Buyers of stressed assets might soon get an exemption from paying the minimum alternate tax (MAT), and the need for getting approval from fair-trade watchdog the Competition Commission of India (CCI).
A government-appointed committee is planning to recommend amendments to the Insolvency and Bankruptcy Code (IBC) to make this happen. This is being done keeping in mind the urgency of these transactions, and it would help the ongoing insolvency cases, including the 12 accounts referred by the Reserve Bank of India (RBI) to banks. These accounts include Monnet Ispat, Essar Steel, Bhushan Steel, and Electrosteel Steels.
Every merger and acquisition in India requires the CCI’s approval. This is essential to ensure companies do not abuse their dominant position in a sector.
Competition lawyers said exempting buyers of stressed assets from the competition law would be a double-edged sword. Doing away with the approval process completely might lead to one player exploiting its dominant position in the market; at the same time, delay because of the approval process can be avoided.
The Securities and Exchange Board of India (Sebi) has already exempted these companies from open-offer, even if it crosses a threshold. Companies buying these assets need not make an open-offer, which is mandatory for other listed companies above a threshold. Any entity acquiring at least 25 per cent in a company has to make an open offer for another 26 per cent.
So far as exemption from the MAT is concerned, this may be done by modifying tax liabilities for companies acquiring such assets, somewhat in line with the provisions of the Sick Industrial Companies Act (Sica). The Sica norms give relief to sick companies from paying the MAT; those taking over insolvent companies may also get an exemption from this tax.
Under the Sica, profit of a company when it is declared sick is reduced before arriving at the amount on which the MAT is to be charged. Also, when a portion of the debt of the insolvent company is written off, the gain for the acquirer is notional. Under the Sica, a concession from the MAT was provided under this.
The committee will also look at the position of homebuyers and where they will fit in the hierarchy of creditors, vis-à-vis the IBC.
A senior Ministry of Corporate Affairs official said, “We have the Real Estate Regulator Agency to protect homebuyers’ interest, while the IBC is meant to primarily to look after the interest of bankers. We need to figure out how homebuyers fit in our scheme of things.”
As things stand, the government’s position is that homebuyers will not be given the status of financial creditors, such as bankers and asset restructuring firms.
One of the biggest amendments made to the IBC was in the form of the recent Ordinance, which restricts wilful defaulters, those with or associated with a non-performing asset for more than a year, from placing bids for these stressed assets.
The government is planning these amendments at a time when the big 12 companies referred to the National Company Law Tribunal (NCLT) under the new insolvency code are nearing resolution. Starting January, insolvency resolution professionals will present plans for these companies to the NCLT for approvals.
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