business

Updated: Nov 23, 2017 09:40 IST

The Cabinet on Wednesday approved changes to the Insolvency and Bankruptcy Code (IBC), and sent it to the President for his approval.

Once approved, the ordinance will be placed before Parliament in the winter session.

Finance minister Arun Jaitley did not divulge details about the changes being made to the code, since the President’s approval is awaited. “Some changes are proposed to the IBC, since this is being done by an ordinance and till it is approved, as a matter of propriety, we don’t give the details,” Jaitley told reporters during a press conference after the Cabinet meeting.

Top sources in the government told HT that the amendment was likely to streamline the process of selecting buyers of stressed assets, and would prevent wilful defaulters and promoters with past records of fraud from buying stressed companies cheap.

However, the amendment should not be seen as a blanket ban on promoters of companies who have been on banks’ non-performing account (NPA) lists, government official said.

“There might be promoters who have gone through the corporate resolution process and have managed to get balance sheets in shape; they will not be kept out,” said one of the government officials mentioned above.

The IBC, which became operational in December last year, provides time-bound and monitored resolution to companies’ insolvency proceedings. The National Company Law Tribunal is currently monitoring over 300 cases under the IBC.

The Code, however, does not specify about the kind of buyers who can bid for stressed assets of firms undergoing bankruptcy proceedings, though guidelines for due diligence while choosing a buyer were recently issued by the government. This has triggered concern that promoters could reacquire their companies at a discount once lenders decide to forego a part of the money owed to them.

“So there is a need to amend the law to ensure that only deserving candidates are allowed to bid for stressed assets under the corporate resolution process,” said a second official.

The amendment comes at a time when several firms are looking to acquire stressed assets. There has also been speculation that in some cases, promoters of firms undergoing insolvency are trying to re-acquire them.

“It will be a setback to the credible IBC process if the existing promoter is allowed to re-acquire the asset with a haircut,” Sajjan Jindal, chairman and MD of the JSW Group, said in a tweet on Tuesday. Jindal’s company has expressed interest in picking up stressed assets in the steel sector.

“The code is just a year old. So there is scope for improvement, and we will realise it as we go ahead..,” said the government official quoted above.

Indians banks are saddled with toxic assets worth ₹10 lakh crore. The first batch of 12 large defaulters were referred to their creditors by the Reserve Bank of India in June 2017 under the IBC for bankruptcy proceedings at the National Company Law Tribunal. These defaulters account for 25% of banks’ total NPAs.