Mumbai: Promoters are within their rights to submit bids in the resolution process of stressed assets under Insolvency & Bankruptcy Code (IBC), said Rajnish Kumar, chairman of State Bank of India (SBI), on Monday.
“Ethical... I don’t know, but legally they are within their rights to participate. I am not concerned about that because even if it is existing promoters, there will be few pre-conditions from the creditors’ side," Kumar said, while speaking on the sidelines of a banking conclave here.
The first pre-condition is that the promoters should not be a wilful defaulters and secondly, forensic audit should clear them of any wrong-doings, Kumar said. Lastly, the quality of the resolution plan also matters.
Following the Reserve Bank of India’s directive in June, banks have referred 12 large corporate accounts to the National Company Law Tribunal (NCLT), the adjudicating body under the IBC. In 11 such cases, petitions have been accepted and interim resolution professional (IRPs), who take management control of the defaulting company, have been appointed. Most IRPs have sought bids from interested buyers to draw a resolution plan.
Kumar’s comments come at a time when some industry experts have expressed concerns over such action by promoters of defaulting companies. This is because banks feared that promoters re-gaining control of the firm may not allow them to take huge haircuts, sacrifice to resolve the assets, and eventually thwart the resolution process.
Essar Group has submitted an expression of interest for Essar Steel, one among the 12 cases, PTI reported on 29 October.
The ministry of corporate affairs is planning to several change to IBC, one among which is to ensure that failed promoters don’t re-gain control of the company, Economic Times reported on 4 November.
“The idea will be to enhance the enterprise value and anybody who give the maximum enterprise value, which will be in the interest of the enterprise, lenders and the country as whole," he said.
Separately, Kumar also said that the processes as prescribed by the IBC are running as per timelines, and there has been considerable interest from prospective buyers, especially for assets in the steel sector.
Upon admission of a petition at NCLT, a 180-day moratorium, extendable by another 90 days, begins to decide on a resolution plan. In case the account is not resolved, the company goes into liquidation.
Starting early January, the 180-day period moratorium will be ending in these cases.