The ordinance, promulgated on Thursday, added Section 29A to the Code: “A person shall not be eligible to submit a resolution plan if such person, or any other person acting jointly with such person, or any person who is a promoter or in the management control of such person, is an undischarged insolvent.”
However, even this is not allowed once the National Company Law Tribunal (NCLT) has accepted an insolvency petition. None of the promoters or their associates can buy the stressed assets of the 12 large debt accounts suggested for insolvency proceedings by the Reserve Bank of India.
They added promoters were not debarred from bidding unless a case was admitted in the NCLT, but merely discouraged. If a company paid, say, Rs 10,000 crore out of its total NPAs of Rs 50,000 crore to convert the loan into a standard asset, the insolvency process would benefit, they said.
A court might not stay the insolvency process and the promoter could lose his company, but later if the bank’s decision were found to be illegal by court, the promoter would become entitled to claim damages, experts added. The amendments also place foreign bidders in an advantageous position as the concept of wilful defaulter may not exist in other countries and the disqualification criteria in corresponding situations may be different.
There are others who support these amendments. “This will reassure new investors about the credibility of the process. Steps taken to provide clarity and reduction of transaction costs associated with resolution would be welcome and will provide for greater participation by investors and more innovative resolution processes,” said Manish Aggarwal of KPMG in India.