A year after the Insolvency and Bankruptcy Code (IBC) came into existence, opinion is deeply divided if promoters of defaulting companies should be allowed to bid for the assets under the resolution process.
On Wednesday, the Cabinet cleared “some changes”, said Arun Jaitley, Union Minister of Finance and Corporate Affairs, but stopped short of disclosing the specifics.
Sources in the corporate affairs ministry said the amendments are aimed at resolving issues pertaining to promoters manipulating certain provisions to take back the company, using the clauses of insolvency.
These changes, being brought via an ordinance, bar wilful defaulters from bidding for the assets, but don’t explicitly prevent promoters from wresting back control. This, as SBI Chairman Rajnish Kumar earlier underscored, was within the legal rights of businessmen, even if they have failed to honour their debt obligations in the past.
Critics have raised concerns to this very aspect, as prevailing norms allow promoters to bid for companies at steep discounts.
A case in point is Essar Steel, where promoters led by the Ruia family are among the six potential contenders for the assets they once owned.“On the face of it, it appears self-defeating, but the decision to give promoters a second chance depends on the resolution plan they submit. If it isn’t convincing, it won’t stand a chance,” said a senior banker, indicating that fears of promoters using influence to retain control are unfounded.
In all, about 300 cases are currently admitted for resolution under the IBC by NCLT. A case is taken up for resolution under the Code only after receiving approval of the NCLT for the same.
The Bankruptcy Code, which became operational in December last year, provides for a market-determined and time-bound insolvency resolution process.
The Ministry of Corporate affairs recently set up a 14-member committee to identify and suggest ways to implement IBC effectively.
In June, the Reserve Bank of India first identified 12 large accounts, accounting for a quarter of the banking system’s gross NPAs. It added another 29 firms subsequently and gave banks time until December to resolve the cases, failing which they will be taken up under bankruptcy proceedings.