New Delhi: The government is likely to seek cabinet approval for amending the insolvency and bankruptcy code (IBC) to streamline the process of selecting buyers of stressed assets. It is aimed at preventing promoters who are wilful defaulters or have a history of fraud from buying companies cheap.

The amendment could come up before cabinet as early as Wednesday, three government officials who asked not to be identified said.

The officials added that the amendment should not be seen as a blanket ban on promoters of companies who have been on banks’ non-performing account (NPA) list.

“There might be promoters who have gone through the corporate resolution procedure and have managed to get their balance sheets in shape; they will not be kept out," said one of the three.

IBC does not specify the buyers that can bid for stressed assets of companies that are undergoing bankruptcy proceedings. This has triggered concern that promoters could reacquire their companies at a discount once the lenders decide to sacrifice a part of the money they are owed.

“So there is the need to amend the law to ensure only deserving candidates are allowed to bid for stressed assets under the corporate resolution process," said a second official.

The amendment is part of an effort spearheaded by the ministry of corporate affairs and the Insolvency and Bankruptcy Board of India to strengthen the IBC.

“The code is just a year old. So there is scope for improvement, and we will realise it as we go ahead," said the third official.

The code was strengthened on 8 November to streamline the due diligence process while choosing a buyer of stressed assets.

Credibility, financial strength, experience and track record are some of the factors that will be considered by the committee of creditors in disposing of a stressed asset that is up for sale.

The IBC came into force in May 2016, and the first batch of 12 large defaulters were referred to their creditors by the Reserve Bank of India (RBI) in June 2017 for launch of bankruptcy proceedings at the National Company Law Tribunal. These 12 defaulters account for 25% of the total NPAs of banks.

Experts disagree with the government’s move to amend the IBC. “The committee of creditors has an enormous amount of commercial wisdom. So there should not be a prescription on the choice of buyers from the government, especially since a notification on due diligence while selecting a buyer has already been issued," said Sumant Batra, an insolvency expert.

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