The Reserve Bank of India (RBI) on Tuesday listed out 12 non-performing asset (NPA) accounts, which account for nearly Rs 1.75 lakh crore of NPAs in the banking system, for insolvency procedure. M S Sahoo, chairman, Insolvency and Bankruptcy Board of India (IBBI), told The Indian Express that the next step in the procedure calls for State Bank of India (SBI) to file an application with the National Company Law Tribunal (NCLT). While this task comes as an additional responsibility for NCLT, Sahoo said that there is a thinking within the government to increase the number of benches and there is also a possibility that they may have dedicated benches for insolvency cases. Edited excerpts:
While the RBI has listed out 12 NPA accounts for insolvency procedure, what is the next step?
Now, State Bank of India will have to file an application with NCLT stating that the company had been given loan and it defaulted. Once NCLT is satisfied, it will admit it and appoint an interim insolvency professional recommended by the bank. The Code permits 180 days for completion of corporate insolvency resolution process with an extension of 90 days in case it is required. However, first the application has to come to NCLT.
What is the complete procedure to be followed?
In the case of any default of Rs 1 lakh or more, firstly either a debtor himself or a creditor has to make an application to the National Company Law Tribunal providing the evidence of default and the NCLT has to be satisfied that there has been a default. Once it is satisfied, it passes an order stating the application has been admitted. Since the application has to accompany the name of an insolvency professional, NCLT appoints that professional as the interim insolvency professional for one month as the name has been provided by the applicant. Within one month, the resolution professional takes over the company as the promoters go out and the board of directors gets suspended. He becomes the de facto MD (managing director) and the current management of the company reports to him. In addition, he also makes a public announcement inviting claims from people to whom the company owes money. Once the claimants come, he makes a list of claimants and forms a Committee of Creditors (CoC) which gets the real authority and decides whether to continue with the interim professional or get a new one. All this has to happen within a month.
What after this?
The professional runs the company with the approval of CoC on major decisions. He also prepares a memorandum inviting resolution plans and circulates it among stakeholders. The CoC has to approve the resolution plan within 180 days with 75 per cent majority. The resolution plan is then submitted again to the NCLT for approval which approves it after checking if the due process was followed and the required majority for there for the plan.
On the other hand, if the committee of creditors feel that a resolution plan is not workable in the case of the specific company or if it does not pass the resolution in 180 days time, then the company goes for liquidation.
Do you think NCLT will be able to handle this additional task?
As regards with NCLT, there are 11 benches now and there is a thinking within the government to increase it further. The government is concerned that things should move faster (on NPA resolution) and so if there are more cases, they will have more benches. There is a possibility that they may have dedicated benches for these cases.
Is the overall infrastructure geared up for insolvency proceedings?
There are four pillars of the institutional infrastructure responsible for implementation of the Insolvency and Bankruptcy Code. The first one is the adjudicating authority — the National Company Law Tribunal and its appellate tribunal that deals with the corporate part and the Debt Recovery Tribunal and its appellate tribunal that would deal with individual insolvency and bankruptcy. While we have not yet work on individual insolvency and bankruptcy, the corporate part is almost operational. The second pillar is which has the responsibility of developing and regulating the profession of insolvency professionals and regulate the Insolvency Professional Agencies. The third pillar is the insolvency professionals themselves and we have sufficient professionals already registered. The fourth pillar is the information utilities and that is one piece that has not yet materialised.
Are there a sufficient number of insolvency professionals or is it an issue?
While we have to build their capacity as we are in urgent need, we allowed company secretaries, chartered accountants, cost accountants and advocates with 15 years of practice experience to get as insolvency professionals. We opened the registration for a month between November and December, and 977 persons registered with us. While such registrations were only valid for six months, they will expire by July end. We have, however, also initiated the process of lifetime registrations and for that, company secretaries, chartered accountants, cost accountants and advocates with 10 years of total experience (practice or employment) and graduates with 15 years of managerial experience — have to take an online examination. As of now, we have 350 insolvency professionals registered in this category and the number of people taking the examinations is only going up.
While information utilities are not in place, how will the process get completed in the absence of evidence of default?
It is true that the information utilities are entrusted with the task of providing evidence of default and provide accurate and authentic information expeditiously so that the transactions can move swiftly. However, even in the absence of information utilities, there are other evidences that can prove the default. For example, when a bank is recovering its money, the banker’s book itself is considered evidence. So, you are allowed to use other options also for establishing default.