The ordinance will now be presented in the Winter Session of Parliament.
President Ram Nath Kovind on Thursday gave consent to ordinance for amending the Insolvency and Bankruptcy Code (IBC). The President's assent comes a day after the Cabinet approved the ordinance.
The ordinance will prevent wilful defaulters or promoters with some history of defaulters from bidding for their own or other stressed assets at a discount. It will prevent misuse of IBC as the defaulters may also be prohibited from submitting a resolution plan.The Ordinance will amend sections 2, 5, 25, 30 and 240 and has added two new sections - 29A and 235A.
Section 29A is a new section that makes certain persons ineligible to be a resolution applicant. Those being made ineligible inter alia include willful defaulters; those who have their accounts classified as non-performing assets for one year or more
— Ministry of Finance (@FinMinIndia) November 23, 2017
The new section will also include those who haven't been able to settle their unpaid dues including the interest and those who have executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor.
The other new section — 235A — provides for punishment for contravention of the provisions where no specific penalty is provides.
The new section 235A provides for punishment for contravention of the provisions where no specific penalty or punishment is provided. The punishment is fine which shall not be less than one lakh rupees but which may extend to two crore rupees.— Ministry of Finance (@FinMinIndia) November 23, 2017
The Ordinance, besides specifying persons who can't apply, also mentions that the Committee of Creditors (CoC) will need to ensure viability of a resolution plan before approving it.
The Insolvency and Bankruptcy Board of India (IBBI) has also been given additional powers, the Finance Ministry said.
The IBC, which came into effect in December 2016, provides a time-bound insolvency resolution process. The ordinance will now be presented in the upcoming Winter Session of Parliament.
The ordinance amending IBC has turned the implicit into the explicit, Pradeep Kumar, former MD of SBI, said, adding that the bankers will need to do forensic and investigative audit before allowing promoters to bid.
He added that ordinance could give a legal cover to bankers going ahead. Bankers could get the right to reject promoters' bid for stressed assets, even if it is the lowest.
"Whether promoters are disadvantaged or not (with the new ordinance) will depend from case to case," Uday Bhansali of Deloitte India said.
The forensic audit, however, will be a long process and could delay the whole resolution process as all bids and bidders will need to be examined, Ashvin Parekh of Advisory Services said.The government had set up a 14-member panel to suggest changes to bar promoters from bidding for their stressed assets. The panel was expected to make suggestions to restrict the ability of promoters to bid for their own companies, which are going through insolvency proceedings, in order to avoid fraud, CNBC-TV18 had earlier reported.Are you happy with your current monthly income? Do you know you can double it without working extra hours or asking for a raise? Rahul Shah, one of the India's leading expert on wealth building, has created a strategy which makes it possible... in just a short few years. You can know his secrets in his FREE video series airing between 12th to 17th December. You can reserve your free seat here.