Proceedings under IBC: Bankruptcy filing picks up to deal with mounting bad loans

The number of cases under the Insolvency and Bankruptcy Code 2016 went up to 87 in June, compared with 7 in January. On a quarterly basis, 202 cases were admitted in April-June as against 35 in January-March, as per data from NCLT benches

Written by Sunny Verma | New Delhi | Updated: July 18, 2017 7:03 am
According to data analysed till June-end, a total of 129 corporate insolvency applications were admitted with the Mumbai bench of the NCLT, while 58 applications have been filed with three benches of the NCLT in Delhi. Illustration: C R Sasikumar

Within seven months of the final insolvency rules kicking in under the Insolvency and Bankruptcy Code 2016 (IBC), over 237 applications have been filed by financial creditors against defaulting companies for initiating corporate insolvency resolution process and admitted in various benches of the National Company Law Tribunal (NCLT).

According to data analysed till June-end, a total of 129 corporate insolvency applications were admitted with the Mumbai bench of the NCLT, while 58 applications have been filed with three benches of the NCLT in Delhi. Ahmedabad bench of the NCLT accounted for 15 insolvency applications, while seven cases were admitted with the Allahabad bench.

Notwithstanding the focus on 12 large accounts that the Reserve Bank of India (RBI) has advised for being referred for resolution under the IBC, the data from the NCLT benches at 10 locations show the rising pace with which financial creditors and companies are filing for insolvency resolution under the new bankruptcy law that was enacted only last year.

From admission of seven cases under the IBC in January by various NCLT benches, the number has now gone up to 87 in June. On a quarterly basis, 202 cases were admitted in April-June, as compared with 35 in January-March, according to data collated from NCLT benches at 10 locations. The cases have been filed by financial creditors such as banks, asset reconstruction companies, non-banking finance companies as well as companies or corporate debtors themselves.

The 10 NCLT benches are in New Delhi, Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai, with each of these having jurisdiction over multiple states. The 12 troubled companies being referred to NCLT by the RBI — including Jyoti Structures, Bhushan Steel, Monnet Ispat and Electrosteel Steels, Amtek Auto and Era Infra Engineering — account for a combined debt of around Rs 2.5 lakh crore.

As regards the non-performing accounts other than the large 12 cases, the RBI’s internal advisory committee suggested that banks should be required to file for insolvency proceedings under the IBC for these accounts in case banks are unable to agree upon a viable resolution plan within six months. The government is expected to increase the number of NCLT benches in order to deal with enormity of loan default cases, while analysts expect the pace of insolvency applications to gather pace going forward.

Analysis of the data suggests that IBC is being used not only by financial creditors, such as banks, but also by companies or corporate debtors increasingly. Under Section 7 of the IBC, a financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process, while Section 10 of the IBC allows a corporate debtor who has committed a default to file an application for initiating resolution.

The Adjudicating Authority is required to ascertain — from the records of an information utility or on the basis of other evidence furnished by the financial creditor — the existence of a default within 14 days from the receipt of such an application. With roughly one lakh cases pending in across various debt recovery tribunals, the bankruptcy law will aid the process of resolution of corporate debt under stress.

The gross NPA of banks has risen to 9.6 per cent in March 2017 from 9.2 per cent in September 2016, as per the RBI data. The stressed advances ratio declined marginally from 12.3 per cent to 12 per cent due to fall in restructured standard advances, especially in agriculture, services and retail sectors, the data showed.

Some of the cases with NCLT benches:

Roofit Industries

It filed for corporate insolvency under Section 10 of the IBC, disclosing that a sum of Rs 451.63 crore is payable to financial creditors, Rs 20.50 crore to operational creditors, Rs 91.32 lakh as unpaid dividends, Rs 24.82 crore towards duties and taxes. The total liability of the company is Rs 498.74 crore. The company disclosed that 20 financial creditors have filed cases before debt recovery tribunal, Mumbai, for recovery of amount due to them. In its order pronounced on June 28, the Mumbai bench of NCLT admitted the application and appointed advocate Jitendra Kumar Jain as the Interim Resolution Professional.

Bank of India vs Tirupati Infraprojects Pvt Ltd

Tirupati Infraprojects Pvt Ltd took loan for the construction of a hotel and shopping complex on a land acquired from the Delhi Development Authority. The term loan sanctioned by the lenders’ consortium was Rs 300 crore. Default in repayment despite restructuring the repayment schedule led to Bank of India approaching Tribunal under Section 7 of the IBC. The total defaulted amount is claimed to be over Rs 109.32 crore. The petition filed by Bank of India was admitted by Delhi NCLT’s principal bench on July 3, 2017, and Anil Kohli was proposed as an Interim Resolution Professional.

Reliance Commercial Finance Ltd vs Ved Cellulose Ltd

Reliance Commercial Finance Limited approached the Delhi bench of NCLT for the initiation of corporate insolvency process against Ved Cellulose Ltd, which defaulted in loan repayment. The total outstanding amount as on March 31, 2017, stood at Rs 2.01 crore. The petition was admitted on June 30, 2017, after analysis of the accounts and documents placed by the financial creditor. For the purpose of initiating the insolvency process, Rakesh Wadhwa is appointed as the Interim Resolution Professional.

DBS Bank Ltd vs Edu Smart Service Private Ltd

An application was filed by DBS Bank Ltd under Section 7 of the Insolvency and Bankruptcy Code 2016 against Edu Smart Service Private Limited with the NCLT bench in Delhi. DBS Bank said the company defaulted on loan repayment of Rs 13.96 crore on May 1, 2017. The corporate debtor argued that they would be unable to pay the amount, owing to financial distress caused by default in payment by their customers. The petition was admitted on June 27, 2017, and Ritu Rastogi was appointed as the Interim Resolution Professional.

IDBI Bank Ltd vs Bhatia Global Trading Ltd

IDBI Bank Ltd filed a petition under Section 7 of the Insolvency and Bankruptcy Code 2016 for the recovery of Rs. 82.04 crore due on account of Bhatia Global Trading Ltd. The company, engaged in the trading of coal, had borrowed funds for its working capital requirements. It had also given irrevocable corporate guarantee for the financial assistance to Asian Natural Resources (India) Ltd. The bank said the debtor failed to pay the amount due despite repeated reminders. The petition was admitted under Section 7 (5) of the code by the NCLT Ahmedabad bench and the order was passed on May 23, 2017. Nitin Hasmukhlal Parekh is appointed as the Interim Resolution Professional.

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