The Lok Sabha approved the Insolvency and Bankruptcy (Amendments) Bill, 2017 on Friday that bars wilful defaulters and promoters from bidding for companies awaiting insolvency resolution. This is to plug the loopholes in the resolution process and by being selective about who can participate in it.
Tabled before the lower house of Parliament yesterday, the Bill was passed after a reply from the Finance Minister Arun Jaitley. The Bill will replace an ordinance that was introduced in November this year.
The latest amendments are meant to punish defaulters as well as make the insolvency resolution process more efficient. Some, of the stricter provisions of the earlier ordinance, like completely barring promoters from bidding for a sick company, have been dropped to create a balance between these two objectives.
As per the Bill, wilful defaulters; promoters or management staff of the company that has its dues classified as non-performing assets (NPA) for over a year; and disqualified directors, among others, will not be allowed to submit a resolution plan. It also prohibits sale of property of a defaulter to such individuals in case of liquidation.
There, however, remains a chance for defaulting promoters to be a part of the resolution process. They can submit their resolution plans if they clear their defaults within a month, and the resolution process is completed within the time period specified in the Insolvency and Bankruptcy Code (IBC).
The amendment Bill also allows reconstruction companies, alternative investment funds, private equity funds, and banks will also be allowed to bid for a company awaiting insolvency proceedings. These entities were used to be disqualified from the bidding process earlier due to certain anomalies in the Code, which will now be addressed by the recent amendments.
The IBC was introduced in December 2016 by Corporate Affairs Ministry to ensure timely resolution of stressed assets of a company, while safeguarding investors' interests. This was, in turn, supposed to help with reducing bad loans in the country. India has been ranked fifth among the countries with worst NPA situation.
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