1. Insolvency tweak: Loan cheats thought they are smart but Arun Jaitley has stumped them

Insolvency tweak: Loan cheats thought they are smart but Arun Jaitley has stumped them

President Ram Nath Kovind today give nod to the ordinance to amend the Insolvency and Bankruptcy code, which barred wilful defaulters like Vijay Mallya from bidding for stressed assets. Here's how this Insolvency Ordinance plugged the loophole that loan cheats were misusing.

By: | Updated: November 27, 2017 1:31 PM
Insolvency and Bankruptcy Code, stressed assets, Indian Banks Association, JSW Steel, Sebi, IBC process Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel said that in addition to this amendment, a uniform bidding and evaluation criterion is a must for the IBC process. (Reuters)

Essar Steel Ltd has a loan default of Rs 37,284 crore. In August, the National Company Law Tribunal (NCLT) admitted insolvency proceedings against it. Two months later,  its parent company Essar Group was learnt to be one of the bidders to purchase the stressed asset. Essar Group said the company was doing it because the Insolvency and Bankruptcy Code allowed promoters to bid for their company.

What would have happened in this case? Essar group would have repurchased its own insolvent subsidiary at a discount without having to repay the debt. To stop this, the government, first, asked banks to be vigilant to ensure that wilful defaulters are prevented from buying stressed assets again, and then, came up with an Ordinance to stop the damage as soon as possible with 12 companies with big loan defaults already under insolvency process.

The idea of the Ordinance was to “put in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code”. 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.

If in the end, it is about promoters buying stressed assets of their own companies, why take insolvency route instead of debt-restructuring? The Ordinance is going plug this leak in the IBC. Moreover, with wilful defaulters or promoters being prevented from the bidding process, banks are likely to get a better deal. “Preventing wilful defaulters from bidding for stressed assets will help banks get better prices for the assets and will move the pending cases faster,” A K Prabhakar, head of Research, IDBI Capital told Reuters.

“The ordinance has now made it very explicit…I will be happy when the resolution happens. I don’t mind some haircut but I don’t want to (go) bald,” SBI chief Rajnish Kumar said.

JSW Steel’s Sajjan Jindal recently tweeted: “It will be a setback to the credible IBC process if the existing promoter reacquires the asset with a haircut without right of recompense to banks.”  Sanjay Grover, the managing partner at company secretary firm Sanjay Grover & Associates and an insolvency professional, said: “The move to bar unscrupulous wilful defaulters is a positive one. It was necessary to keep such unscrupulous elements out of the insolvency process. Otherwise, it would encourage more defaults.”

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  1. M
    Nov 23, 2017 at 9:05 pm
    Good move!!! Hurrrray!!!
    1. Ramesh B Bhatia
      Nov 23, 2017 at 7:48 pm
      First Govt must remove the word " Willful defaulter ?"" What means by" Willful""- deliberate - intentionally ? in Business dealings (transactions) you can not prove it ? All Loan approvals, release of funds by Banks or Govt or on basis of documents cleared by respective authorities duly scrutinized by Auditors and legal dept's ? So where is the question of deliberate or intentional (willful) defaulter arises? Defaulter is defaulters whether not honoring checks issued or borrowed under any scheme or debentures or respecting trust of individual Share holder (Equity) or towards Banks etc? Due to this ambiguity even dishonored bank checks under Instrument act are not punishable it takes years to follow up in Court of LAW to prove legallity even if it is with authentic documents etc ? arguments has no end ? Imagine check is not considered valid for business transactions ? Personal checks may have different aspect / reasons but business transactions? payment of interest on Depposit

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