November 23, 2017

The Ordinance has incorporated Section 29A that makes certain persons ineligible to be a resolution applicant. It includes wilful defaulters who have their accounts classified as non-performing assets for one or more years.

With President Ram Nath Kovind giving nod to the ordinance to amend the Insolvency and Bankruptcy code, India’s mighty law to deal with bank defaults, wilful defaulters, like Vijay Mallya, will be barred from bidding for stressed assets. “The Ordinance aims at putting in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code,” the Finance Ministry said. The Ordinance amends sections 2, 5, 25, 30, 35 and 240 of the Code, and inserts new sections 29A and 235A in the Code.

Here is what the Ordinance means for loan cheats:

  1. The Ordinance has incorporated Section 29A that makes certain persons ineligible to be a resolution applicant. It includes wilful defaulters who have their accounts classified as non-performing assets for one or more years.
  2. The Ordinance also bars those people who are unable to settle their overdue amounts include interest and other charges relating to the account before submission of the resolution plan.
  3. Those people who have executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor have also been made ineligible to be a resolution applicant.
  4. The Section 235A, which has been incorporated in the code, provides for punishment for contravention of the provisions where no specific penalty or punishment is provided. The punishment is fine will be between Rs 1 lakh and 2 crores.
  5. The Ordinance will also power the government to select buyers of the stressed assets, which is likely to help banks get better prices.

The government said that the Ordinance was introduced with an aim to keep out wilful defaulters and people associated with non-performing assets or those who are habitually non-compliant, who pose a risk to the successful resolution of the insolvency of a company.

“Preventing wilful defaulters from bidding for stressed assets will help banks get better prices for the assets and will move the pending cases faster,” A K Prabhakar, head of Research, IDBI Capital told Reuters.

Top banker Uday Kotak has suggested that there should be a forensic audit because even if somebody is not a willful defaulter there should be no misuse of company’s funds. He told CNBC-TV18 that the bidding process should be subject to two criteria: the risk-adjusted value of the bid should be properly factored in, and if forensic audits of the companies find that there has been a misuse of funds.
Earlier this year, Uday Kotak had shown interest in buying stressed assets. He had said that he would also use capital for pursuing opportunities in acquisition and resolution of stressed assets in the banking sector.

[The Financial Express]