Not all insolvency rebids may be prospective cases

The expected relaxation in bidder norms under the Insolvency and Bankruptcy Code (IBC) could apply to rebids in existing cases, depending on the structure and format of those bids, the government clarified on Wednesday.

Also, the threshold to initiate individual bankruptcy cases could be raised from ~1,000 to ~10,000, under a proposed framework to be announced shortly. Corporate Affairs Secretary Injeti Srinivas told reporters that if structure and formats of bids in corporate insolvency were different from earlier ones, it would be taken as a prospective case. “If the format has changed, it is not the same bid,” he said.

If these are similar to earlier ones, these would be taken as retrospective cases, he said on the sidelines of a Confederation of Indian Industry event.

What is that structure and format might be open to interpretation, experts said.

A panel headed by Srinivas had recommended relaxing the rules on bids from what are defined as related parties and connected persons, but only prospectively. Insolvency cases such as that of Essar Steel are grappling with the issue of rebids. However, the panel’s recommendations are yet to be accepted by the government; the IBC would then have to be amended by Parliament.

Srinivas said where resolution plans have been already submitted, those should not be affected by the changes, even if yet to take effect.

He defended the committee’s proposals, saying it was never an intention of the government to bar all promoters. Earlier, the government had inserted Section 29 (A) to the Code, barring defaulting promoters, related parties and connected persons of defaulting entities from bidding for a company. Against the backdrop of various ongoing insolvency cases, he said, “We are observing the developments.”

Regarding the Binani Cement matter, where the National Company Law Appellate Tribunal has asked the parties in dispute to amicably settle it, Srinivas said it was not the intention of the government to interfere with an ongoing process where a quasi-judicial body and an empowered body were looking at a live case. “But, we have to respond to emerging challenges... the ultimate objective is to rescue the company,” he added. He said the strength of the National Company Law Tribunal (NCLT) would be doubled shortly.

To a query on whether the government might opt for an ordinance to amend the IBC, Srinivas said the competent body had to decide.

The government would take a call on the panel’s recommendations on “how many are essential, (how many) are not necessary and (how many) are desirable but (there is) no urgency”.

Noting there are at least 50 million micro, small and medium enterprises (MSMEs), he said there could not be a “one-size-fits-all” system. The committee had recommended relaxing the conditions for promoters of SMEs. Only wilful defaulters will not be allowed to bid for these. Srinivas said rules for individual insolvency would be notified shortly. It would first come for corporate guarantors, then for partnership firms and finally for individuals. Unlike NCLT, it is debt recovery tribunals which will decide these bankruptcy cases.

Srinivas said almost 16,000 cases were disposed by NCLT benches in the past one-and-a-half years. All were not insolvency ones.