NPA fix: Only 2 from RBI’s ‘Dirty Dozen’ resolved under IBC; what about others? Is the delay hurting?

By: |
Published: May 9, 2018 11:28:22 AM

On April 17, when the National Company Law Tribunal gave its nod for Vedanta’s takeover of the bankrupt Electrosteel Steels, it was a moment in the history as it was the fastest resolution of an NPA account -- thanks to newly-adopted Insolvency and Bankruptcy Code.

RBI in last June released the list ‘Dirty Dozen’ which constituted 25% of India’s total NPAs. (Image: PTI)

On April 17, when the National Company Law Tribunal gave its nod for Vedanta’s takeover of the bankrupt Electrosteel Steels, it was a moment in the history as it was the fastest resolution of an NPA account — thanks to newly-adopted Insolvency and Bankruptcy Code. Meanwhile, Tata Steel became the highest bidder for Bhushan Steel and is awaiting the final nod from NCLT.

Both accounts witnessed success within the 270-day deadline set under the new law. However, from Reserve Bank of India’s ‘Dirty Dozen’ list, other 10 are stuck at different stages and taking longer than stipulated time. And even as some analysts are worried about the pressure on an overburdened judiciary, some other say that the IBC law so far is doing well and whatever the roadblock it is facing, it will help clear the path for future resolutions with precedents in place.

The RBI in last June under its newly vested power released the list ‘Dirty Dozen’ — of the companies who were big corporate defaulters. These 12 companies constituted 25% of India’s total NPAs. While the deadline for 8 of the 12 accounts was on April 30, for other two between May 4 and May 6 and for one account March 31. There is only account with the deadline extended to mid-November. The reasons for the delay in resolutions are first, lack of bid; second, the strict Section 29A that bars wilful defaulters, defaulting promoters, and related persons from the bidding process; third, lack of judges.

While steel industry witnessed strong bids from a lot of leading companies, the two EPC (Engineering, Procurement, Construction) companies on the list, namely Lanco Infratech Limited and Jyoti Structures Limited, have seen limited bidding interest. The shipbuilding industry is another example of a sector plagued with sector-specific issues, according to ICRA.

In case of Essar Steel, the only two bids submitted by Lakshmi Mittal’s ArcelorMittal and Numental, were rejected as they were found ineligible under the IBC law. However, later when challenged in insolvency court, it was declared that the due process was not followed, and the resolution professional and Committee of Creditors of Essar Steel were asked to reconsider the as per the process laid down in the IBC law. “It’s a new law. There is no precedent here. It’s okay if we are facing a little delay. It is still better than earlier processes that used to take 4-5 years for resolution,” Punit Dutt Tyagi of executive partner at Lakshmikumaran & Sridharan Attorneys said.

The other concern for the IBC law is that there are too many cases and fewer judges. The 10 benches with a combined 26 judges and technical staff are hearing more than 2,500 insolvency cases, according to Bloomberg. Based on the workload a year ago, researchers estimated India needs about 80 benches over five years. As the IBC law is getting international attention and even praises for streamlining the process of NPA resolution in the country, any failure could also have implications for large global investors, who are some of these bankrupt companies for themselves.

As India is pushing for ease of doing business and looking for the global business to invest heavily in India, even the Economic Survey 2018 warned of legal delays. “The next frontier on the ease of doing business is addressing pendency, delays, and backlogs in the appellate and judicial arenas,” the Economic Survey had said.

Expanding judicial capacity in the lower courts and reducing the existing burden on the High Courts and Supreme Court are important for India to attract investors, Chief Economic Advisor Arvind Subramanian said in the report.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Videocon loan: No action till probe on Chanda Kochhar
2Kudos to Modi’s digital push! Nouriel Roubini says India’s BHIM UPI is future of digital payments
3Fear is biggest obstacle for investors in taking over India’s bankrupt companies