Bar on wilful defaulters not a moral issue, says IBBI chief MS Sahoo

Keeping out wilful defaulters from bidding for stressed assets is not a "moral issue", but a choice between certainty and uncertainty, IBBI Chairperson M S Sahoo has said.

His comments come against the backdrop of the government, through an ordinance last month, barring wilful defaulters from bidding for stressed assets under the Insolvency and Bankruptcy Code (IBC).

The government will be introducing a Bill to replace the ordinance this week in Parliament.

Asked whether barring wilful defaulters would narrow the universe of bidders for the stressed assets, the IBBI chief replied in the negative.

"If we keep undeserving people out of the system, it is not a moral issue," Sahoo told PTI in an interview.

The Insolvency and Bankruptcy Board of India (IBBI) is implementing the Code, which came into force late last year.

Noting that such a move does not narrow the universe of bidders, Sahoo said the issue of wilful defaulters is an economic issue, "which we call moral hazard".

"The choice is between certainty and uncertainty. Do we go with a person who has a credible record and is likely to deliver or go with a person who does not have a credible record and is unlikely to deliver?" he said.

The ordinance aims at putting in place safeguards to prevent unscrupulous people from misusing or vitiating the provisions of the IBC, the government had said in a statement last month.

"The amendments aim to keep out such persons who have wilfully defaulted, are associated with non-performing assets, or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company," it had said.

The ordinance to amend the Code was issued amid concerns that a defaulting promoter could wrest back control of the company that is under insolvency even as banks take a hit on the loans.

Nearly 500 corporates have been admitted for resolution and about 100 companies have commenced voluntary liquidation under the Code.