Will history repeat itself in India’s tryst with insolvency law?
The Insolvency and Bankruptcy Code risks becoming a tardy process that debt resolution tribunals were
The Insolvency and Bankruptcy Code (IBC) turns two years old this month. It is entirely natural that, given its game-changing potential, the law will be tested at every step and it is still very much a work in progress. But some of the signs and portents are not encouraging.
The IBC was touted as the law that would extract the highest possible value from the asset within a specific time. Its selling point was the 180 days extendable to 270 days timeline within which the resolution plan had to be approved.
Five out of the first set of 12 biggest insolvency cases have now extended well past the deadline. The respective National Company Law Tribunal (NCLT) benches have approved the extension of timing in these cases. Legal experts believe this is setting a bad precedence for future cases.
But what is more intriguing is that some of the rulings by the benches seem in contrast to the IBC provisions.
For instance, in March, a single bench of NCLT Kolkata had ruled that bids submitted by an applicant after the bidding deadline need not be considered. The case was of Omkara Infrastructure Pvt. Ltd and Simplex Credit and Industries Ltd against the resolution professional of Divya Jyoti Sponge Iron Pvt. Ltd.
However, in most big cases that have followed, NCLT benches haves asked for bids beyond the deadline to be considered.
A hallmark case is that of Binani Cement. Failed bidder UltraTech had challenged Dalmia Bharat after the former raised its bid for Binani Cement. While the case went all the way to Supreme Court, the NCLT bench finally ruled that the committee of creditors should consider UltraTech’s bid and give Dalmia Bharat a chance to match it.
Why the different ruling?
In the case of Divya Jyoti Sponge Iron Pvt. Ltd, the tribunal had dismissed the bids after it found no evidence of indiscretion by the resolution professional. It made sense to stick to the deadline when the value maximization wasn’t going to be any higher.
However, in the case of Binani Cement, it was a question of upholding the spirit of the IBC which is to ensure maximum value extraction. Given that UltraTech raised its bid for the company, the tribunal has asked creditors to consider the same.
Nevertheless, it is jarring to see two different rulings under the same code.
And that is because the code is silent on many things. For instance, can lost time due to litigation be excluded while calculating the deadline? Should the timeline include that of getting regulatory approvals for the resolution plan? Since the 270-day deadline has been extended for select cases, it is imperative for a consensus on strict timelines. Otherwise, the IBC risks becoming the tardy process that debt resolution tribunals were.
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