“The whole issue of the system getting overheated and the NCLT Benches being clogged is real,” Injeti said.
Smaller cases, he said, could be settled better outside the purview of the IBC, as the process was rigorous and supervised by courts. In the past three years since the IBC
was introduced, 21,000 cases have come for resolution, of which 10,000 have been settled according to government data. Financial creditors can trigger insolvency under Section 7 of the IBC, if the company has defaulted a minimum of Rs 1 lakh.
The IBC, through various amendments, has resolved many issues related to Section 29A, which deals with the ineligibility of promoters and related parties from taking part in the resolution process. But certain other pressing issues remain.
While the Ministry of Corporate Affairs recently amended the Code to clarify that secured financial creditors are superior to operational ones and unsecured lenders, the issue of distribution of funds between different classes of creditors is a matter under litigation in the Supreme Court.
Operational creditors of Essar Steel have raised objection to the amount allocated to them after the resolution process. “Who gets how much is an issue which still needs to be resolved,” Srinivas added.
The MCA is also planning to take steps for making the entire process of the resolution transparent and less litigation-prone. The ministry is examining the possibility where the eligibility of bidders is determined as per the non-financial considerations and thereafter in the second stage those shortlisted are only allowed to bid on an auction platform. A threshold is also likely to be introduced for IBC
cases, where a single class of creditors such as homebuyers or debenture holders can trigger insolvency.
More IBC tweaks underway
Govt may nudge banks by prescribing a threshold for taking cases to the IBC
May hike threshold for operational creditors to take cases to the IBC
The resolution process may be made more transparent through a bidding process
Threshold approach for class buyers in case of large no of buyers
Formula based distribution of dues to reduce litigation