Finance Ministry tables IBC amendment bill in parliament

Finance Ministry tables IBC amendment bill in parliament”

The Lok Sabha amended the Insolvency and Bankruptcy Code law to prevent wilful defaulters and existing promoters from taking part in insolvency proceedings of stressed assets of companies unless they make their bad loans operational by paying up interests.

Similarly, banks opting to convert their debt into equity under the Reserve Bank of India's scheme for sustainable structuring of stressed assets would have inadvertently become promoters of these insolvent companies and thereby been barred from the resolution process.

It made it clear that the ineligible defaulters were those who had "failed to make the payments of all the overdue amounts with interest and charges relating to non-performing asset before the submission of the resolution plan".

The amendment to the IBC has been brought to address concerns that "persons who, with their misconduct contributed to defaults of companies or otherwise undesirable, may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process, and gain or regain control of corporate debtor".

The amendments aim to correct these anomalies. A successful completion of the resolution process was expected to aid in reducing rising bad loans in the banking system.

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Sanjay Bhattacharya, former managing director of the State Bank of India, said, "A moral hazard would have been created if we allow failed promoters to bid and buy back their firm at a fraction of the real price while wiping out their entire debt. this would be like rewarding a promoter for failing his firm".

Replying to the debate, Finance Minister Arun Jaitley said those responsible for creations of the NPAs can not be allowed to regain the management at a fraction cost through the bidding under Insolvency and Bankruptcy Act.

"There are countries in the world that allow defaulting creditors to bid".

On the one hand, it has brought in the Insolvency and Bankruptcy Code which provides for a time-bound insolvency resolution process. "The problems were shoved under the carpet and these came to light because of the asset quality review initiated by RBI in 2015", Jaitley said.

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