Mumbai: The government has decided to ask a panel it formed in November to review provisions of the Insolvency and Bankruptcy Code (IBC) to also review a later amendment prohibiting defaulting promoters and related entities from bidding for their assets, two people aware of the matter said.
The committee, which is chaired by the secretary, ministry of corporate affairs, and includes members involved in the drafting of the IBC, met on Friday.
Coincidentally, on the same day, the Punjab and Haryana high court issued a notice to the centre over the amendment. Suman Jolly, managing director of Punjab-based Recorders and Medicare Systems Pvt. Ltd, had challenged the IBC ordinance on the ground that it would have retroactive effect, and that it does not distinguish between ordinary and wilful defaulters. The court will hear the matter on 25 January.
“The committee will help the government in re-looking at some of the contentious issues in the ordinance which have been highlighted by the industry," said one of the two people cited above, both of whom declined to be named.
An email sent to the corporate affairs ministry on Monday was not answered till press time.
This comes at a time when industry experts had expressed concerns that the ordinance may shut out even clean bidders, possibly those promoters who have blood relations with tainted promoters and private equity players who typically acquire stressed assets.
“There is a need to separate between promoters who have led the companies to this stage and the scenario where the promoter has been doing everything to revive the business but the sector conditions have not been viable. There is little bit of interpretation issue on the drafting of the ordinance which I think the government is proactive enough to seek a feedback and tweak it," Manish Aggarwal, partner and head of the resolutions, special situations group at KPMG India, told Mint at a recent event.
The ordinance bars not only wilful defaulters, but also several other categories of investors such as guarantors to the debtor, those with loans classified as non-performing assets for at least a year, those convicted for any offence with a prison term of more than two years, directors in companies that have been disqualified, entities barred by the capital markets regulator, those who have been found to have struck fraudulent transactions with the firm, and connected entities.
Banks have referred 12 large borrowers for insolvency proceedings following a 13 June directive from the Reserve Bank of India. The central bank has set a 13 December deadline for another set of accounts, for which lenders must finalize a resolution plan, failing which they have to take these borrowers to the National Company Law Tribunal (NCLT).
“The problem will arise for the accounts in the second list, because in these cases, you will not have enough interest or a broad set of bidders. I think once the first 12 cases are done, then for the next set of cases, we might see some tweaking from the government," said KPMG’s Aggarwal.