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Saturday, December 14, 2019

Challenges for IBC: Lack of operational NCLT benches, low approval rate of resolution plans

Data from the Insolvency and Bankruptcy Board of India (IBBI), the sector regulator, is telling. Of the 2,542 corporate insolvency cases filed between December 1, 2016 and September 30, 2019, about 156 have ended in approval of resolution plans — a mere 15 per cent, according to latest data released by the IBBI.

Written by Aashish Aryan | New Delhi | Published: December 1, 2019 2:07:45 am
Insolvency and Bankruptcy Code, IBC, Insolvency and Bankruptcy Board of India, IBBI, Business news, Indian Express In the current fiscal, as many as 1,037 cases of corporate insolvency have been admitted by various benches of National Company Law Tribunal (NCLT) across India until September 30 — an increase of 51.6 per cent over the corresponding period last year.

The Insolvency and Bankruptcy Code (IBC) of India, which turns three on Sunday, was hailed as a landmark legislation for debt resolution of companies of all sizes. A successor of sorts to the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFESI), Board for Industrial and Financial Reconstruction (BIFR), and the Debt Recovery Tribunal (DRT) regime, the IBC might have reached a corner — but has failed to take the turn.

Data from the Insolvency and Bankruptcy Board of India (IBBI), the sector regulator, is telling. Of the 2,542 corporate insolvency cases filed between December 1, 2016 and September 30, 2019, about 156 have ended in approval of resolution plans — a mere 15 per cent, according to latest data released by the IBBI.

In the current fiscal, as many as 1,037 cases of corporate insolvency have been admitted by various benches of National Company Law Tribunal (NCLT) across India until September 30 — an increase of 51.6 per cent over the corresponding period last year.

However, a meagre 76 resolution plans have been approved in the current fiscal, while the number of companies which have either been liquidated or are headed at liquidation stands at 351 — which is one-third of the total number of insolvency cases filed until September 30.

Between April 1 and September 30 this year, 43 cases of insolvency have either been appealed for review or have been settled. There are as many as 52 cases in which the lenders have allowed corporate debtors to move out of corporate insolvency resolution process (CIRP) by use of Section 12 (A) of IBC.

In the past three years, the number of companies which have been sent for liquidation — either due to lack of feasible resolution plans or absence of any resolution plans whatsoever — stand at 587. These include big ticket names such as Adhunik Metaliks, Khaitan Electricals, and Orchid Health Care Private, among others.

The IBBI, however, defended the number in its latest data newsletter and said that nearly 427 of the companies which underwent liquidation were earlier with the BIFR and or defunct. “The economic value in most of these CDs (corporate debtors) had already eroded before they were admitted into CIRP,” the IBBI had said.

As of September 2019, 535 companies have spent more than 270 days, waiting to get resolved. In August this year, the Centre had introduced an amendment to increase the deadline to 330 days, but said that the CIRP shall mandatorily be completed within this time. “This would include extension of time as well as any exclusion of time on account of legal proceedings,” the government had then said.

The Supreme Court, however, while delivering the judgment in the Essar Steel insolvency case, relaxed the criteria of “mandatorily” resolving the CIRP within 330 day, allowing the possibility of extending it beyond even that if need be.

Though the government had, in July, announced setting up of 25 additional single and division benches of NCLT at various places including Delhi, Jaipur, Kochi, Chandigarh, and Amravati, most of these remain non-operational or partly operational on account of lack of proper infrastructure or adequate support staff.

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