President Ram Nath Kovind approved on Thursday an ordinance that will bar the country’s biggest defaulters from bidding for stressed assets that are part of bankruptcy proceedings.

The ordinance, issued by the government a day earlier, amends the new Insolvency and Bankruptcy Code (IBC) to tighten rules around who would qualify to participate in auctions to recover dues from failing companies.

The executive order has to be ratified by Parliament within six months. It bars wilful defaulters, borrowers with non-performing assets for a year and more and habitually non-compliant ones from bidding for such assets.

Any bidder accused of corporate fraud or found breaking rules under the companies act will also be barred. The changes also disqualify subsidiaries and even relatives of promoters of companies undergoing insolvency proceedings.

“The ordinance aims at putting in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code,” a government statement said.

The latest round of tweaks to the bankruptcy codes come amid reports that the promoters or main shareholders of some of the 12 biggest loan defaulters named by the central bank were trying to bid for and reacquire their assets that were being put through a possible discounted sale or eventual liquidation.

By removing a potential ambiguity around bidder’s eligibility, the government hopes to blunt any political campaign in upcoming state elections that it was going soft on defaulters.

In June, these 12 companies were ordered by the Reserve Bank of India to be forced into bankruptcy courts as part of efforts to cut a record Rs10-trillion in toxic assets in the banking system that chokes fresh lending.

In all, more than 300 cases have been approved by the National Company Law Tribunal (NCLT) for resolution under the bankruptcy code.

But government officials said the latest changes should not be seen as a blanket ban on promoters of companies who have been on banks’ non-performing account (NPA) list.

But insolvency experts disagreed.

“There are legal challenges to the amendments. It bans bona fide defaulters. There could also be foreign investors, so how do we decide their qualification for acquiring stressed assets,” asked insolvency expert Sumant Batra.

The move was welcomed by promoters looking to pick up stressed assets at a discount.

“Happy to see the government’s intent in moving swiftly towards streamlining and bringing credibility [and] transparency in the IBC process,” tweeted Sajjan Jindal, chairman and managing director of the JSW Group.

“This will facilitate healthy competition in maximizing value to lenders which is in public interest.”

Among the 12 defaulters named by the central bank in June were Essar Steel Ltd, Bhushan Steel and Electrosteel. Jindal’s company has expressed interest in picking up stressed steel assets.

Companies facing insolvency called the latest changes unfair, saying it encourages monopoly.

“Banks and industry will be the ultimate losers as competition is decimated [by] the ordinance,” said an executive at a steel company undergoing insolvency resolution. He did not wish to be identified as the matter is before the NCLT.

A second steel company executive concurred. “The ordinance will lead to only few players in the steel sector leading to bigger monopolies,” he said.