January 2, 2018

The Ordinance, which was passed in Lok Sabha last week, proposes to bar wilful defaulters from bidding for troubled assets during the insolvency process.

Finance Minister Arun Jaitley on Tuesday defended the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 Bill in Rajya Sabha, saying that if the same set of people (who led to the failure of companies) come back to management, nothing would change except the creditors taking the haircut, following which the House passed the bill.

The Ordinance, which was passed in Lok Sabha last week, proposes to bar wilful defaulters from bidding for troubled assets during the insolvency process. The Ordinance amended the definition of a resolution applicant and their eligibility and ineligibility.

Defending the Ordinance, Arun Jaitley said, “As far as asset-owning companies are concerned, fetching the best prices is the target… Under the 30A section, any bid which is not viable can be rejected. It is for creditors to decide how much haircuts they want.”

“We looked at the global model, the management of the company, even those accused of syphoning off money, once the bidding starts, they come back to bid again the company. The same set of people come back to management. (In this case) Nothing would change except the creditors taking the haircut,” he added.

He said the Ordinance route was taken to include the ineligibility conditions, which was not there in the IBC law immediately as 12 companies were already going to the National Company Law Tribunal (NCLT) for insolvency. He said the bad loans situation in India was one of biggest lessons for the banking system. “Did banks think at that time (while giving loans), that without any security like in case of trading companies, how much haircut they would have to cut if those companies went to insolvency?”

“There is only personal guarantee of insolvent promoters,” Arun Jaitley said.

Last month, President Ram Nath Kovind had given nod to the Ordinance after it was cleared by the Union Cabinet.  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.

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.

[The Financial Express]