Ordinance may lead to more litigation

Suresh P Iyengar Mumbai | Updated on January 09, 2018

The banking sector will be a major loser as the ordinance would reduce the number of bidders and minimise the scope for finding the right price for stressed asset

The entire process of resolution for the stressed assets through Insolvency and Bankruptcy Code is set to face legal tussle with the new ordinance passed by the President banning promoters of the sick company and large section of the business community from bidding for sick companies.

The new ordinance bans promoters of the company whose accounts have been non-performing for a year and who have not settled overdue amounts on the account besides keeping away the wilful defaulters.

Alok Dhir, a Chartered Accountant and Managing Partner of legal firm Dhir & Dhir Associates, said the ordinance can be challenged in the court of law on the grounds of unreasonable classification of bidders without proper justification.

The banking sector will be the major loser as the ordinance would reduce the number of bidders and thus minimise the scope for finding the right price for stressed asset through competitive bidding, he added.

Read: President signs Ordinance to amend Bankruptcy Code

Recently, SEBI classified three lakh entities as shell companies and the promoters, directors and relatives of these companies will now not be allowed to bid for the stressed asset, he said.

“What wrong have the relatives of these companies have done to disqualify themselves for buying these stressed assets? It is clearly an over reach of the government in classification of malafide and bonafide intention of the promoters,” said Dhir.

Agreeing that the 12 large stressed cases now being processed under IBC will go in for the 90 days extension, Mamta Binani, immediate past President of Institute of Company Secretaries of India, said the process for conducting forensic audit takes time, but it would ease the process for the new cases being referred to NCLT.

Of late, State Bank of India and some of the PSU banks are asking for both the enterprise value and liquidation value to ensure that the asset is not sold for cheap, she said when asked about less competition leading to lower price for the stressed asset.

Pratip Chaudhuri, former Chairman, State Bank of India, said the ordinance has made it clear that the wilful defaulters do not take a back door entry to reclaim their asset at a lower cost.

“I do not think that promoters will be banned from bidding for various financial disputes with the regulator and their litigations against government agencies such as income tax and Central Bureau of Investigation,” he said.

Published on November 23, 2017

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