All members of the family of a defaulting promoter, including the extended one — spouse, children, nephews, nieces, grandchildren, great grandchildren, aunts, uncles — would now be barred from bidding for insolvent companies.
These cover both the paternal and maternal sides.
Directors of companies
and those who own more than 2 per cent stake in the defaulting company will also be treated as a related party.
Anybody who is part of the undivided Hindu family of the defaulting promoter is up for disqualification. This is defined under the law as consisting of all persons lineally descended from a common ancestor, including wives and unmarried daughters.
As such, related parties under the Insolvency and Bankruptcy Code have now been defined in sync with the Companies
The change was brought about by an ordinance.
As the ordinance is with prospective effect, most of the cases recommended by the Reserve Bank for insolvency resolution might not be reopened; the bidding process has been completed in these.
Earlier, the government had inserted Section 29A in the Insolvency and Bankruptcy Code, to prohibit the promoters of a company having bad debts of over a year and related parties from bidding for insolvent companies.
The new ordinance has added a 12th schedule to the Act. By doing so, the ordinance lists 26 Acts under which anyone booked for two years will be barred from presenting a resolution plan. These include the Reserve Bank of India Act, the Prevention of Money Laundering Act, the Central Excise Act, the Foreign Trade Act, the Air Act, the Sick Industrial Companies Act and the Water Act.