Bankruptcy ordinance: More powers to Insolvency and Bankruptcy Board, up to Rs 2 crore penalty for violators

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Bankruptcy ordinance: More powers to Insolvency and Bankruptcy Board, up to Rs 2 crore penalty for violators

In addition to restrict such persons from participating in the resolution or liquidation process, the amendment also provides such check by specifying that the Committee of Creditors ensure the viability and feasibility of the resolution plan before approving it.

President RN Kovind on Thursday gave his nod to the Ordinance to amend the Insolvency and Bankruptcy Code (IBC), 2016, which aims to prevent "unscrupulous, undesirable persons from misusing the provisions of the IBC". The changes also bar wilful defaulters, and those associated with non-performing assets, or are habitually non-compliant. The Insolvency and Bankruptcy Board of India (IBBI) has also been given additional powers.

To ensure the provisions of the Code are enforced effectively, the newly introduced section 235A provides for punishment for contravention of the provisions, which would be Rs 1 lakh but may extend up to Rs 2 crore. In addition to restrict such persons from participating in the resolution or liquidation process, the amendment also provides such check by specifying that the Committee of Creditors ensure the viability and feasibility of the resolution plan before approving it.

Finance minister Arun Jaitley's office tweeted on Thursday: "The Ordinance aims at putting in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code."

Finding ways to trim down over $147 billion bad loans accumulated in the banking sector, the finance ministry had earlier asked the banking institutions ensure those who have history of fraud are not allowed to buy same stressed assets.

The amendment may soon be introduced in the upcoming Winter Session of Parliament. Some promoters of the companies identified for insolvency proceedings were preparing to bid for these stressed assets when they would be put up for sale as the existing law does not bar such promoters from participating in the bidding process, the report said. The regulations by the IBBI were also amended recently to ensure that information on the antecedent of the applicant submitting the resolution plan along with information on the preferential, undervalued or fraudulent transactions are placed before the Committee of Creditors to take an informed decision on the matter.

The Ordinance amends sections 2, 5, 25, 30, 35 and 240 of the Code, and inserts new sections 29A and 235A in the Code. Section 29A makes certain persons ineligible to be a resolution applicant, including willful defaulters, people with accounts classified as non-performing assets for one or more year and are unable to settle their overdue amounts, and those who have executed an enforceable guarantee in favour of a creditor.

The sale of property to a person who is ineligible to be a resolution applicant under section 29A has been barred through the amendment in section 35(1)(f). Consequential amendments in section 240 of the Code, which provides for power to make regulations by IBBI, have been made for regulating making powers under section 25(2)(h) and 30(4).

The ministry has already set up a 14-member committee to identify and suggest ways to address issues faced in implementation of the law. The Insolvency Law Committee, chaired by Corporate Affairs Secretary Injeti Srinivas, will take stock of the implementation of the Code. More than 300 cases have been admitted for resolution under the Code by the National Company Law Tribunal (NCLT), reported PTI, adding that a case is taken up for resolution under the Code only after receiving approval of the NCLT for the same.