Our Bureau In a significant move, the insolvency ordinance — which received Presidential assent on Wednesday — has fine-tuned the Insolvency and Bankruptcy Code (IBC) such that entities already holding an NPA can bid for fresh assets under the resolution process.
Two significant changes have now been made under Section 29A. First, pure-play financial entities have been exempted from being disqualified on account of holding an NPA.
Second, a resolution application holding an NPA by virtue of acquiring it in the past under IBC gets a three-year cooling off period from the date of such acquisition. Simply put, such NPAs would not disqualify the resolution application during the currency of the three-year grace period.
“We are giving a grace period of three years. Our objective of allowing this is not to dilute, but to calibrate (theIBC) to see to it that the outcome is resolution,” Injeti Srinivas, Secretary, Ministry of Corporate Affairs, told reporters here, elaborating on certain provisions of the ordinance.
Srinivas said there is a need to foster competition and more bidders need to be encouraged to bid, especially when the stressed assets requiring resolution is a whopping ₹9 lakh crore.
While the ordinance has not defined “pure-play finance entities”, Srinivas said it was felt there was no need to define it, and the RBI concurred. If required, one could always bring in a definition later through rules, he added.
The insolvency ordinance provides significant relief to home buyers by recognising their status as financial creditors. This would give them due representation in the Committee of Creditors (CoCs) and make them an integral part of the decision making process.
Srinivas said the Centre will soon come out with a mechanism for home buyers’ representation in CoCs.
Further, home buyers will be able to invoke Section 7 of the IBC against errant developers.
Development role for IBBI
The ordinance has also given the insolvency regulator IBBI a “development role”, Srinivas said.
This could mean that IBBI would look at creating a market for stressed assets and reach out to investors around the world to create awareness about the stressed assets market. As part of development of stressed assets market, IBBI could, going forward, even come up with an online platform detailing the available stressed assets, Srinivas indicated. “We have to leverage technology for the development of stressed assets market,” he added.
The insolvency ordinance has also come out with a separate schedule detailing the various Acts for invoking the conviction related provisions under IBC.
Also, now, once a person has served two years of imprisonment, he could be eligible to bid for stressed assets. Hitherto, the situation was open ended and a person once convicted could not participate in the bidding. Now, the nature of conviction has also been spelt out.