Insolvency reforms: Crucial year ahead for regulator

It has been a hectic first year for the insolvency regulator, which hit the ground running. A year ago, when M S Sahoo went to work in a small room in the building of the Institute of Cost Accountants of India, there were not many to assist him. The board itself comprised only nominee members. The first whole-time member would join only five months later. But, Sahoo had tight deadlines. The government wanted the entire corporate insolvency framework to be ready by December 1. 

Sahoo recalls how active participation from stakeholders helped him beat that tight 60-day deadline. “This became a reform by the stakeholders, of the stakeholders and for the stakeholders,” he said in an interview.

Today, the board is better placed than in those early days. It has already moved to a more spacious office in the Connaught Place area. Three whole-time members have joined — Suman Saxena, who looks after research and regulation, Navrang Saini (registration and monitoring) and Mukulita Vijayawargiya (administrative law).  Two part-time members are in the process of being appointed. The board has six officers, and might need more.  

It has put in place the framework and has seen the market taking rapid strides, but the journey has only begun. The second year is likely to throw new challenges in the form of regulating, with hundreds of resolution plans reaching the completion stage and coming up for scrutiny. Among these would be the big dozen cases, with over Rs 2 lakh crore riding on them.

These high-value transactions pushed through by the Reserve Bank of India have helped give the much-needed visibility and impetus to the young framework. Yet, banks or financial creditors still account for less than half of all cases. A large number of cases continue to be filed by operational creditors such as customers and suppliers, while debtors themselves account for the rest. 

V G Kannan, chief executive, Indian Banks Association, said banks are overcoming initial teething troubles and warming up to the code. “Banks are welcoming it. The borrower will be more careful. Earlier, they were content with being technically alive. Now, with the Code, there is a possibility that they could be technically dead, too.” He added though the State Bank of India (SBI) is leading with the largest number of cases, even smaller banks have been moving National Company Law Tribunals. “If you look at the list, you will see several smaller names. Just as they have been lending, they will take up with this process, too.”

He feels the experience of dealing with the Debt Recovery Tribunal (DRT) has prepared banks to some extent. “This process is slightly different. But, with the rigid timelines, it’s a bit more positive for the banks.” 

Lawyers agree the first year has been good.  Sumant Batra, managing partner at Kesar Dass B & Associates, said, “The experience of the first few months of implementation has reinforced the popular belief that IBC is largely a sound piece of legislation.  There hasn’t been any major disruption so far but that does not mean the path ahead is free of challenges.”

The Code has faced complex legal challenges already, which throw the timelines into disarray. Other challenges include getting the multiple lenders to get together and agree. Batra said, “The real test of IBC lies in the journey of the 12 big cases undergoing resolution. They are already experiencing complex problems — one committee of creditors without a cap on numbers makes conducting meetings impossible, interim finance providers are not coming forward as the law restricts payment of interest after a liquidation order is passed, and there are uncertainties over approvals required for implementing plans sanctioned by NCLT.”

Absence of a sufficient number of qualified and experienced insolvency professionals is another issue. These need to be addressed on priority as failure of resolution of the big cases due to deficiency in law could cause disruption, feel stakeholders. Kannan added court decisions in cases such as Jaypee Infratech, where homebuyers have staked claim, will be keenly watched.

  • December, 2015:  The Insolvency Bill was introduced in Parliament 
  • May, 2016:  Insolvency and Bankruptcy law was passed
  • June, 2016: National Company Law Tribunal came into being
  • October 1, 2016: Insolvency and Bankruptcy Board was formed and MS Sahoo took over as chairman
  • November 28, 2016: Insolvency professional agencies were registered 
  • November 30, 2016: First set of IPs were registered 
  • December 31, 2016: Limited Insolvency Examination was introduced
  • January 17, 2017:  The first corporate debtor admitted for resolution 
  • April 7, 2017:  First voluntary liquidation commenced 
  • August 2, 2017: First resolution plan approved 
  • August 7, 2017: First liquidation commenced 
  • September 25, 2017: First Information Utility registered

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