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A few changes in some of the clauses of the Insolvency and Bankruptcy Code (IBC) — such as drawing a line between wilful defaulters and genuine promoters, and an auction system instead of a bid process — will go a long way in making the IBC more effective, according to industry experts.
They also suggest changes in Section 29 (A) clauses and sub-clauses that restrict relatives and connected parties from bidding for the assets due to a blanket ban on the defaulting promoters.
“IBC is a very good Act and is the right on for the revival of enterprises,” said Senior Legal Advisor of AK Mylsamy and Associates LLP, S Balasubramanian, who is a former chairman of the Company Law Board (CLB). “But the only concern will be the Section 29 (A) clause. There are many genuine promoters who would have defaulted due to market conditions. They would have undergone huge sufferings in the beginning and in the following years in building an enterprise, particularly an infrastructure company. So they should at least be heard or given a chance.”
“Promoters should also be involved in the assessment process because they will be able to point out the gaps. The committee of creditors, which mostly comprises bankers and outsiders, and resolution professionals, typically has no significant exposure to the industry. So these professionals should at least consult the promoters during the resolution process. Completely eliminating the promoters from the process is not the right thing,” he added.
Echoing his views, KK Balu, former vice-chairman of CLB, said the major objective of IBC is to maximise the value of assets and promote entrepreneurship. The objective is not to squeeze the entrepreneurs. “I think the purpose of Act is misused,” he added.
Referring to the the Binani Cement case, where an unsuccessful bidder made an attractive open offer outside the IBC process, Balasubramanian noted that when a third person offers a better deal, there should not be any objection. “I am of the view there could be an auction system instead of a bidding system,” he added.
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