The Bill vs the Ordinance That Amend Insolvency Code

Explained: The Insolvency and Bankruptcy Code (Amendment) Bill, 2017, passed by the Rajya Sabha.

The ordinance to amend the Insolvency and Bankruptcy Code will bar defaulters from bidding for stressed assets.

(Photo: iStock)

The Bill to amend the Insolvency and Bankruptcy Code, 2016 was introduced in Parliament on Thursday. It seeks to enact as law the changes articulated in the Ordinance that was promulgated on Nov. 23 and that made promoters of non-performing assets ineligible to submit resolution plans for that asset.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2017 makes some important changes to the Ordinance text, the short version of which are:

• Slightly narrows the scope of ineligibility;
• Gives ineligible promoters of non-performing assets an explicit opportunity to pay their overdue and become eligible before submission of the resolution plan;
• Excludes ARCs, AIFs and scheduled banks from the definition of “connected persons” thereby protecting them from becoming ineligible due to an indirect exposure of sorts;
• And provides some relief in cases where the sole bidder or resolution applicant to submit a plan before the ordinance has been rendered ineligible thereafter.

1. Narrows Scope Of Ineligibility

The Ordinance 29A. 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 or control of such person, -

The Bill 29A. A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person -

The change in language narrows the scope of ineligibility. It no longer includes the promoter, or person in management or control, of the resolution applicant.

The memorandum to the bill explains this as an effort “to bring more clarity, when read with clause (j) of the provision relating to connected persons”.

2. But Wait...

The bill and ordinance differ in language when listing the criteria that render the promoter of a non-performing asset ineligible to be a resolution applicant.

The Ordinance
(c) whose account is classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 and period of one year or more has lapsed from the date of such classification and who has failed to make the payment of all overdue amounts with interest thereon and charges relating to non-performing asset before submission of the resolution plan;

The Bill
(c) has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor:

Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan;

There are three changes in language here...
1. That any person who has an account classified as non-performing asset, or is in management or control of such an account, or is the promoter of such an account is covered under this criteria as per the bill. This casts a slightly wider net than the ordinance did.

2. The bill clarifies the account has to be a NPA for at least one year from the date of classification till the commencement of the insolvency process. The ordinance had left it slightly open-ended.

3. A provision has been made for the ineligible person to pay all overdue amounts and then become eligible to submit a resolution plan.

The memorandum to the bill explains this as an effort “to bring clarity on the extent of coverage and provide reasonable time for a person having non-performing asset to repay overdue amounts”.

3. Relief For Banks, ARCs, AIFs

The Ordinance
none.

The Bill
Provided that nothing in clause (iii) of this Explanation shall apply to -
(A) a scheduled bank; or
(B) an asset reconstruction company registered with the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; or
(C) an Alternate Investment Fund registered with the Securities and Exchange Board of India.

Scheduled banks, Asset Reconstruction Companies and Alternate Investment Funds have been excluded from the definition of “connected person” in the bill.

The memorandum to the bill offers no further explanation for this.

4. Sole Bidder Ineligible

The Ordinance
none

The Bill
Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of section 29A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A:

Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to sub-section (3) of section 12, and the corporate insolvency resolution process shall be completed within the period specified in that sub-section.

The bill introduced two new provisions in cases where a resolution plan was submitted before the ordinance was promulgated and the resolution applicant is no longer eligible, and no other resolution plan has been submitted.

In such instances the bill allows for the committee of creditors to grant the ineligible resolution applicant not more than 30 days to make overdue payments so that his resolution plan can be considered by the committee.

But in granting this time period the bill does not permit extension of the insolvency process time limit as laid down in the law.

The memorandum to the bill offers no further explanation for this.

(This article was originally published on BloombergQuint and has been republished with permission.)