The IBBI should consider the expansion of the committee of creditors (CoC) so as to take care of the dues of the unsecured and operational creditors, in particular, the workmen, according to legal professionals.
The Insolvency and Bankruptcy Board of India (IBBI) should consider the expansion of the committee of creditors (CoC) so as to take care of the dues of the unsecured and operational creditors, in particular the workmen, according to legal professionals. “The workmen have no role in the process of Insolvency and Bankruptcy Code (IBC). Operational creditors can participate in the meeting but have no voting powers. Operational creditors are the neglected area.
A business cannot run without operational creditors. Operational creditors are the brain behind the industry,” Justice Jinan KR, judicial member, National Company Law Tribunal (NCLT), told FE on the sidelines of an interactive session organised by Golden Antlers, an initiative of legal professionals.
The IBC legislation has been made essentially for the banks. There are cases where unsecured and operational creditors have been wiped out, Abhrajit Mitra, a senior advocate, said. Justice Debanshu Basak of the Calcutta High Court opined that the Government of India has liabilities worth Rs 6,000 crore and the law didn’t allow them to recover.
“The law will not succeed if the government and the workmen are neglected,” Justice Basak stressed. Pointing out the enormous haircut given to debtors, advocate Jishnu Chowdhury said banks are a happy lot even after taking a haircut so far as realisations are concerned. So far, banks have been able to realise 55% of their lending and they are happy to show them as their income.
“Bankers first make a provision of the NPA and as soon as a resolution happens, they show them as an income,” Chowdhury said, adding that of the Rs 76,000 crore recovered, the liquidation value of those assets are only Rs 18,000 crore, which means there are problems in valuation of assets. This may in the future lead the country to a recession, he said.
There are a number of grey areas in IBC where amendment has to be done, Justice Jinan observed. However, in case of a resolution, “We are getting more than double the liquidation value, which shows that the IBC has been able to maximise the value of assets,” Justice Jinan said. He felt that the introduction of Section 29A, dealing with the ineligibility criteria for submitting a resolution plan, has had a tremendous effect on the resolution process and that it has been welcomed by the business world. On appointing resolution professionals, Justice Jinan said an RP should be appointed taking into consideration the size of the company, the number of secured and unsecured creditors, workmen, so that the RP is capable of dealing with the dues of the creditors in a judicious manner and not being a puppet in the hands of the secured creditors. He should try and ensure justice for all.
Sudipto Sarkar, a senior advocate, felt that an RP should be able to deal with the corporate insolvency resolution process (CIRP) by his own competence and not by appointing solicitors to represent them before the tribunal, thereby increasing the CIRP cost. The code is meant for reviving the sick companies and saving them from going into liquidation.
“Fees of the RP should be capped so as to control the cost of CIRP,” Debanjan Mandal, partner, Fox and Mandal, said. According to Jayanta Mitra, former advocate general of the West Bengal government, the code brings in multiple forums like the Sick Industrial Companies Act (SICA), Debt Recovery Tribunal (DRT), Company’s Act under one umbrella and has been helpful in restructuring sick units.
The existence of multiple forms under various legislative acts were complicating the process of restructuring of NPAs and was a cumbersome tool for the stake holders to realise their claims. The IBC has helped in credit market development and ease of doing business. He said the legislation intends to provide employment to workers and give citizens a basic human life and decent standard of living but “the code should have been conscious of article 19(1)G of the Indian Constitution, which provides rights to all citizens to carry on any trade, legal in the eye of law, so as to protect the interest of workmen in a CIRP process,” Mitra said.
While it was a legislation for the secured creditors in the present form, the IBC should be careful that corporate debtors do not take advantage of the moratorium period allowed under the code. “Some unscrupulous businessmen have already ventured out into that,” Chowdhury said. “There should be more checks to make the code meaningful and adequate infrastructure— like increasing the number of benches and appointing more judges — needs to be in place,” Justice Jinan said.