IBC ordinance: Lenders may start taking pre-Covid unresolved cases to NCLT

Published: June 9, 2020 8:23 AM

As per June 7, 2019, circular of RBI, banks need to make 20% additional provisioning for unresolved cases, where 180 days have passed after signing the inter-creditor agreement (ICA). This additional 20% provisioning can be reversed, if banks decide to refer the case to NCLT.

The legal experts opined that IBC Ordinance is only applicable for companies impacted due to Covid-19.

By Ankur Mishra

Lenders may start dragging unresolved cases from before the Covid crisis to the National Company Law Tribunal (NCLT) on a case-to-case basis, as per the reading of the Insolvency and Bankruptcy Code (IBC) ordinance fineprint, sources close to development told FE. “As per amendments in IBC, the window for NCLT is open for unresolved cases before Covid-19,” a senior public sector bank official told FE. Banks will take a call on referring companies to NCLT on a case-to-case basis, he further added. The government on Friday notified an ordinance to suspend insolvency proceedings for up to one year against fresh default from March 25.

The legal experts opined that IBC Ordinance is only applicable for companies impacted due to Covid-19. L Viswanathan, partner, Cyril Amarchand Mangaldas, said, “It has been clarified that the suspension provision will not apply to defaults before March 25 and accordingly, even fresh IBC proceedings can be initiated for such defaults.” Similarly, Pooja Mahajan, managing partner and head, insolvency and restructuring at Chandhiok & Mahajan, said there is no blanket suspension of IBC proceedings. “This is the right approach and will be a big relief to the creditors where defaults exist prior to March 25,” she further added.

Ashish Pyasi, associate partner, Dhir and Dhir Associates, said , “The lenders may also prefer to resolve the cases outside the insolvency code, as not many bidders may come forward due to present economic conditions.” If resolution plan is not approved then they can be dragged to NCLT by the lenders due to higher provisioning norms, he further added.

As per June 7, 2019, circular of RBI, banks need to make 20% additional provisioning for unresolved cases, where 180 days have passed after signing the inter-creditor agreement (ICA). This additional 20% provisioning can be reversed, if banks decide to refer the case to NCLT.

The legal experts are, however, unhappy with IBC proceedings ‘ever’ not being allowed for Covid-19 defaults. “The Ordinance also states that IBC proceedings can never ‘ever’ be filed for defaults that occur during these 6 months or extended period, said Mahajan. This will deny creditors the right to initiate IBC proceedings even if subsequently the debtor is in a position to pay but chooses not to pay.

Makarand Joshi, partner, MMJC and Associates LLP, said that the amendment is ambiguous in terms of leaving the interpretation to the tribunal for those companies to voluntarily opt for IBC, in case such companies do not foresee revival and are on the verge of insolvency.

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