Punjab firm files plea against new IBC norms

MUMBAI: Suman Jolly, managing director of Recorders & Medicare Systems Pvt. Ltd (RMS), has challenged the ordinance amending the Insolvency and Bankruptcy Code, becoming the first to question the rules that bar defaulting promoters and connected entities from bidding for their assets.

The Punjab-based firm’s managing director filed the challenge in the Punjab and Haryana high court, which on Friday issued a notice to the centre and posted the matter for hearing on January 25. RMS, which is primarily a manufacturer of medical equipment, has debt of around ₹100 crore. The company filed for insolvency in March and submitted a resolution plan for repaying lenders just before the ordinance was promulgated.

The ordinance has rendered the promoter and management ineligible to submit a bid for the company.

Jolly wasn’t immediately available for comment.

The firm has challenged the ordinance on grounds of retroactivity and the fact that it does not distinguish between ordinary and wilful defaulters.

“The ordinance does not distinguish between fraudulent and wilful defaulters and promoters who are genuinely interested in reviving their companies. While persons who are not credible must be excluded, every promoter cannot be assumed to be not credible,” said Pooja Mahajan, managing partner, Chandhiok & Associates, the law firm representing the petitioner.

“Further, the ordinance should not be applied to cases where resolution plans are in an advanced stage as it would lead to disruption and possible liquidation of companies,” she added.

On November 23, President Ram Nath Kovind promulgated the ordinance that bars not only wilful defaulters, but also several other categories such as guarantors to debtors, those with loans classified as non-performing assets for at least a year, those convicted of any offence with a prison term of more than two years, directors in companies that are disqualified, entities barred by the capital markets regulator, those who have been found to have struck fraudulent transactions with the firm, and connected entities.

The executive order allows promoters who have repaid their dues to bid for their assets.