful defaulters and unscrupulous entities from bidding for stressed assets with President Ram Nath Kovind on Thursday approving an Ordinance to amend the Insolvency and Bankruptcy Code.
The Union Cabinet had on Wednesday approved the promulgation of the Ordinance. A Bill to replace the Ordinance is expected to be tabled in Parliament in the Winter Session.
It amends Sections 2, 5, 25, 30, 35 and 240 of the Code, and inserts new Sections 29A and 235A in the Code.
“The amendments aim to keep out such persons who have wilfully defaulted, are associated with non-performing assets, or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company,” said an official release.
It also places restrictions for such persons to participate in the resolution or liquidation process. Accordingly, companies, promoters and associate companies undergoing insolvency resolution or liquidation under the Code would not be eligible to bid for the stressed assets.
The Ordinance provides such checks by specifying that the Committee of Creditors (CoC) ensure the viability and feasibility of the resolution plan before approving it.
Read: Ordinance may lead to more litigation
The Insolvency and Bankruptcy Board of India (IBBI) has also been given additional powers.
The CoC is also empowered to reject a resolution plan, which is submitted before the commencement of the Ordinance but is yet to be approved, and where the resolution applicant is not eligible under the new provisions. In case there is no other plan available with the CoC, it may invite fresh resolution plans.
The Ordinance has also provided for a fine between ₹1 lakh and ₹2 crore for contraventions of provisions of the Insolvency and Bankruptcy law.
The Code was passed by Parliament last year and became operational from December 2016. It aims to resolve insolvency cases in a time-bound and market-driven process.
However, concerns had emerged that promoters could buy back the stressed assets and effectively only leaving the lenders with the losses.
Sajjan Jindal, Chairman and MD of JSW Group, had on November 20 also raised the issue on Twitter. “Dubious promoters, wilful and/or non-cooperative defaulters should not be considered in Insolvency and Bankruptcy Code process,” he had tweeted.
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