Press Release dated 23.11.2017 from Ministry of Corporate Affairs, Government of India

Ordinance to amend the Insolvency and Bankruptcy Code, 2016 promulgated;

Ordinance aims at putting in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code.

The Government of India promulgated today the Ordinance to amend the Insolvency and Bankruptcy Code, 2016 (the Code). Earlier the President of India had given his assent to the Ordinance to amend the Code.

The Ordinance aims at putting in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code. The amendments aim to keep-out such 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. In addition to putting in place restrictions for such persons to participate in the resolution or liquidation process, the Amendment also provides such check by specifying that the Committee of Creditors ensure the viability and feasibility of the resolution plan before approving it. The Insolvency and Bankruptcy Board of India (IBBI) has also been given additional powers.

It may be recalled that the Regulations by the IBBI were also amended recently to ensure that information on the antecedent of the applicant submitting the Resolution Plan along with information on the preferential, undervalued or fraudulent transactions are placed before the Committee of Creditors in order for it to take an informed decision on the matter.

Along with other steps towards improving compliances, actions against defaulting companies to prevent misuse of corporate structures for diversion of funds, reforms in the banking sector, weeding-out of unscrupulous elements from the resolution process is part of ongoing reforms initiated by the Government. These would help strengthen the formal economy and encourage honest businesses and budding entrepreneurs to work in a trustworthy, predictable regulatory environment.

The Ordinance amends Sections 2, 5, 25, 30, 35 and 240 of the Code, and inserts new Sections 29A and 235A in the Code.

Gist of the amendments is given below:

(i) Clause (e) of Section 2 of the Code has been substituted with three Clauses. This would facilitate the commencement of Part III of the Code relating to individuals and partnership firms in phases.

(ii) Clause (25) and (26) of Section 5 of the Code which define “Resolution Plan” and “Resolution Applicant” are amended to provide clarity.

(iii) Section 25(2)(h) of the Code is amended to enable the Resolution Professional, with the approval of the Committee of Creditors (CoC), to specify eligibility conditions 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.

(iv) Section 29A is a new Section that makes certain persons ineligible to be a Resolution Applicant. Those being made ineligible inter alia include:

• Willful Defaulters,

• Those who have their accounts classified as Non-Performing Assets (NPAs) for one year or more and are unable to settle their overdue amounts include interest thereon and charges relating to the account before submission of the Resolution Plan,

• Those who have executed an enforceable guarantee in favour of a creditor, in respect of a Corporate Debtor undergoing a Corporate Insolvency Resolution Process or Liquidation Process under the Code

• and connected persons to the above, such as those who are Promoters or in management of control of the Resolution Applicant, or will be Promoters or in management of control of Corporate Debtor during the implementation of the Resolution Plan, the holding company, subsidiary company, associate company or related party of the above referred persons.

(v) It has also been specifically provided that CoC shall reject a Resolution Plan, which is submitted before the commencement of the Ordinance but is yet to be approved, and where the Resolution Applicant is not eligible as per the new Section 29A. In such cases, on account of the rejection, where there is no other plan available with the CoC, it may invite fresh resolution plans.

(vi) Section 30(4) is amended to explicitly obligate the CoC to consider feasibility and viability of the Resolution Plan in addition to such conditions as may be specified by IBBI, before according its approval.

(vii) The Sale of Property to a person who is ineligible to be a Resolution Applicant under Section 29A has been barred through the amendment in Section 35(1)(f).

(viii) In order to ensure that the provisions of the Code and the Rules and Regulations prescribed thereunder are enforced effectively, the new Section 235A provides for punishment for contravention of the provisions where no specific penalty or punishment is provided. The punishment is fine which shall not be less than one lakh rupees but which may extend to two crore rupees.

(ix) Consequential amendments in Section 240 of the Code, which provides for power to make Regulations by IBBI, have been made for regulating making powers under Section 25(2)(h) and 30(4).

Tweets from Ministry of Finance on the Subject

The President of India has given his assent today to the Ordinance to amend the Insolvency and Bankruptcy Code, 2016.

The Ordinance amends sections 2, 5, 25, 30, 35 and 240 of the Code, and inserts new sections 29A and 235A in the Code.

Section 29A is a new section that makes certain persons ineligible to be a resolution applicant. Those being made ineligible inter alia include willful defaulters; those who have their accounts classified as non-performing assets for one year or more

Also includes those who are unable to settle their overdue amounts include interest thereon and charges relating to the account before submission of the resolution plan & those who have executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor.

As also connected persons to the above, such as those who are promoters or in management of control of the resolution applicant, or will be promoters or in management of control of corporate debtor during the implementation of the resolution plan.

The new section 235A provides for punishment for contravention of the provisions where no specific penalty or punishment is provided. The punishment is fine which shall not be less than one lakh rupees but which may extend to two crore rupees.

The Ordinance aims at putting in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code.

The amendments aim to keep out such persons who have willfully 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.

In addition to putting in place restrictions for such persons to participate in the resolution or liquidation process, the amendment also provides such check by specifying that the Committee of Creditors ensure the viability and feasibility of resolution plan before approving it

The Insolvency and Bankruptcy Board of India (IBBI) has also been given additional powers.

REGISTERED NO. DL-(N)04/0007/2003-17

The Gazette of India.

EXTRAORDINARY

PART II- Section 1

PUBLISHED BY AUTHORITY

NEW DELHI, THURSDAY, NOVEMBER 23, 2017/AGRAHAYANA, 1939 (SAKA)

Separate paging is given to this Part in order that it may be filled as a separate compilation.

MINISTRY OF LAW AND JUSTICE

(Legislative Department)

New Delhi, the 23rd November, 2017/Agrahayana 2, 1939 (Saka)

THE INSOLVENCY AND BANKRUPTCY CODE

(AMENDMENT) ORDINANCE, 2017

No. 7 OF 2017

Promulgated by the President in the 6Day-eighth Year of the Republic of India.

An Ordinance to amend the Insolvency and Bankruptcy Code, 2016.

WHEREAS the Insolvency and Bankruptcy Code, 2016 (the Code), inter alia, provides a framework for insolvency resolution of corporate persons in a time bound manner for maximization of value of assets of such persons;

AND WHEREAS the provisions relating to corporate insolvency resolution process of the Code have come into force on 1st day of December, 2016;

AND WHEREAS in order to strengthen further the insolvency resolution process, it has been considered necessary to provide for prohibition of certain persons from submitting a resolution plan who, on account of their antecedents, may adversely impact the credibility of the processes under the Code;

AND WHEREAS it is also considered necessary to make provisions to specify certain additional requirements for submission and consideration of the resolution plan before its approval by the committee of creditors;

AND WHEREAS Parliament is not in session and the President is satisfied that circumstances exist which render it necessary for him to take immediate action;

Now, THEREFORE, in exercise of the powers conferred by clause (1) of article 123 of the Constitution, the President is pleased to promulgate the following Ordinance:—

1. Short title and commencement.

1) This Ordinance may be called the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017.

(2) It shall come into force at once.

2. Amendment of section 2.

2. In the Insolvency and Bankruptcy Code, 2016 (hereinafter referred 31 of 2016. to as the principal Act), in section 2,—

(i) in clause (d), the word “and” shall be omitted;

(ii) for clause (e), the following clauses shall be substituted, namely:

“(e) personal guarantors to corporate debtors;

(f) partnership firms and proprietorship firms; and

(g) individuals, other than persons referred to in clause (e),”.

3. Amendment of section 5.

In section 5 of the principal Act,

(a) for clause (25), the following clause shall be substituted, namely:—

‘ (25) “resolution applicant” means a person, who individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitation made under clause (h) of sub-section (2) of section 25;’;

(b) in clause (26), for the words “any person”, the words “resolution applicant” shall be substituted.

4. Amendment of section 25.

In section 25 of the principal Act, in sub-section (2), for clause (h), the following clause shall be substituted, namely:

“(h) invite prospective resolution applicants, who fulfill such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans.”.

5. Insertion of new section 29A.

Persons not eligible to be resolution applicant.

After section 29 of the principal Act, the following section shall be inserted, namely:—

“29A. A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly with such person, or any person who is a promoter or in the management or control of such person,—

(a) is an undischarged insolvent;

(b) has been identified as a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the 10 of 1949. Banking Regulation Act, 1949;

(c) whose account is classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 and period of one year or more has lapsed from the date of such classification and who has failed to make the payment of all overdue amounts with interest thereon and charges relating to non-performing asset before submission of the resolution plan;

(d) has been convicted for any offence punishable with imprisonment for two years or more; or

(e) has been disqualified to act as a director under the Companies Act, 2013;

(f) has been prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets;

(g) 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 this Code;

(h) has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor under insolvency resolution process or liquidation under this Code;

(i) where any connected person in respect of such person meets any of the criteria specified in clauses (a) to (h).

Explanation.— For the purposes of this clause, the expression “connected person” means-

(i) any person who is promoter or in the management or control of the resolution applicant; or

(ii) 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

(iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii)

(j) has been subject to any disability, corresponding to clauses (a) to (i), under any law in a jurisdiction outside India.”.

6. Amendment to Section 30.

In section 30 of the principal Act, for sub-section (4), the following sub-section shall be substituted, namely:—

“(4) The committee of creditors may approve a resolution plan by a vote of not less than seventy-five per cent. of voting share of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the Board:

Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, where the resolution applicant is ineligible under section 29A and may, where no other resolution plan is available with it, require the resolution professional to invite a fresh resolution plan.”.

7. Amendment to section 35.

In section 35 of the principal Act, in sub-section (1), in clause (f), the following proviso shall be inserted, namely:

“Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant.”.

8. Insertion of new section 235A.

After section 235 of the principal. Act, the following section shall be inserted, namely:—

“235A. If any person contravenes any of the provisions of this Code or the rules or regulations made there under for which no penalty or punishment is provided in this Code, such person shall be punishable with fine which shall not be less than one lakh. rupees but which may extend to two crore rupees.”.

9. Amendment of section 240.

In section 240 of the principal Act, in sub-section (2),—

(i) after clause (s), the following clause shall be inserted, namely:—

“(sa) other conditions under clause (h) of sub-section (2) of section 25;”,

(ii) after clause (w), the following clause shall be inserted, namely:—

“(wa) other requirements under sub-section (4) of section 30;”.

RAM NATH KOVIND,

President.

DR. G.NARAYANA RAJU,

Secretary to the Govt. of India

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