Around 400 cases of default, including 11 of the dozen large bad loan accounts of banks identified by the Reserve Bank of India, have been admitted by various National Company Law Tribunal (NCLT) benches under the Insolvency and Bankruptcy Code (IBC), 2016, reflecting a growing confidence in the nascent regulatory framework. The Insolvency and Bankruptcy Board of India (IBBI), the regulator that just turned one on October 1, has created an impressive ecosystem with 1,000 registered insolvency professionals (IPs), three insolvency professional agencies (IPAs), 40 insolvency professional entities (IPEs) and one information utility. Of the 400 cases admitted, two cases (including Visakhapatnam-based Synergies-Dooray Automotive ) have so far been resolved so far and six others have gone for liquidation. Resolution takes time, as the IBC provides for wrapping up the process in 180 days from the date of the admission of an application by the adjudicating authority.
Such fast evolution of a new regulatory apparatus is rare in India, certainly in an area that is considered abstruse globally. Separately, to adjudicate matters, 12 benches of the NCLT have been set up by the government across the country in the past one year. The NCLT’s mandate includes hearing cases that were dealt earlier by the Company Law Board under the Companies Act, 2013, in addition to cases under the IBC.
IPs take on the important roles of resolution professionals or liquidators or bankruptcy trustees in the insolvency processes. IPEs are those firms with a majority of partners or whole-time directors already registered as insolvency professionals. The IPAs selected by the IBBI are agencies floated by bodies like ICAI, ICSI and Institute of Cost Accounts of India, which act as front-line regulators and share the responsibility of regulating IPs with the main regulator IBBI.
An efficient ecosystem will also help improve India’s position in the ‘resolving insolvency’ parameter in the World Bank’s ease of doing business index in which its rank was as low as 136 last year, worse than its overall rank of 130th of 190 nations. When contacted, IBBI chairman MS Sahoo told FE that the very existence of the IBC will be a disincentive for debtors to default. “Going forward, the best use of the IBC will be not to use it at all. The inevitable consequence of a resolution process that a property and the management of a corporate debtor vests in a third party, who would bring in behavioural changes, is discouraging the debtors from committing defaults,” he said.
Since many of the 400 cases admitted so far have been dragging on for years much before the IBC was implemented and are, therefore, considered almost ‘dead’ by some analysts, the initial set of resolution results under the new law may not be very encouraging. However, once fresh cases of defaults regularly come up for being admitted, the resolution performance of the IBC will look much more impressive, analysts said. Commenting on it, Sahoo said, “The not-so-good results in the initial set of cases is no indication of the performance of the IBC.”
Noted insolvency lawyer Sumant Batra said: “IBBI has put in unprecedented efforts to implement the law effectively and it deserves full marks for mobilising stakeholders support. IBBI will go a long way, and could acquire status similar to Sebi if it has less government presence and more independent members on the board.” Currently, the IBBI board comprises four ex-officio members and three full-time members, apart from the chairman. Two part-time members could also be inducted on its board in the coming months, said a source.
The IBC subsumed many existing laws, including the Sick Industrial Companies Act, and become the overarching law to address corporate insolvency.
The IBC is aimed at the turnaround of stressed assets or, in case of liquidation, their quick monetisation. Secured creditors, including banks, are placed third in the preference order in case of any liquidation to receive the proceeds, after meeting the cost of resolution and workers’ dues.