Mumbai: Haigreve Khaitan, senior partner at law firm Khaitan and Co., has been in the thick of action following the changed regulatory environment brought about by the Insolvency and Bankruptcy Code (IBC). He has advised some of the big companies that have gone under the hammer, such as Usha Martin Ltd (now acquired by Tata Steel Ltd); as well as others such as Vedanta Ltd, which acquired Electrosteel Steels Ltd, the first of the 12 insolvency cases referred by Reserve Bank of India (RBI).

The IBC process has changed the way India does business, Khaitan said in an interview. “In the business community, you will be punished far harder and severely by the market and investors than by law. If somebody commits a fraud, the investors will not touch them for a long time; it’s as bad as that."

The man behind the Walmart- Flipkart deal and Zydus Cadila group’s acquisition of consumer brand business of Kraft Heinz said companies who do not want to go through the bankruptcy process are looking for buyers in advance, citing Fortis Healthcare Ltd and Usha Martin. Yet, he maintained that there remain some gaps such as the issue of a settlement being allowed after the company has been admitted into the bankruptcy process. Edited excerpts:

In the backdrop of IBC, how has the deal-space performed in stressed assets?

The insolvency code has made promoters, companies and the management realise that there is an appetite for pre-insolvency deals as well. We have the entire ecosystem looking at it as a viable solution to revive companies rather than having them go down the insolvency route. Deals like Fortis and Usha Martin have clearly showcased the potential such deals have in the market.

So, what kind of activities do you see in the M&A space in 2019?

Some sectors will surely see a lot of deal flow. One such sector will be the tech and e-commerce... (It) will definitely see consolidation of smaller players. Another interesting space will be digital players acquiring physical ones. E-commerce players have realised that the best combination as per the Indian market is to have an online and off-line presence. This combination of physical-digital will be a huge play going forward. We can see some more deals like Walmart-Flipkart (where we represented Flipkart) taking place in the times to come.

Other sectors where we expect deal flow to continue are pharma and healthcare, financial services and fintech.

In some of the IBC cases, the settlement has been allowed after the admission of the company for the corporate insolvency resolution process (CIRP). Do you think that’s the right approach?

Until the 6 June ordinance was introduced, one interpretation of the law was that no withdrawal is allowed after admission of insolvency proceedings. Post the introduction of the ordinance, if 90% of the Committee of Creditors (CoC) approves, then it can be withdrawn. Clarity on when and under what circumstances one may withdraw is still needed though. In many cases, this may be a practical solution even for lenders.

Again, looking at the provision of IBC which prevents defaulters from bidding on stressed assets, the amendment has come. Do you think this will resolve the concerns that the promoters had?

I think the promoters’ demand was a level playing field: (if) you are allowing everybody to bid then allow us (promoters) too. That is now in some sense allowed in respect of medium small and micro enterprises (MSMEs). Now, whether promoters being allowed to bid for their own company, is a rightful demand or not, one can’t say. But there could be a middle path such as not allowing a fraudulent promoter or somebody who has misappropriated funds to participate in the process. Those promoters who defaulted due to business reasons should perhaps be allowed to take part in the bidding process.

Between the regulators, there was a need for collaboration. Listing norms had to be changed. Competition Act and Companies Act had to be amended for collaboration with regards to IBC. In your opinion how has been the interplay?

The Securities and Exchange Board of India (Sebi) has made some changes to collaborate with other regulators. Some regulators have taken a view that because of insolvency one cannot get a blanket exemption from other laws and some regulators have taken a view that there ought to be some exemption. Competition (is) one such law where you cannot provide an exemption. Just because the company is in distress; the merger control regime shouldn’t cease to apply. This can lead to abuse of the system. If I want to acquire something which otherwise, I can’t acquire I will acquire through insolvency, so in a way it is incorrect to seek blanket exemptions on grounds of insolvency.

Wouldn’t this become less attractive for companies to bid?

We need to have this balance between consumer, lender and acquirer. Just because we need to sort out a debt problem, we can’t harm the consumer. Let’s say, this is just an example, because of bidding we end up with only one cement player, you can’t have that. This may solve the banks’ problem but what will happen to the consumers of that market. You can’t serve the banks at the cost of consumers. So, that balance needs to be struck and I think we are doing a good job thus far.

What are the issues regarding the Companies Act?

The biggest concern is whether the provisions of the IBC will override the provisions of the Companies Act. Once there is clarity on that there should be no issue. But, otherwise, you have so many restrictions under the Companies Act such as investment and other limits, whether those can be over-ridden or not, whether capital deduction can happen, or buyback can happen—deal making stands to suffer in absence of such clarity.

Also, how do you see these arbitration amendments? Do you think that will iron out lots of issues?

Definitely, it will iron out a lot of issues. The way law has evolved over the years, one has to look at the fact that if something traditional has not worked, the legislature proactively looks at it and amends it, which is very encouraging. You can’t get it perfect at one shot.

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