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Insolvency and Bankruptcy (Amendment) Bill, 2017

The Rajya Sabha on 2nd January, 2017 passed the Insolvency and Bankruptcy (Amendment) Bill, 2017 in order to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. The provisions relating to insolvency resolution for corporate persons (Part II of the Code), regulation of insolvency professionals, agencies, information utilities and establishment of the Insolvency and Bankruptcy Board of India (the Board) (Part IV of the Code) and Miscellaneous provisions (Part V of the Code) have been brought into force, in phases. Part III of the Code, which deals with insolvency resolution and bankruptcy for individuals and partnership firms is yet to be commenced.

Under an amendment to Section 29 of the IB Code; Section 29A has been added to address the concerns which have been raised regarding persons who had contributed to defaults of companies, who may misuse this situation due to lack of prohibition to participate in the resolution or liquidation process. This may result in these persons gaining or regaining control of the corporate debtor. This may undermine the processes laid down in the Code as the unscrupulous person would be seen to be rewarded at the expense of creditors. Therefore, a person who is an un-discharged insolvent, a willful defaulter, a person who is in control of management or is a promoter of a company which is declared as Non-Performing Asset among other conditions cannot apply for a resolution plan.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2017 which seeks to replace the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, inter alia, provide for amendment to the following provisions, namely:—

  1. Sec 2: Facilitate phased implementation of the provisions of the Code to corporate persons, individuals and partnership firms;
  2. Sec 5: Provide clarity as to the persons who can submit a resolution plan in response to an invitation made by the resolution professional;
  3. Sec 25: Enable the resolution professional, with the approval of the committee of creditors, to specify the eligibility conditions (including such conditions as may be specified by the Board) while inviting resolution plans from prospective resolution applicants keeping in view the scale and complexity of operations of business of the corporate debtor to avoid frivolous applicants;
  4. Sec 29(A): Provide for making certain persons ineligible for being a resolution applicant;
  5. Under the given provision the following persons are not eligible to supply resolution plan:

    1. is an un-discharged insolvent;
    2. is a willful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949;
    3. 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;
    4. has been convicted for any offence punishable with imprisonment for two years or more;
    5. is disqualified to act as a director under the Companies Act, 2013;
    6. is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets;
    7. has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code;
    8. has executed an enforceable guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code;
    9. has been subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or (j) has a connected person not eligible under clauses (a) to (i).
      For the purposes of this clause, the expression "connected person" means—
      1. any person who is the promoter or in the management or control of the resolution applicant; or
      2. any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or
      3. the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii):
        Provided that nothing in clause (iii) of this Explanation shall apply to—
        1. a scheduled bank; or
        2. 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
        3. an Alternate Investment Fund registered with the Securities and Exchange Board of India."
  6. Sec 30: Provide that the committee of creditors shall approve the resolution plan by a vote of not less than seventy-five per cent. of voting share of the financial creditors after considering the feasibility and viability of the resolution plan in addition to such requirements as may be specified by the Board, before according its approval;
  7. Sec 35: Disallow the sale of property to a person who is ineligible to be a resolution applicant in case of liquidation of corporate debtor;
  8. Sec 235(A): Provide punishment for contravention of the provisions where no specific penalty or punishment is mentioned;
  9. Sec 240: Consequential amendments conferring power upon the Board to make regulations.
8 January 2018
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