Pavan Kumar Vijay, founder, Corporate Professionals, points out that every law settles down at its own pace. “But the insolvency law is time-bound and less time is available with stakeholders to foresee any action and decide the next step,” he says. Resolution of a few of the large cases will throw up some learning that will help to align the Code to the requirements on ground, feels Manish Aggarwal, partner and head of resolutions, special situations group, KPMG in India.
Experience has shown that the treatment of some aspects of the Code should be changed, says Harsh Pais, partner, Trilegal. According to Sumant Batra, managing partner at law firm Kesar Dass B & Associates, some gaps identified can only be plugged by way of amendments to the Code. “Otherwise these deficiencies are likely to impact the efficiency and effectiveness of the insolvency cases,” he adds.
The key concerns that experts and stakeholders want the Code to address include treatment of promoters in the bidding process, need for provisions to deal with withdrawal of applications in case of settlement between parties, clarify the legal position of customer advances, including those of homebuyers, and tax issues faced by buyers of stressed assets.
Most experts are divided on the issue of treatment of defaulting promoters. “Making promoters ineligible in bidding is unduly harsh and unprecedented as nowhere else in the world does such a restriction exist,” says Batra. “This almost renders every default an act of malfeasance,” he adds.
KPMG’s Aggarwal feels the need for some differentiation of genuine cases, which have turned bad on account of economic, sectoral and reasons other than promoter default. “It will be unfair to debar all promoters from participating in the process,” he adds. Some experts feel the need for a defined and standard approach in preparation and finalisation of the resolution plan by financial creditors.
Tax experts point out that in the earlier regime there were many tax benefits available to sick companies in the form of exemptions. “Such exemptions are yet not available in the Code,” says ICSI’s Agrawal. No prospective buyer of distressed assets will be comfortable with the prospect of open-end liabilities, adds Abizer Diwanji, partner, EY.
One thing most experts agree on is the need to extend the time frame for completion of the resolution process. Diwanji is in favour increasing it by another 90 days, over and above the maximum permissible 270 days.
Many resolution professionals feel the recent ordinance to tighten participation of defaulting promoters in the bidding process may place many foreign bidders in an advantageous position. “This may pose challenges for the resolution applicant in determining eligibility of foreign bidders,” says Batra. Many resolution professionals also see the need for more watertight legal immunity against legal challenges from dissatisfied parties after completion of the resolution process.
Amendment of the NCLT rules to confer inherent powers upon the adjudicating authority to allow withdrawal of an application that has been admitted is another key change in the Code that most stakeholders are batting for.