Committee’s Code report reviews effectiveness

The Insolvency and Bankruptcy Code, 2016 is about to witness significant amendments, if the government of India accepts the recommendations of the Insolvency Law Committee. The committee was constituted by the Ministry of Corporate Affairs to examine issues arising from implementation of the code, and it submitted its report on 26 March 2018.

The recommendations of the committee are wide-sweeping and extend from revisions to voting thresholds and disqualification criteria under section 29A of the code, to recommendations regarding treatment of homebuyers when a builder faces insolvency proceedings. They are summarized below.

Amendments to section 29A

Section 29A was introduced on 23 November 2017 through an ordinance, and has been a subject of scrutiny and litigation, specifically regarding the wide ambit of disqualifications.

The report recommends several amendments to section 29A to limit the scope of disqualifications, including: (1) deletion of reference to “any other person acting jointly or in concert with such person”; (2) exempting financial entities such as funds, asset reconstruction companies etc., from disqualification if they hold non-performing assets; and (3) exempting a financial entity from being disqualified if it has become a related party due to conversion of debt into equity in the past.

The amendments are expected to widen the pool of resolution applicants and result in increased competition.

Shardul S Shroff is executive chairman, Ambarish is a principal associate, and Roma Das is an associate at Shardul Amarchand Mangaldas