There have been several delays in the resolution of stressed assets due to repeated appeals by bidders under the Insolvency and Bankruptcy Code (IBC). To curb this, banks have requested the Insolvency and Bankruptcy Board of India (IBBI) to introduce deterrent provisions in IBC rules.

The banks have suggested that bidders should be asked to cough up 0.5-1 per cent of the loan owed by a company undergoing resolution as a deposit with the National Company Law Appellate Tribunal (NCLAT) each time they go on appeal. This suggestion comes in the backdrop of recent cases where some bidders, to put a spoke in a rival’s acquisition plans, went on appeal after the National Company Law Tribunal (NCLT) declared the rival as the successful bidder for a stressed asset. There have also been cases of promoters of stressed companies opting for an appeal after the NCLT’s announcement of the successful bidder.

“If the requirement of putting money on the table is incorporated in the IBC rules, it will deter repeated appeals by some bidders and promoters of stressed companies who are bent on delaying or derailing the resolution process,” said a Bank of India (BoI) official.

“If the appeal is successful, the deposit will get adjusted towards the settlement of dues of the company being acquired. Otherwise, it will get forfeited. Such a provision will deter the tendency to appeal at the drop of a hat.”

Cues from DRAT appeals

The “deposit to make an appeal” suggestion probably stems from such a provision in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Section 21 of this Act says that where an appeal is made by any person from whom debt is due to a lender, it shall not be entertained by the Debt Recovery Appellate Tribunal (DRAT) unless the person has deposited with the Tribunal 75 per cent of the amount of debt due from him.

Referring to the case of a large company, where bank claims amounting to about ₹50,000 crore have been admitted by the NCLT, the BoI official said a delay in resolution was costing the lenders almost ₹14 crore a day in foregone interest.

“Resolution of stressed assets within the IBC timelines is important so that lenders can write back the provisions, strengthen the capital adequacy and lend to other assets. Today they are starved of funds,” he added.

ICRA, in a report in November, said lenders to the 12 large companies in RBI’s initial list of June 2017 — which were referred to NCLT — are estimated to have lost out on about ₹4,000 crore in additional income due to the delays in the resolution process beyond the 270-day period. (There is a 270-day timeframe within which the resolution process is required to be completed under IBC.)

According to the credit rating agency, the number of corporate debtors admitted by the NCLT that are yet to be resolved through the Corporate Insolvency Resolution Process (CIRP) is growing steadily each quarter. From 723 in June-end, it rose to 816 in September-end despite the quarter having the highest closure of cases seen so far, at 123.

“Of the 816 ongoing CIRPs, about 30 per cent have already exceeded the 270-day timeline. Another 20 per cent have crossed the 180-day timeline,” observed Abhishek Dafria, Vice President and Co-Head, Corporate Ratings at ICRA.

“Of the 12 large defaulting accounts identified by the RBI in June 2017, only four have been resolved so far. The rest remain unresolved even after more than 450 days since being admitted by the NCLT.”

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