A DEEP DIVE INTO THE AMENDMENT

• EXPANSION OF APPLICABILITY OF THE IBC

• The Ordinance has amended Section 2 to include the applicability of provisions of IBC toPersonal Guarantors to corporate debtors, Proprietorship firms, and Individuals other than Personal guarantors to corporate debtors.
• The amendment has expanded the applicability of the IBC to cover:
• The Personal guarantors to corporate debtors: The Ordinance now provides for applicability of the provisions of IBC to Personal Guarantors of the Corporate Debtors who weren’tincluded within the ambit of the IBCbefore.
• Proprietorship Firms: The Ordinance has also provided for applicability of the provisions of the IBC to the proprietorship firms, which is a welcome step as, most of the medium and small enterprises in India work on proprietorship basis, and therefore, it was essential to include the proprietorship firm within the ambit of the IBC.

• PERSONS NOT ELIGIBLE TO BE A RESOLUTION APPLICANT

  A new section 29A is inserted in the IBC by the Ordinance which bars certain persons to submit a resolution plan or be resolution applicant. Section 29A makes certain persons ineligible to be a resolution applicant, including wilful defaulters, those who have their accounts classified as Non-Performing Assets (NPA) for a year or more. Section 29A reads as follows:

  “A person shall be ineligible to submit a resolution plan if such person, or any person acting jointly with such person, or any person who is a promoter or in the management or control of such person,-

• is an undischarged insolvent;
• is a wilful defaulter in accordance with the guidelines of RBI issued under the Banking Regulation Act, 1949 (for short “BR Act”);
• whose account is classified as NPA in accordance with the guidelines of the RBI issued under the BR Act;
• has been convicted for any offence punishable with imprisonment for two years or more; or
• has been disqualified to act as a director under the Companies Act, 2013;
• has been prohibited by the Securities and Exchange Board of India (SEBI) from trading in securities or accessing the securities market;
• has indulged in preferential or undervalued or fraudulent transaction in respect of which an order has been made by the Adjudicating Authority under the IBC;
• has executed an enforceable guarantee in favour of creditor, in respect of a corporate debtor under Insolvency resolution process or liquidation under the IBC,
• Further, any ‘connected person’ in respect of persons mentioned above in clause (a. to h.), shall also be barred from submitting resolution plan and a “connected person” means:
• Any person who is promoter or in the management or control of the resolution applicant; or
• 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
• The holding company, subsidiary company, associate company or related party of a person referred to in above clauses (i) and (ii).
• Has been subject to any disability, corresponding to above clauses a. to i., under any law in a jurisdiction outside India.”

Section 29A disqualifies certain persons to be a resolution applicant and to submit a resolution plan. Section 29A as inserted by the Ordinance prohibits or bars the promoters/directors and guarantors, the holding company, subsidiary company, associate company or related parties of the corporate debtor/company undergoing an insolvency resolution process from filing resolution plans. This was needed to prevent the delinquent/errant promoters from regaining the control of the company facing insolvency proceedings by bidding in the resolution process thus, misusing the provisions of the IBC.

• NON-APPROVAL OF RESOLUTION PLAN SUBMITTED BY RESOLUTION APPLICANT INELIGIBLE UNDER SECTION 29A OF THE IBC BY COMMITTEE OF CREDITORS

• The Ordinance has amended Section 30 of the IBC and has included a proviso to Section 30(4). Sub-section 4 of Section 30 of the IBC originally provided for approval of resolution plan by Committee of Creditors, by vote of not less than seventy five percent of voting share of the financial creditors. The Ordinance has inserted a proviso to sub-section (4) of section 30 of the IBC, pursuant to which the Committee of Creditors shall not approve a resolution plan submitted prior to the commencement of the Ordinance by the resolution applicant ineligible under Section 29A.
• The ordinance also provides that the committee of creditors should ensure the feasibility and viability of a Resolution plan before approving it. Proviso to section 30(4) of the IBC is inserted to bring transparency and credibility to resolution plans. This proviso will weed out the resolution plans submitted by the unscrupulous element for their advantage and therefore, will bring credibility and fairness in the insolvency resolution process.
• The proviso of section 30(4) has retrospective effect and will be applicable to the resolution plan submitted by the Resolution applicant ineligible under Section 29A, prior to the Ordinance.

• BAR ON SALE OF IMMOVABLE/MOVABLE/ACTIONABLE CLAIMS OF THE CORPORATE DEBTOR TO INELIGIBLE RESOLUTION APPLICANT

• The ordinance has amended section 35 of the IBC and has inserted a proviso in Section 35(1)(f). Section 35 of the IBC states the power and duties of the liquidator in case of liquidation of the corporate debtor. The clause (f) of the sub-section (1) of Section 35 states that the liquidator shall have the power to sell the immovable/ movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract.
• The proviso introduced by the Ordinance in Section 35(1)(f) of the IBC, bars the liquidator appointed under Section 34 of the IBC to sell the immovable/movable property or actionable claims of the Corporate debtor in liquidation to any person who is not eligible to be a resolution applicant as per the IBC.
• The proviso to clause (f) of Section 35(1) ensures that the liquidator also ensures that the satisfaction of the criteria for being eligible as a resolution applicant is met before sale of any property, which belongs to a corporate debtor is made under the IBC. This proviso prevents the sale of immovable/movable property or actionable claims of the corporate debtor to unscrupulous, undesirable persons and prevents the ineligible resolution applicants to participate in the liquidation process. This proviso also safeguards the property of the corporate debtors and prevents misuse of corporate funds, thus, safeguarding the interest of all stakeholders.

• PUNISHMENT WHERE NO SPECIFIC PENALTY OR PUNISHMENT IS PROVIDED UNDER THE IBC

• The ordinance has inserted a new section 235A in the IBC which provides for a fine, which shall not be less than one Lakh rupees, but, which may extend to two Crore rupees, to person who contravenes any of the provisions of the IBC or rules or regulations made under the IBC, for which no penalty or punishment is prescribed under the IBC.
• Section 235A of the IBC makes provision for fine for strict compliance of the IBC and its rules and regulations. Section 235A will have a deterrent effect and will ensure compliance of the provisions of the IBC.