India: IBC Amendments: Emerging Clarity On Bidding Norms

The Insolvency and Bankruptcy Board of India (the Board) has notified the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2017 and the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2017 on 7 November 2017 (collectively, Amendments) with identical amendments. The Amendments have put the onus on the Committee of Creditors (the CoC) to approve resolution plans which are viable and made by credible applicants to ensure that the resolution process protects and preserves the value of viable assets through a time bound resolution process under framework of Insolvency and Bankruptcy Code, 2016 (the Code). It is now incumbent upon the CoC to consider certain important details while handing over the reins of a corporate debtor under resolution process to new promoters or back to the existing management.

These Amendments have been introduced in the background of the recent learnings of the Board from the ongoing resolution cases under the Code and the growing debate amongst various stakeholders on the ability of the existing promoters / management to bid for their ailing companies.

The Amendments mandate the resolution plan to include the following details of the resolution applicant and other 'connected persons' to enable the CoC to reliably assess the credibility of each resolution applicant (and other connected persons) and to scrupulously weed out the ones with criminal backgrounds:

  • identity;
  • conviction for any offence, if any, during the preceding 5 (five) years;
  • criminal proceedings pending, if any;
  • disqualification, if any, under Companies Act, 2013, to act as a director;
  • identification as a wilful defaulter, if any, by any bank or financial institution or consortium thereof in accordance with the guidelines of the Reserve Bank of India;
  • debarment, if any, from accessing, or trading in, securities markets under any order or directions of the Securities and Exchange Board of India; and
  • transactions, if any, with the corporate debtor in the preceding 2 (two) years.

In relation to the aforesaid, 'connected persons' has been defined to mean (a) persons who are promoters or in the management or control of the resolution applicant, (b) persons who will be promoters or in management or control of the business of the corporate debtor during the implementation of the resolution plan, or (c) holding company, subsidiary company, associate company and related party of such persons. Therefore, to ensure meticulous scrutiny by the COC and to curtail backdoor/ shrouded entries in beleaguered corporate debtors, the diligence scope has been extended beyond the resolution applicant to its entire group and related persons.

Accordingly, the onus of the disclosure would be on the resolution applicants for ensuring that their plans be considered on merit by the CoC.

In addition to the aforesaid, the Amendments also prescribe that the resolution professionals should submit details of preferential, fraudulent, undervalued and extortionate credit transactions found or noticed by them along with the resolution plan for consideration by the CoC. The resolution professional is also required to provide to the CoC any orders of the National Company Law Tribunal (NCLT) in respect of such transactions.

Since the look back period for such transactions in corporate debtors under insolvency goes back to a period of 1 (one) year for unrelated parties and 2 (two) years for the related parties, this implies that the resolution professional will be required to take preventive measures to go back in the past to determine if any transactions fall in this category during the statutory look back period.


While the Amendments have prescribed the benchmark of criminality, failing which, the resolution applicant will not be eligible to be considered by the CoC, they do not place any bar on the existing promoters of the corporate debtor from submitting a resolution plan. It may also be inferred that since the resolution plan is now required to contain details of even existing promoters, the intent of the policy makers is clearly in favour of promoting competition with a view to achieve a viable resolution plan through an unbiased, rule based criteria instead of any unstated arguments around morality on the part of CoC in giving waivers/concessions to existing or new owners.

The Amendments certainly place the responsibility on the CoC to take a holistic and fully informed decision regarding the credibility of each applicant while choosing the capable hands to take over the affairs of the corporate debtor after creditors have made the necessary sacrifices at their end. This will go a long way in ensuring that the CoC is able to accurately evaluate and vote in favour of the most viable resolution plan which gives most value to the creditors. This certainly makes a public process even more transparent and robust, while offering equal opportunity to existing promoters and all the other interested resolution applicants.

While the resolution applicants may feel that their responsibility has increased on account of disclosure / investigation requirements cast on them through the Amendments, it is to be borne in mind that even the existing Reserve Bank of India regime which allows banks to deal with existing promoters prescribes the requirement of concurrent audit and has absence of wilful default as a pre-condition to restructuring. Accordingly, the Amendments only reiterate what was always part of the restructuring/resolution process and a good faith action of the resolution applicant would always be considered favourably by the NCLT in any adverse circumstances.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

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