President assents Ordinance amending Insolvency and Bankruptcy Code, 2016

The President of India on 23 November 2017 gave his assent to the ordinance (Ordinance) which amends the Insolvency and Bankruptcy Code, 2016 (Code), which was then published in the Gazette of India. The Ministry of Corporate Affairs of the Government of India, in a press release, stated that the Ordinance aims at putting in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code and aims to keep out persons who have wilfully defaulted, are associated with non-performing assets, or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company.

Some of the key highlights of the Ordinance are:

  • Clause (e) of section 2 of the Code has been amended to facilitate commencement of Part III of the Code relating to insolvency resolution and bankruptcy for individuals and partnership firms and extending application of the Code to “personal guarantors to corporate debtors”.
  • Sub-sections 25 and 26 of section 5 of the Code have been amended to provide clarity in relation to the “resolution applicant” and “resolution plan”. Consequently, clause (h) of sub-section 2 of section 25 of the Code has been amended to enable a resolution professional, with the approval of the committee of creditors, to specify eligibility conditions while inviting resolution plans from prospective resolution applicants.
  • Introduction of new section 29A which provides that the following persons, shall be ineligible to submit a resolution plan:
  1. an undischarged insolvent;
  1. a wilful defaulter;
  1. whose account is classified as non-performing asset;
  1. has been convicted for any offence punishable with imprisonment for 2 (two) years or more;
  1. has been disqualified to act as a director under the Companies Act, 2013;
  1. has been prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities market;
  1. has indulged in preferential transaction or undervalued transaction or fraudulent transaction in respect of which an order has been made by the adjudicating authority under the Code;
  1. has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor under insolvency resolution process or liquidation under the Code; and
  1. where any connected person in respect of such person meets any of the criteria specified in (i) to (viii) above.
  • Sub-section 4 of section 30 has been revised to require the committee of creditors to consider the feasibility and viability of the resolution plan including other requirements as may be specified by the Insolvency and Bankruptcy Board of India. Further, it has been clarified that the committee of creditors shall reject a resolution plan submitted before the commencement of the Ordinance and where the resolution applicant is not eligible as per the new section 29A of the Code. Accordingly, in such cases, where there is no other plan available, the committee of creditors may invite fresh resolution plan.
  • Clause (f) of sub-section 1 of section 35 has been supplemented with a proviso to prohibit the sale of immovable and movable property or actionable claims of a corporate debtor in liquidation to a person who is ineligible to be a resolution applicant.
  • To ensure that the provisions of the Code and the rules and regulations prescribed thereunder are enforced effectively, a new section 235A has been inserted which provides for punishment for contravention of the provisions where no specific penalty or punishment is provided and where the fine shall not be less than INR 100,000 (Rupees one hundred thousand) but which may extend to INR 20,000,000 (Rupees twenty million).

The Ordinance is a welcome step that will send strong signals against crony capitalism and will help strengthening the formal economy and encourage businesses and budding entrepreneurs to work in a trustworthy and predictable regulatory environment.

The Ordinance may be accessed through the following link: