Insolvency And Bankruptcy Law Amended: Finance Ministry

  • Insolvency And Bankruptcy Law Amended: Finance Ministry

Insolvency And Bankruptcy Law Amended: Finance Ministry

The revised regulations make it obligatory to provide information about the corporate applicant, including details of antecedents "in terms of convictions, disqualifications, criminal proceedings, categorisation as wilful defaulter as per RBI guidelines, debarment imposed by (markets regulator) SEBI, if any, and transaction, if any, with the corporate debtor in the last two years".

Under Indian law, wilful defaulters are classified as firms or individuals who own large businesses and deliberately avoid repayments. As reported by ET on November 23, the ordinance seeks to ensure that promoters do not gain backdoor entry into their companies which had failed to repay lenders. The punishment is fine which shall not be less than Rs 1 lakh but which may extend to Rs 2 crore. President Ram Nath Kovind on Thursday signed the ordinance that amends the IBC 2016 which was sent to him by the Union Cabinet on Wednesday.

More than 300 cases have been admitted for resolution under the Code by the National Company Law Tribunal.

Briefing reporters after the Cabinet meeting, Jaitley said some changes are proposed in the Code and it is being done by way of an ordinance.

However, the proposal for ordinance comes at a time when there are concerns in certain quarters about various aspects of the Code, including the possibility of promoters wresting back control of a company under the insolvency process. "The Insolvency and Bankruptcy Board of India (IBBI) has also been given additional powers", the ministry tweeted.

The government passed an executive order that aims 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", the corporate affairs ministry said in a statement. Manish Aggarwal, Partner and Head Resolutions, Special Situations Group, KPMG in India, said the ordinance "signals that resolution process will ensure that existing sponsors who are covered by these amendments directly or indirectly can not retain control of their companies at the cost of lenders by seeking huge hair cuts and being back in business".

What good is a government drive to deal with the Rs 10 trillion of toxic assets (bad loans and restructured loans) choking the banking system if the same promoters and wilful defaulters responsible for bankrupting a company get a chance to return to the helm?