MUMBAI: The government has set up a screening committee to track the status of bankruptcy cases in which promoters are suspected to have siphoned off funds as it looks to crack down on such diversions, four people aware of the matter told ET.

The committee will check if there is fraud by communicating directly with the resolution professional (RP) in charge of the process so that prompt action can be initiated by the government. The government is excluding lenders as they may not be forthcoming with crucial information in certain cases, said the people cited above.

The screening committee includes additional corporate affairs secretary Anjali Bhawara and two-three members of the Insolvency and Bankruptcy Board of India (IBBI). The move is also aimed at preventing errant promoters fleeing the country, one of the persons said.

“We are asking the RPs to make presentations to the IBBI regarding any wrongdoing that they come across while executing the corporate insolvency process of a company,” he said. “This is being done through the mechanism of ‘avoidance proceedings’ where an RP can bring to light transactions of preferential, extortionate, fraudulent or unlawful nature.”

The concept of avoidance proceedings under Insolvency and Bankruptcy Code holds promoters responsible for carrying out transactions with an intent to defraud a firm that’s already in distress.

AVOIDANCE PROCEEDINGS

At least eight avoidance proceedings have been filed in the first 12 cases referred by the Reserve Bank of India to the bankruptcy courts two years ago, one of which has also been admitted. The Ministry of Corporate Affairs (MCA) estimates that at least Rs 1 lakh crore out of the total debt of Rs 3.5 lakh crore may have been siphoned off by promoters in these 12 cases.

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“In most cases, we found that banks were unwilling to raise the red flag due to investigative over-reach in the past,” a source said. “Now, with the help of the resolution professional, it is possible to take adequate action against fraudsters.”

The government wants “direct inputs” from the RPs so that they can have the “other side of the story” as well, according to one of the persons who was part of such a meeting.

“As more challenges keep surfacing in several insolvency cases, there seems to be a concern in the government that they are not getting timely information from the bankers,” he said. “While bankers are giving one side of the story, the government wishes to know directly from the RP the status report and if there is a corporate governance issue, well before time.”

The MCA secretary and Bhawara didn’t respond to queries.

At least three lenders including Punjab National Bank and Allahabad Bank have termed the total exposure of nearly Rs 5,500 crore to Bhushan Power and Steel, one of the 12 cases cited above, as fraudulent.

Jet Airways promoter Naresh Goyal and his wife Anita were recently offloaded from a flight to Dubai by the immigration authorities in Mumbai. A Serious Fraud Investigation Office (SFIO) investigation has been ordered into alleged irregularities in the grounded carrier, which has been referred to bankruptcy proceedings.

It has been nearly 800 days since the Reserve Bank of India ordered 12 loan accounts worth Rs 3.5 lakh crore to be taken to the bankruptcy courts. Banks have recovered more Rs 40,000 crore from three of them.

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