The Indian Government’s ordinance barring wilful bank defaulters as well as those with non-performing assets (NPAs) accounts from bidding in auction of stressed assets has put the world’s largest steel producer ArcelorMittal and a host of other prospective bidders in a bind.

The ordinance amending the Insolvency and Bankruptcy Code (IBC) was aimed at putting in place safeguards to prevent unscrupulous persons, including promoters of defaulting companies, from misusing or vitiating the provisions of IBC.

However, certain provisions of the ordinance could adversely affect ArcelorMittal’s prospective bid for stressed steel assets such as Bhushan Steel, Bhushan Power & Steel and Essar Steel in trouble, reports Business Standard. It had in 2009 picked up a stake in Uttam Galva Steels, which was declared an NPA last September, and this could thwart its acquisition plans.

According to a new Section 29A of the IBC, a person shall not be eligible to submit a resolution plan if such person, or any other person acting jointly with such person, or any person who is a promoter or in the management control of such person, is insolvent. This prohibits promoters or sister concerns of companies with NPAs of more than a year from bidding for these companies.

ArcelorMittal is not alone, the new ordinance may result in the reopening of 100-150 cases with insolvency professionals beginning to verify whether the bidders do not violate any provision of the new ordinance. The Insolvency & Bankruptcy Board of India (IBBI) too has written to the insolvency professionals seeking a host of details on bidders.

Meanwhile, private equity players are upbeat about bidding for stressed assets. They expect to bag them at attractive valuations as the amended IBC has barred most promoters of the defaulting companies and many bidders from taking part in bankruptcy auctions.