12.22       ndian     onom
       (viii) a person who has given guarantee on               1. Banks/FIs having 75 per cent of the dues
              a liability of the defaulting company                  owed by the borrower can collectively
              undergoing resolution or liquidation,                  proceed on the following in the event of
              and has not honoured the guarantee;                    the account becoming NPA:
         (ix) a person who is subject to any of the                   (i) Issue notice of default to borrowers
              above disabilities in any jurisdiction                      asking to clear dues within 60 days.
              outside India; or                                      (ii) On the borrower’s failure to repay:
          (x) a person who has a connected person                          (a) Take possession of security and/
              disqualified in any manner above.                                or
          The thrust of the Bill is to prevent a range                     (b) take over the management of the
     of undesirable persons from bidding for the                               borrowing concern and/or
     debtor. It may prevent promoters from bidding                         (c) appoint a person to manage the
     for their own firms. A resolution plan would                              concern.
     typically involve significant haircuts (price cuts in
                                                                    (iii) If the case is already before the BIFR,
     the market value of the assets) on the parts of the
                                                                          the proceedings can be stalled if
     financial and operational creditors. Thus, allowing
                                                                          banks/FIs having 75 per cent share
     a promoter to bid without restriction would
                                                                          in the dues have taken any steps to
     mean countenancing a situation where an owner,
                                                                          recover the dues under the provisions
     having driven a firm into insolvency, is now able
                                                                          of the ordinance.
     to purchase it back at a discount. This can lead to
                                                                2. The banks/FIs can also sell the security to
     a situation of moral hazard, where incompetent
                                                                     a securitisation or Asset Reconstruction
     or fraudulent promoters are effectively rewarded
                                                                     Company (ARC), established under the
     with the control of their company, leaving the
                                                                     provisions of the Ordinance. [The ARC
     creditors to write off their debts
                                                                     is sought to be set up on the lines similar
          The new code seeks to achieve a balanced                   to the USA, few years ago.]
     approach, enabling the CoC to avoid imprudent
     transactions, while preserving its freedom to
                                                              WIlFul deFaulter
     choose the best resolution plan from amongst
     all the applicants. The steps of the Government       There are many people and entities who borrow
     towards insolvency and bankruptcy process have        money from lending institutions but fail to
     been welcomed by the experts and entrepreneurs        repay. However, not all of them are called wilful
     alike.                                                defaulters. As is embedded in the name, a wilful
                                                           defaulter is one who does not repay a loan or
     sArfAesi Act, 2002                                    liability, but apart from this there are other things
     GoI finally cracked down on the wilful defaulters     that define a wilful defaulter. According to the
     by passing the Securitisation and Reconstruction of   RBI, a wilful defaulter is one who–
     Financial Assets and Enforcement of Security Interest      (i) is financially capable to repay and yet
     (SARFAESI) Act, 2002.                                           does not do so;
          The Act gives far reaching powers to the             (ii) or one who diverts the funds for purposes
     banks/FIs concering NPAs:                                       other than what the fund was availed for;