Even as the National Company Law Tribunals (NCLT) remain over-burdened with innumerable litigations, the four-year old Insolvency and Bankruptcy Code (IBC) is expected to improve realisations for financial creditors to over ₹80,000 crore by fiscal year 2020, compared to about ₹66,000 crore recoveries last year, said ratings agency ICRA Ltd. in a press note.
That is despite a 32% increase in the number of on-going cases to 1,143, which have crossed the maximum allowed time of 270 days at NCLT, as of March 31. The highest quarterly admissions came in the fourth quarter of fiscal 2019 at 359 cases. The total number of cases being admitted to the NCLT, according to ICRA, will continue to increase, especially from the operational creditors who are responsible for 50% of all admitted cases.
Even as the progress of IBC has been hampered due to these factors, realisations continue to improve for financial creditors. "The progress of the Corporate Insolvency Resolution Process (CIRP) under the IBC has been hampered over the past two years by the over-burdened NCLTs, innumerable litigations, defiant promoters and failing sectors. Even then, the process under the IBC has chugged on, albeit at a slower pace than envisioned," said Abhishek Dafria, Vice President & Co-Head, Corporate Ratings, ICRA. "In order to improve the overall efficiency of the process, more steps are desired. The recent decision to setup two more NCLT benches at Amaravati in Andhra Pradesh and at Indore in Madhya Pradesh is a step in the right direction. Over the long run, the IBC will continue to play an important role in the country’s economy as long as the key stakeholders remain proactive in disbursing their duties and continue to have confidence in the process," he said.
The realisations in FY20, however, would largely depend on resolution of the insolvency process for two large accounts— Essar Steel Ltd. and Bhushan Steel and Power Ltd. These two accounts are part of Reserve Bank of India's list of the 12 largest defaulting companies announced in June 2017.
"Successful completion of the Corporate Insolvency Resolution Process (CIRP) for these two accounts would bring closure to eight companies from the RBI’s list and could help strengthen the confidence in the IBC, despite the significant delays seen in the process with most of the CIRPs lasting more than 500 days," said Dafria.
There were 715 cases of defaulting corporate debtors that were closed under the IBC, as of March 31. Of the same, a significant portion of corporate debtors (378 cases) were ordered into liquidation, while only 92 cases yielded a resolution plan where the companies continue to operate as going-concerns, ICRA said.
But the resolution process now stands to suffer as the Supreme Court cancelled RBI's February 2018 circular, that directed banks to recognise one-day defaults by large corporates and refer the large defaulting entities (classified as those with loans in excess of Rs. 2,000 crore) to the NCLT if a resolution plan was not in place 180 days after the default. "The RBI’s circular would have channelled the resolution process of the defaulting corporate debtors through the framework set by the IBC and thereby encouraged the creditors to approach the NCLT at an early stage of default. The decision of the Honourable Supreme Court is a blow to the IBC and it is important for the RBI to find a new mechanism to ensure that resolution of stressed assets happen in a disciplined manner," said Dafria.