The changes may relax the ‘connected party’
The government may tweak Section 29A of the Insolvency & Bankruptcy Code (IBC) to expedite resolution cases to also ensure that banks recover much of the amount lent as possible.
The changes will include a relaxation in the ‘connected person’ criteria. The government may also look into demands to let promoters of defaulting companies bid for the assets, but with riders.
“It is going to be amended and there will be some dilution in Section 29A. The changes could come in before General Elections in April and May,” an executive told Moneycontrol.
What’s Section 29A all about?
Section 29A prevents promoters of defaulting companies from bidding for stressed assets.
The Section impacted some of the biggest resolution cases, including Essar Steel. ArcelorMittal had to pay Rs 7,000 crore to clear dues of Uttam Galva Steels, the defaulting company in which the steel major had bought a stake. After clearing the dues, ArcelorMittal’s bid for Essar Steel was deemed eligible.
“The introduction of Section 29A was a surprise. Its intention was right, as a promoter, who may have derailed the company, shouldn’t be able to get back control at a significant haircut for banks,” said Babu Sivaprakasam, Partner, Economic Laws Practice.
But there have been demands to relax the ‘connected party’ criteria, which also bars relatives and other people deemed ‘connected’ to the defaulting promoter.