Centre Clears Tighter Rules To Bar Loan Defaulters From Bidding For Firms

New Delhi: The cabinet on Wednesday approved amendments to the Insolvency and Bankruptcy Code with changes that are designed to prevent wilful defaulters from bidding for stressed assets, Finance Minister Arun Jaitley said. The rules could prevent certain founders from misusing the 11-month-old law to regain control of insolvent companies that are being liquidated.

The cabinet has approved bringing in an ordinance to make "some changes" in the code, Mr Jaitley said, without elaborating. Reports say that the amendments will stop wilful defaulters from buying stressed assets that they previously owned.

The government is striving to cut a record $147 billion of soured loans accumulated in the banking sector by making it easier to force companies into insolvency.

Under current law, which came into effect in December last year, wilful defaulters are classified as firms or individuals who own large businesses and deliberately avoid repayments. It also provides a market-determined and time-bound insolvency resolution process.

The finance ministry has already asked banks to ensure that wilful defaulters are prevented from buying back assets.

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.

The proposal for ordinance also 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.

"The whole process (about the ordinance) is at an advanced stage and therefore you want the process to go on the right track," Mr Jaitley said without providing further details.

(With inputs from PTI and Reuters)