New Delhi: With 51 businesses getting revived under Insolvency and Bankruptcy Code in the September quarter, 109 businesses have struck deals to come out of sickness in the first half of the current financial year, showed data available from Insolvency and Bankruptcy Board of India (IBBI), the sector’s rule maker.
This is a tad lower than the 130 debt resolutions approved by NCLT benches in the first half of the las t fiscal. In FY24, a record 271 businesses in distress received a fresh lease of life under the bankruptcy code, from National Company Law Tribunal (NCLT).
By the end of September, 1,051 companies have been rescued under the IBC since 2016, when the new debt resolution ecosystem came into effect. The figure for the latest quarter may be updated by IBBI when more information is available from NCLT benches.
The government is currently building an integrated technology platform to enhance transparency and the speed of processing of applications under IBC and is working on amendments to the Code to remove ambiguity in its operation.
Experts pointed out the IBC framework has helped to reduce the gross non-performing assets (GNPAs) in the banking system to a 12-year low of 2.8%, with net non-performing assets (NNPAs) after accounting for recoveries and provisions set aside to cover any potential losses at 0.6%, indicating the Code’s effectiveness.
However, in many cases, admission of cases in tribunals takes time and debt resolution takes longer than envisaged under the law as parties engage in extensive litigation. As per official data, as of end of June 2024, about 68% of the ongoing 1,973 cases have been pending in various stages for more than 270 days. The law envisages debt resolution to be completed under IBC within 270 days, but an additional 60 days can be granted to take into account legal and unavoidable delays.
On the infrastructure front, set-up of integrated technology platform and increasing the strength of NCLT benches dealing with insolvency cases is the need of the hour to improve the outcome of the resolution process, explained Subodh Dandawate, associate director—Regulatory Services at Nexdigm, a business and professional services company.
“The process to implement these measures should be expedited as announced in the last budget. On procedural aspects, the essence of process laid down under the IBC should be followed in spirit where emphasis should be on time bound resolution and on curbing tactics used to delay the process," said Dandawate. On the other hand, NCLT also needs to adhere to the mandate of IBC and should avoid creative interpretations which will frustrate the very essence of law, he added.
Prolonged resolution timelines, a plethora of interlocutory applications and significant haircuts have acted as a deterrent for creditors to initiate proceedings under IBC and have also led to a slower rate of closure for resolution proceedings, explained Yogendra Aldak, partner at law firm Lakshmikumaran and Sridharan. Aldak welcomed the Supreme Court upholding IBC provisions with respect to liability of personal guarantors as a factor that helps in improving outcomes of debt resolution.
“Streamlining measures for corporate insolvency resolution process such as appointment of specialized benches for technical aspects such as 'avoidance transactions' and increased accountability for codified timelines will certainly help in curbing the legacy issues under corporate debt resolution and IBC" he said. This will surely boost the rate-of-closure of resolution processes and consequently increase the number of resolutions cleared year-on-year, said Aldak.
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