NEW DELHI: The government on Wednesday recommended an ordinance to significantly tighten the norms to bar promoters of companies facing insolvency proceedings from bidding for the ailing entities, in a move that will shut out several business families from vying with competitors and overseas funds.Apart from seeking to ban bidding by wilful defaulters, the Insolvency & Bankruptcy Code will be amended to disqualify a tainted promoter in control of an entity that has been a ‘non-performing asset’ for a “prescribed period”, which may be fixed at one year. A continuous loan default for 90 days forces banks to classify a borrower as an NPA.The one-year clause will make promoters of some of the 12 large companies facing insolvency action — such as the Ruias of Essar Steel and Singhals of Bhushan Steel — ineligible to submit financial bids for their companies next month. Bankers said both the entities were classified as NPAs in 2015. At the same time, it may help reduce competition for companies such as JSW, Tata Steel , Arcelor Mittal and Nippon Steel and comes with the risk of bids being less aggressive.The 12 companies, which account for nearly a quarter of the NPAs, were referred to the National Company Law Tribunal by banks led by State Bank of India and IDBI Bank after the Reserve Bank of India stepped in to clean up the unprecedented pile of bad debt that added up to nearly Rs 8.4 lakh crore on last count. The list includes Bhushan Power & Steel, Jaypee Infratech, Monnet Ispat, Amtek Auto and ABG Shipyard.Finance minister Arun Jaitley told reporters that the cabinet had recommended amendments but did not comment on the provisions. Details of the ordinance are expected only after President Ram Nath Kovind approves it. With the winter session expected to be convened on December 15, the ordinance is likely to be promulgated over the next few days.The move gains significance in the light of the straitjacket banks and government is facing due to stressed assets.The government had enacted the Insolvency & Bankruptcy Code last year, which provides for a revival plan in a maximum of 270 days. During this period, the company is handled by an NCLT-appointed resolution professional. The government opted to amend the law in less than a year as it feared that some promoters may end up acquiring the company at a steep discount, leaving banks to grapple with the pile of loans .“A number of cases are likely to have long-pending default requiring deep haircut for the creditors. It is, therefore, necessary to ensure that promoters of the corporate debtor or the company, who are found to have contributed to the default, need to be prevented from regaining control through back door entry in the garb of a resolution applicant,” said a source.The ordinance also gives more powers to the Insolvency and Bankruptcy Board of India to prescribe eligibility norms for prospective bidders or resolution applicants while keeping in mind the complexity and scale of operations of business of the ailing company.Lenders as well as industry experts are closely watching how the government defines the “prescribed period” and its implications on the overall business environment. “A company gets into financial stress because of various reasons such as technological obsolescence or sudden change in policies, including court pronouncements such as cancellation of coal blocks or spectrum. By barring all promoters, you may be hitting the entrepreneurship environment,” said a top executive with a leading bank.Industry experts also said that some of the norms proposed by the government opened the doors to further litigation. For instance, a promoter can be classified as a wilful defaulter and not allowed to bid but the court overturns the lender’s decision later.“The disqualification on account of the debtor being a non performing account is harsh as there could be genuine reasons for default. Businesses succeed but also fail and a bonafide failure should not be punished. As a society we need to learn to forgive an unfortunate debtor and give him a second chance. Failure can also be as legitimate as success,” said Sumant Batra, managing partner at law firm Kesar Dass B & Associates, who is involved in several cases.Apart from the 12 companies which are already in various stages of resolution, at least 40 other companies are being reviewed by banks after an RBI directive and the ordinance will also have an impact on them.