The coming year will likely see significant changes to the insolvency resolution regime for better operational efficiency and output, in a break from the slowdown seen in the past year.
The insolvency and Bankruptcy Code (Amendment) Bill is expected to be tabled in Parliament early next year, to introduce group insolvency, and the laws needd to tackle cross-border cases, along with the creditor-led resolution process (CLRP). The Bill may also remove interim moratorium provisions for personal guarantors’ assets.
The CLRP would be similar to the pre-packaged scheme (for MSMEs), and will be initiated by the financial creditors, after the occurrence of default by the corporate debtor (CD), but with minimum interference of the adjudicating authority (AA).
Going forward, experts say the changes suggested in the IBC by the MCA in its discussion paper, dated January 18, 2023, should be brought in as quickly as possible.
Siddharth Srivastava, partner at Khaitan & Co said that the proposal for increased reliance of information utilities for admission of CIRP applications, introduction of project wise insolvency in law, mandating use of challenge mechanism, provisions for group insolvency should be introduced soon.
In fact, the past year saw a slowing of the pace of insolvency resolution, which could have also had an adverse effect on the objective of maximisation of the value of stressed assets recouped. As on March 2024, corporate insolvency resolution process (CIRP) took an average of 680 days to be concluded, according to data from the Insolvency and Bankruptcy Board of India (IBBI). As it came to April-September 2024, the CIRPs required 841 days on an average to be concluded. This was even as the IBC norm that the CIRP should be completed in 330 days. There is also the issue of dilution, if not digression, from the basic tenet of the code, due to the rulings by some benches of the National Company Law Tribunal (NCLT).
The situation has drawn the ire of the top court. In its latest ruling on Jet Airways case, the Supreme Court said that the current state of affairs of the NCLT and the NCLAT cannot be permitted to continue interminably as it “defeats the very object and purpose of the provisions of and timelines” under the IBC. Timely resolution of insolvency cases is vital for sustaining the effectiveness and credibility of the insolvency framework, added the SC. “Therefore, concerted efforts and decisive actions are imperative to break the deadlock and ensure the expeditious implementation of the resolution plan.”
Inadequate strength of the tribunals is a serious constraint. According to sources, the NCLTs benches may increase to 30 from 16 at present, and the member-strength (both judicial & technical) may rise to 115 from 63, by next year.
Kalpit Khandelwal, partner, Aekom Legal said: “Robust digital infrastructure for case management and virtual hearings is critical to reduce procedural delays. Strict adherence to statutory timelines should be enforced, coupled with penalties for unjustified delays by stakeholders.”
According to an IBBI newsletter, the total number of resolutions approved by NCLT in FY25 is 124, with a recovery of 19.9% of total admitted claims. In FY24 and FY23, 269 and189 CIRP resolution plans were approved, respectively. And the respective recovery rates stood at 27% and 36%.
In the meantime, however, to improve efficiency of the CIRP, the IBBI in 2024 has been proactive in bringing in multiple amendments to the regulations, and in proposing several tweaks in them through various discussion papers.
According to Anjali Jain, partner, Areness, tweaks (in regulations) such as invitation for project-wise resolution plan in real estate insolvencies, guidelines for committee of creditors (CoC), ratification of insolvency resolution process costs, and streamlining changes in forms, compliances and disclosures etc., elucidates the IBBI’s intent to “improvise the IBC process dynamically”.
“The government should ensure better enforcement of IBBI Guidelines on the CoC, so that there is fairness, reasonableness and transparency in the decision making process by the COC,” said Piyush Agrawal, partner, AQUILAW. “However, at the same time, ensure that such an edict of legislation does not interfere with its commercial wisdom.”
Moreover, the regulator has proposed voluntary mediation for operational creditors (OCs), inclusion of land authorities as participating members in the CoC of real estate companies, review of auction framework under the liquidation regulations, and management of ‘Corporate Voluntary Liquidation Account’ directly by the IBBI.
The voluntary mediation route for OCs is likely to significantly cut down the workload on NCLTs, and thereby speed up the resolution process of many cases, say analysts. “The OCs are using IBC more like a recovery mechanism. Once the voluntary mediation procedure is introduced, the OC cases will reduce to a large extent, which will consequently stop choking the NCLTs (National Company Law Tribunals),” Ministry of Corporate Affairs’ Joint Secretary Anita Shah Akella had said in November.
The mediation process, as per the IBBI, would allow the OCs to exercise the option of mediation before filing insolvency applications under the Section 9 of the IBC, the provision which allows OCs to initiate CIRP against a corporate debtor (CD) over non-payment of dues. Also, as proposed, the mediation exercise will be time-bound and take place as per the process prescribed under the Mediation Act, 2023.
Meanwhile, in 2024, some key cases resolved by NCLT included: Era Infra Engineering, were the claim amount was Rs 21,946 crore, and realizing amount was Rs 2091 crore; Lanco Amarkantak Power, having admitted claim of Rs 15,636 crore, with lenders realizing Rs 4,101 crore; and Coastal Energen, where the lenders realised Rs 3,336 crore, that’s 27% of the amount claimed.