Insolvency and Bankruptcy Code to be tightened with ordinance; wilful defaulters to be barred from bidding for cos

New Delhi: The government will soon promulgate an ordinance to amend the Insolvency and Bankruptcy Code, aimed at tightening the current framework amid rising number of insolvency cases.

The Cabinet on Wednesday approved bringing in an ordinance to make "some changes" in the Code, Corporate Affairs Minister Arun Jaitley said.

The Code, which became operational in December last year, provides a market-determined and time-bound insolvency resolution process. Over 300 cases have already been approved by the National Company Law Tribunal (NCLT) to be taken up under the law, implemented by the corporate affairs ministry.

Briefing reporters after the Cabinet meeting, Jaitley said some changes are proposed in the Code and it is being done by way of an ordinance.

He did not divulge specific details about the proposed ordinance.

However, the proposal for ordinance comes at a time when there are concerns in certain quarters about various aspects of the Code, including the possibility of promoters wresting back control of a company under the insolvency process.

Representational image. Reuters

According to a report in the Times of India, the ordinance will indeed have the provision to bar bidding by wilful defaulters. This will shut out a few business houses such as Eassar, Bhushan Steel, Bhushan Power and Steel, Monnet Ispat and Jaypee Infratech.

The ordinance is also likely to "disqualify" a promoter who has a non-performing asset for one year from bidding.

Advisory KPMG India's Partner Sanjay Doshi said that insulating the insolvency process from undue influence is very critical for its success.

"One of the key aspects will be to ensure wilful defaulters do not get control of the company. Also, certain other matters especially around tax efficiency, exchange compliances etc which could be an impediment to the process would need amendment," Doshi said.

(With inputs from agencies)