Better late than never seems to be the new mantra in the second innings of the Bharatiya Janata Party-led National Democratic Alliance, as it tries to fix the lacunae that had crept into major policy initiatives like the Insolvency and Bankruptcy Code (IBC), 2016, and the goods and service tax (GST).

Interestingly enough, it is the IBC—touted as a game changer in the relationship between the lenders and borrowers—that is witnessing a large number of amendments to give it teeth to take care of distressed assets across sectors.

Earlier, the lack of clarity on issues relating to corporate misdemeanours of the earlier management in the existing code meant that many players were reluctant to bid fearing issues of diversion or siphoning of funds cropping up later and putting the new bosses in trouble. Moreover, they had witnessed JSW Steel’s not-so happy experience in the buyout of bankrupt Bhushan Power and Steel Ltd ( BPSL) for ₹19,700 crore. Since the company was mired in all kinds of controversies, JSW Steel had sought immunity from litigations related to alleged frauds at the bankrupt company.

“The latest changes to the IBC ring-fence the successful bidders of stressed assets from the risk of criminal proceedings against offences committed by previous management and promoters,’’ says the official statement.

In the BPSL case, the Enforcement Directorate (ED), under directions from the National Company Law Tribunal, had provisionally attached assets worth ₹4,025 crore, including land and machinery, of BPSL’s plant in Odisha, in connection with a money laundering case involving alleged diversion of “bank loans”. The ED argued that since the insolvency proceedings came under civil law, they could not override criminal law proceedings. And the acquisition of BPSL was put on hold.

With the fear factor now out of the way, prospective buyers will have a lot more confidence in bidding for distressed assets; this will not only drive up asset prices, but will also result in faster resolution of the process. It will also boost investor confidence in the Indian financial system.

After all, criminal conduct like siphoning off or diversion of funds by managers and promoters of a company should invite action against such corrupt officials and not against the company or its new owners.

The other important amendment —adding a clause to Section 7 of the IBC— ensures that at least 100 individuals or 10% of creditors such as homebuyers have to come together to initiate corporate insolvency proceedings under the amended IBC. The new threshold rule will be applicable in all cases where a financial debt is owed to a class of creditors. A minimum threshold for financial creditors means that frivolous cases triggering corporate insolvency will be minimised and that companies will not face bankruptcy issues on small amounts.

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