The Government seeks to ease norms for ‘related party’ under the Insolvency and Bankruptcy Code (IBC)

Section 29A of the IBC bars certain persons and entities from bidding for stressed assets. These include undischarged insolvents, wilful defaulters and anyone with a non-performing loan, among others. Any other person acting jointly or in concert with such persons is also barred from the resolution process. Besides, Clause J of Section 29A bars persons or entities connected to a person disqualified under the section. “A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person has … a connected person not eligible under clauses (a) to (i)” of Section 29A,” according to the law, which defines “connected persons” and includes holding companies, subsidiary companies, associate companies or related parties of a person referred to in clauses (i) and (ii). This provision makes a wide range of persons or entities ineligible because of ties to entities barred under Section 29A. The issue of “connected persons” has also come up in the case of many bids, raising fears of the entire process becoming caught up in a legal logjam, experts said. For instance, it is unclear if a person be considered a “related party” if his brother has a company that’s been taken to bankruptcy court. The Government wants to rid the law of such ambiguities that make a person ineligible on purely technical grounds and due to legal interpretations, when the intent of the law is not to do so. Further,  to ensure the law is not overly restrictive and doesn’t cut down the number of those eligible to bid for assets, effectively weakening competition and reducing the amount that banks can recoup.

March 12th, 2018