The Supreme Court today upheld the insolvency and bankruptcy law in its entirety. Under the law promoters of bankrupt firms have been banned from bidding for insolvent companies.

The apex court has rejected pleas seeking changes in IBC. The court today refuses the pleas to allow operational creditors’ parity with financial creditors.

A bench of India’s Supreme Court said a provision of the bankruptcy law that prevents founders from regaining control of the delinquent companies was legally valid.

This is seen as a big boost to clean credit culture. As per reports, this ruling will help recover Rs 1.8 lakh crore in FY19.

The verdict is a set back for founders of companies including Essar Steel Ltd. who had offered to clear all dues to regain control. Essar founders Shashi and Ravi Ruia bid was against Steel tycoon Lakshmi Mittal’s ArcelorMittal’s Rs 42,000 cr offer to the banks and a further 80 billion rupees of capital infusion into the company. The ruling comes days ahead of a pending verdict by bankruptcy court on Essar Steel case on Jan. 31 .

The IBC Amendment Act 2018, which replaced an earlier ordinance on Section 29A, debars loan defaulters from bidding for stressed assets.

The IBC, which triggered RBI’s February 12 circular bringing in the one-day default norm and abolishing the other debt resolution mechanisms, strikes at the root of the Rs 10 lakh crore NPA crisis even as it improved the creditor-debtor relationship.

Source : Financial Express