President Ramnath Kovind has given his assent on Thursday to the ordinance to amend the Insolvency and Bankruptcy Code, 2016 aimed at strengthening the government’s fight against the rising insolvency cases.
The President’s assent comes after the Union Cabinet on Wednesday approved the promulgation of an ordinance to amend certain sections of the Code to prevent wilful defaulters from bidding for stressed assets.
According to a tweet put out by the Ministry of Finance, the ordinance amends sections 2, 5, 25, 30, 35 and 240 of the Code, and inserts new sections 29A and 235A.
The Insolvency and Bankruptcy Code, 2016 was introduced last year to provide market-determined and time-bound insolvency resolution process.
“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,” said the finance ministry in its tweet.
These “persons” also include those who are “unable to settle their overdue amounts including interest thereon and charges relating to the account before submission of the resolution plan and those who have executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor”. It also refers to “connected persons to the above, such as those who are promoters or in management of control of the resolution applicant, or will be promoters or in management of control of corporate debtor during the implementation of the resolution plan”.
This new section 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 Rs 1 lakh but which may extend to Rs 2 crore.
The ordinance, the finance ministry claimed, aims at preventing “unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code”.
“The amendments aim 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 finance ministry said in a tweet.
“The amendment also provides check by specifying that the Committee of Creditors ensure the viability and feasibility of resolution plan before approving it. The Insolvency and Bankruptcy Board of India (IBBI) has also been given additional powers,” the ministry tweeted.
So far, over 300 cases have already been approved by the National Company Law Tribunal (NCLT) to be taken up under the law, implemented by the corporate affairs ministry.
Twelve accounts, each having more than Rs 5,000 crore of outstanding loans and accounting for 25 per cent of total NPAs (non-performing assets) of banks are being tried under the Insolvency and Bankruptcy Code process. The total outstanding sum of these accounts is Rs 1.75 trillion.