Insolvency code ordinance: Can Ruias and Singals regain control of their NPA companies?

The central government on Wednesday revised the Insolvency and Bankruptcy Code (IBC), preventing wilful defaulters, dubious promoters and those involved in fraudulent transactions from bidding for stressed assets. The government mooted the revision through an ordinance after the prospective bidders raised their concerns on the participation of the existing promoters in the bids.

Executives with the companies which are facing insolvency proceedings say that the prospective bidders look to acquire the assets at cheap value. "The existing promoters will not allow it and they will bid aggressively because of their emotional attachment with the assets that they built," they say.

Bhushan Steel's promoter Neeraj Singal came on record and told Business Standard newspaper that the prospective bidders are vitiating the atmosphere. The world over, there is no instance of barring promoters when an entire sector sinked, he added. He also said that the price realisation would be 10-15 per cent of value if promoters didn't bid. Since the one year long NPA makes the promoter a wilful defaulter, the eligibility of Singals for submitting a resolution proposal is under cloud, the news paper reports.
 
Sajjan Jindal, chairman of JSW group, was the first to come out in the public against the promoters of stressed companies, tweeting that the dubious promoters should not be allowed to bid for their companies. Later he said a strong monitoring mechanism with "right to recompense" for lenders should be put in place. "It will be a setback to the credible IBC process if the existing promoter re-acquires the asset with a haircut without the right to recompense banks," Jindal tweeted. State Bank of India (SBI) chairman Rajnish Kumar also opined that wilful defaulters or those borrowers who have diverted funds would not find any place in the bidding process.
 
An executive of another stressed steel company says that the IBC is modeled on the UK insolvency law and it is not structurally complete. "Of the 12 companies which is in the NCLT, no one is a willful defaulter in literary terms. For instance, the lack of government support against cheap Chinese steel dumping and cancellation of mining licenses and the delays in reallocation destroyed the steel sector. Its a mistake of the government," he says.

Another official says that the terminologies like dubious promoter and fraudulent transaction are legally challengeable in the upper courts.

The legal experts point out that obstructing existing promoters from bidding will lead to another legal battle even to the higher courts outside NCLT.