Thursday, Sep 29, 2022

IBC Monitor, Part I: Legal challenges hold up progress in most cases

The Code provides for resolution process to be completed in 180 days, which can be extended by a maximum of 90 days.

Insolvency and Bankruptcy Code Monitor: Legal challenges hold up progress in most cases Bhushan Steel’s acquisition by a Tata firm only success story so far.

While the Insolvency and Bankruptcy Code (IBC) has ushered in significant urgency in the bad loan resolution process, an analysis of the 12 large cases indicate that the 270-day outer limit envisaged in the law for resolution is being tested in most cases. Notwithstanding the first case of successful resolution of Bhushan Steel, which is being acquired by a Tata Group company, most resolution plans are being challenged in the Appellate Tribunals and the Courts, resulting in a breach of resolution time-limit. The Code provides for resolution process to be completed in 180 days, which can be extended by a maximum of 90 days. As the accompanying chart shows, the 270 days deadline is over in 10 out of 12 cases, while resolution has been conclusively done in only one case and 3-4 cases are near completion. These 12 large cases account for total unpaid loans, or non performing assets, of Rs 3.23 lakh crore. The finance ministry expects banks to recover a total of Rs 1 lakh crore in these cases.

* In the first successful case, Bamnipal Steel Ltd (BNPL), a subsidiary of Tata Steel, last month completed the acquisition of 72.65 per cent stake in Bhushan Steel Ltd (BSL) for around Rs 36,400 crore. The lenders will receive around 65 per cent of their outstanding. The government has termed this a “historic breakthrough”.

* Other cases near resolution but held up by appeals include, Electrosteel Steels, Essar Steel, Jaypee Infratech and Bhushan Power and Steel. Two cases of Era Infra Engineering and Jyoti Structures are still undergoing resolution process as the 180-day deadline is valid till December, 2018. In Essar Steel and Bhushan Power cases attractive bids came after the expiry of initial deadlines, leading to legal problems. Alok Industries and Lanco Infratech are two companies currently facing prospects of liquidation.

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* In Electrosteel Steels Ltd (ESL) case, Vedanta Monday said it has taken management control of ESL and appointed new board of directors, even as a petition challenging its Vedanta’s eligibility to bid for ESL is pending before the National Company Law Appellate Tribunal (NCLAT). On May 30, a NCLAT bench allowed Vedanta to make an upfront payment of Rs 5,320 crore to lenders for acquisition of ESL, but said that the acquisition would subject to the outcome of the petition filed by Renaissance Steel. If it goes through, this will be the second major case of resolution under IBC.

* Monnet Ispat and Energy is third case in the final lap. On April 12, the consortium led by JSW Steel and AION Capital received the letter of intent for acquiring the stressed asset of Monnet Ispat and Energy, while the Competition Commission of India approved the proposal on May 12. JSW Steel-AION Capital combine was the sole bidder for Monnet Ispat which owes over Rs 11000 crore to the banks. JSW-AION reportedly submitted a Rs 3,750 crore bid for the steelmaker. The resolution plan, however, is subject to approval of the NCLT Mumbai bench, JSW Steel said on May 12.

First published on: 06-06-2018 at 01:13:32 am
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