As the Insolvency and Bankruptcy Code (IBC) takes its course, the insolvency infrastructure will have to keep being ramped up, Bahram Vakil, founding partner at AZB & Partners and member of the Insolvency Law Committee, told Shritama Bose.
As the Insolvency and Bankruptcy Code (IBC) takes its course, the insolvency infrastructure will have to keep being ramped up, Bahram Vakil, founding partner at AZB & Partners and member of the Insolvency Law Committee, told Shritama Bose. There is no doubt that homebuyers must be fit into the hierarchy of creditors in relevant cases, he added.
What do you make of the progress and implementation of the IBC in its first year?
As it’s over a year, it’s gone much better than most of us expected and so far, so good. Crucially, the timelines are extremely strict, the 180- and 270-day periods, and all the tribunals — NCLT, appellate and thereafter the high courts and the Supreme Court — have been really timely. Even with regard to decision-making, a lot of very useful precedents have been set. For a new law, the precedents and case law that comes out in the first few years is very crucial.
Do you think the existing infrastructure, especially judicial, is sufficient to deal with the volume of cases we are seeing now?
No, I think we’ll have to keep matching the demand. It’s still very early days and we have another 20-odd large cases, apart from a multitude of medium and small cases. That is certainly one of the challenges that the infrastructure will face in every way, starting with the NCLT benches, infrastructure has to be scaled up so that we can keep to this timeliness. This is a key challenge, but the government is acutely aware of that. So hopefully they’ll keep ramping up the infrastructure. The government, in turn, ask us about insolvency professionals because you need a different set of skills for different industries, different sizes. We can’t be focused only on the big cases when more than 80% of our GDP and employment comes from the SMEs. Infrastructure, in general, certainly has to keep up.This is a very critical year because, hopefully in the first half, we’ll see the resolution of the big 12, then of the next 20-25 because even if it takes nine months, it’ll be by the end of this calendar year.
What would be an ideal way of fitting the homebuyer into the hierarchy of creditors?
That is under intense deliberation. No question that they have to fall within the group. So the question is, exactly where do you place them? The courts have also made it clear that there’s no question of them falling between the cracks. Right now, they are treated as the third category. IBBI also created a new form for homebuyers to file claims. The questions that have to be resolved are whether they are financial or operational, secured or unsecured. It’s a very complex issue because there is a whole different set of lenders also. Either through case law or a combination of case law and amendments, I am quite confident it will get sorted out.
Some bankers have said that the move to keep promoters out of the bidding process may affect the valuation of assets. What is your view?
That’s a more an economic or financial question, which is beyond my domain. But, we are not talking about all promoters, but defaulting promoters. If not the promoter makes the loan standard, then they are most welcome to join the bidding process. I think that is where the government took a very holistic view of things and the question of moral hazard and made a call, which it has every right to make. There has been a suggestion that the rule should be different for SMEs as there may not be too many bidders for their assets. I’ve certainly heard that from bankers. There may not be the same amount of appetite and interest. So I’m sure if you and me have heard it, the government has also been given these suggestions so maybe they will come up with some kind of threshold.
Anything you think should be done by regulators to enable efficient functioning of the law?
There’s again a whole bunch of stuff which is very well-recognised by the government. One of them was tax issues, especially for the big cases. One was MAT (minimum alternate tax), which they have already clarified. The other was deemed income, which they are also seized of, and maybe in the Budget or at some other stage, they’ll clarify that as well.
There were securities law issues as well. Some people wanted the companies to be delisted on the date of admission. I don’t think that is going to happen.