The Insolvency and Bankruptcy Code (IBC) was enacted last year to consolidate and amend laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner.
Finance Minister Arun Jaitley today introduced a bill in the Lok Sabha to bar wilful defaulters as well as those with NPA accounts from bidding in auctions to recover bad loans through insolvency proceedings. The Insolvency and Bankruptcy Code (Amendment) Bill, 2017 seeks to replace an ordinance which was promulgated in November to prevent unscrupulous persons from misusing or vitiating the provisions of the IBC. The Insolvency and Bankruptcy Code (IBC) was enacted last year to consolidate and amend laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner. According to the statement of objects and reasons of the bill introduced by Jaitley, the amendment “provides clarity as to the persons who can submit resolution plan in response to an invitation made by the resolution professional”. The amendment bill also makes certain persons ineligible for being a resolution applicant.
The ineligible persons or entities will include, undischarged insolvent, willful defaulter, and those whose accounts have been classified as non-performing asset. These persons, however, can become “eligible to submit a resolution plan” if they clear all overdue amounts with interest and other charges relating to NPA accounts.
The amendment to the IBC has been brought to address concerns that “persons who, with their misconduct contributed to defaults of companies or otherwise undesirable, may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process, and gain or regain control of corporate debtor”. Moreover, this may undermine the process laid down in the IBC as “unscrupulous person would be seen to be rewarded at the expense of creditors”.