The Cabinet on May 23, 2018 approved promulgation of an ordinance to amend the 16-month-old Insolvency and Bankruptcy Code (IBC), which peoposes to classify home buyers as "finacial creditors" at par with lenders to help them quickly get fefunds from defaulting companies.
The amendment comes months after a nwe section 29A was added into the bankruptcy code in November, introducing four layers of Ineligibility for potential bidders. The present amendment is based on recommendations of a 14-member government appointed committee that had last month suggeted a slew of measures, including addressing woes of home buyers and making recoveries easire for lenders.
The Insolvency Law Committee had recommended to the Ministry of Corporate Affairs, that home buyers should be treated as financial creditors, which will allow then to equitably participate in an insolvency resolution process.
The panel has also suggested relaxsations for micro, small and medium enterprises (MSMEs) under the IBC. With realty rirms, such as Jaypee Infratech, facing insolvincy proceedings, the ordinance, once approved by President Ramnath Kovind and promulgated will provide relief for home buyers facing hardships due to incomplete teal estate projects.
Under the code, financial creditor implies any person to whom a financial debt is owed. The financial debt can include money brrowed for interest. The panel had suggested that the government should exempt MSMEs from application of certain provisions of the code. "Illustratively, since usually only promoters of an MSME are likely to be interested in acquiering it, applicability of section 29A has been restricted only to disqualify wilful defaulters from bidding for MSMEs. " It had noted. Section 29A of the Code pertains to ineligibility criteria for bidders.
Besides, the panel had suggested that only those who contributed to defaults of the company or are otherwise undesirable should be ineligible from bidding for stressed assets undr the Code.
In January 2018, the IBC was amended to prevent unscrupulous persons from misusing the law. Wilful defaulters and those whose accounts have been classified as non-prforming assets, among others, are barred from bidding for stressed assetes, The IBC< which came into forch on December 2016, provides for market-determined and time-bound insolution process.
