TIGHTENING OF INSOLVENCY LAWS

Fraudulent and defaulted promoters of companies will no more be allowed to get a participation in the bid for companies going insolvent. Accordingly the Insolvency and Bankruptcy code is being amended by the Government.

The amendments would come in force with immediate effect and the necessity for such an ordinance was needed since cases are coming up for bidding.  Also other, sections stand modified.  Accordingly wilful defaulters who are instrumental in creating of NPAs will be forbidden from taking over the insolvent companies again.  It normally takes an year to declare a promoter as insolvent after an account turns NPA which term was not considered as Standard in the purview of RBI guidelines.  Hence the ordinance is expected to formalise the time lines so that banks will be unable to arbitrarily declare an entity as a wilful defaulter.

  • An account is terms as NPA, when interest rate or instalment on the principal of a Term Loan is not paid for over 180 days.
  • Also, the time frame for non-payment of dues and declaring them as bad debts, are different for different types of accounts like agricultural account, overdraft, bills etc.,
  • A wilful defaulter is defined to be one who does not pay back event when he is able to make payment and is observed to intentionally divert the loan for other uses or disposes off the collaterals without the bank’s knowledge.

Conclusion

It is felt that this amendment is coming at the right time, when there is a controversy in permitting the existing defaulters to take part in the bidding process.  This amendment debars such entities from participating in the process of bidding.

Author: Admin Bankedge

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