Cabinet Clears Ordinance for Amendments to Bankruptcy Code

The home-buyers will now be at par with lenders, enabling them to get refunds from defaulting companies.

2 min read

The Cabinet approved promulgation of an ordinance to amend the 16-month-old Insolvency and Bankruptcy Code (IBC), which proposes to classify home buyers as "financial creditors" at par with lenders to help them quickly get refunds from defaulting companies.

The amendment comes months after a new Section 29A was added into the bankruptcy code in November, introducing four layers of ineligibility for potential bidders.

The present amendment is based on recommendations of a 14-member government appointed committee that had last month suggested a slew of measures, including addressing woes of home buyers and making recoveries easier for lenders.


Briefing reporters after the meeting of the Union Cabinet, Minister for Law and Justice Ravi Shankar Prasad said, "It's a new legislation, the Cabinet has approved it".

He, however, refused to divulge further details citing constitutional provisions.

Asked if the Cabinet has cleared some relief measures for home buyers as per the recommendations of the panel, Prasad said, "An Ordinance, till it is approved by the President, I cannot speak about the details."

Ordinance Once Approved Will Provide Relief to Home-Buyers Facing Financial Strain

The Insolvency Law Committee had last month recommended to the Ministry of Corporate Affairs, that home buyers should be treated as financial creditors, which will allow them to equitably participate in an insolvency resolution process.

The panel has also suggested relaxations for micro, small and medium enterprises (MSMEs) under the IBC.

With realty firms, such as Jaypee Infratech, facing insolvency proceedings, the ordinance, once approved by President Ramnath Kovind and promulgated, will provide relief for home buyers facing hardships due to incomplete real estate projects.

Under the code, financial creditor implies any person to whom a financial debt is owed. The financial debt can include money borrowed for interest.

The panel had suggested that the government should exempt MSMEs from application of certain provisions of the code.

Illustratively, since usually only promoters of an MSME are likely to be interested in acquiring it, applicability of section 29A has been restricted only to disqualify wilful defaulters from bidding for MSMEs
The Panel

Section 29A of the Code pertains to ineligibility criteria for bidders.

Besides, the panel had suggested that only those who contributed to defaults of the company or are otherwise undesirable should be ineligible from bidding for stressed assets under the Code.

For withdrawal of resolution application in exception circumstances, the panel has suggested that in such cases, there should be approval from the Committee of Creditors (CoC) with ninety per cent of voting share.

In order to facilitate successful implementation of the resolution plan by the successful bidder, it has been proposed to allow one year time to obtain necessary statutory clearances from central, state and other authorities or such time as specified in the relevant law, whichever is later.
The committee 

In January, the IBC was amended to prevent unscrupulous persons from misusing the law.

Wilful defaulters and those whose accounts have been classified as non-performing assets, among others, are barred from bidding for stressed assets.

The IBC, which came into force on December 2016, provides for market-determined and time-bound insolvency resolution process.

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