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Asset Reconstruction Companies asked by RBI to deal with buyers with ineligibility criteria under Section 29 A of IBC

Asset Reconstruction Companies asked by RBI to deal with buyers with ineligibility criteria under Section 29 A of IBC

As per our reports, the Reserve Bank of India recently introduced the Fair Practices Code for asset reconstruction companies (ARCs) to deal with prospective buyers under Section 29A of the Insolvency & Bankruptcy Code, 2016. These Fair Practices Code will be periodically reviewed by the Insolvency & Bankruptcy Board of India to know if ARCs are complying with them. As per Section 29A of IBC, 2016, an insolvent, a wilful defaulter, or a person who was a promoter or was in the management of the Corporate Debtor, among other conditions, would not be allowed to bid for the insolvent company.

The invitation for participation in the auction for the bids shall be requested to be done by the public. The process should enable the participation of maximum number of prospective buyers. The terms & conditions of such sale by auction may be decided in consultation with investors in the security receipts as per the Securitization & Reconstruction of Financial Assets & Enforcement of Securities Interest Act, 2002 (SARFAESI Act, 2002).

As per the guidelines issued by the Central Bank, ARCs should maintain transparency & non-discriminatory practices while acquiring the asset. Arm’s length distance should be maintained by ARCs. ARCs shall release all securities on the repayment of dues or on the realization of the outstanding loan amount (yet to be paid), subject to any right or lien (charge) upon another claim which they may have against the borrower of the loan.

In case of any right of set-off of the loan amount, the borrower should be provided notice with full particulars about the remaining claims & conditions under which ARCs are entitled to keep the securities with themselves till a relevant claim is paid off or settled. ARCs should not harass the Corporate Debtor & should ensure that their employees have been properly trained to deal with customers in a suitable way.

These Fair Practices Codes have been introduced to achieve high standards of transparency & fairness in dealing with stakeholders. In the matter of recovery of loans, ARCs shall not cause any kind of harassment to the Corporate Debtor. It would also ensure that the Corporate Debtor is not subject to any harassment & its employees are trained properly.  


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