According to data from the Insolvency and Bankruptcy Board of India (IBBI), in over 363 major NCLT resolutions since 2017, banks have taken an average haircut of 80%
The government may review the legal provision that allows for the withdrawal of an insolvency case in favour of an often-negligible one-time settlement (OTS), two officials said, citing the example of Siva Industries Holdings Ltd.
In April, IDBI Bank-led lenders discussed and approved an OTS proposal of Siva Industries where creditors agreed to take a 93.4% haircut to settle dues of ₹4,863 crore, the officials with direct knowledge of the matter said requesting anonymity.
Subsequently a withdrawal application was filed under Section 12A of the Insolvency and Bankruptcy Code (IBC) before the National Company Law Tribunal (NCLT), Chennai on 8 April.
That means the banks recovered ₹318 crore, including an upfront payment of ₹5 crore. The Chennai bench of NCLT is scheduled to adjudicate on the out-of-court settlement on Friday.
According to a Mint report on 18 June, India’s bankruptcy resolution system remains marred by meagre recoveries and protracted delays despite attempts to fine-tune the regime that debuted in 2017. On 15 June, NCLT questioned the extensive haircut (95.85%) that lenders have agreed to take in the insolvency resolution of Videocon group firms.
According to data from the Insolvency and Bankruptcy Board of India (IBBI), in over 363 major NCLT resolutions since 2017, banks have taken an average haircut of 80%.
“We cannot comment on a particular case at NCLT. But government agencies and regulators watch all such developments. If required, laws can be amended to plug loopholes and strengthen IBC," said one of the officials cited above.
The ministries of corporate affairs and finance, the department of financial services, IBBI, the Reserve Bank of India, IDBI Bank, Life Insurance Corporation of India, which has a controlling stake in IDBI Bank, and the resolution professional of Siva Industries and Holdings did not respond to email queries.
Section 12A was added by an amendment of IBC in 2018, which allows the parties to close an insolvency case with approval of 90% of the committee of creditors (CoC). “It seems that this exit route is being misused in some cases. The matter is under examination and based on facts appropriate decisions will be taken," the second official added.
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