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To ensure the speedy resolution of cases under the Insolvency and Bankruptcy Code (IBC), bankers have suggested, among others, the introduction of a mechanism to reduce unwanted litigation and strict adherence to the timelines under the code.
As per the FICCI-IBA Survey of Bankers (for July-December 2018 period), to reduce unwanted litigation, provisions similar to DRT (Debt Recovery Tribunal) must be introduced, where a percentage of the loan outstanding is insisted upon while filing an appeal.
The survey said the time norms under the IBC for admission, appointment of valuer and forensic auditors, as well as for the resolution of the company must be strictly followed.
Need more NCLT benches
To cater to the rising number of cases under the National Company Law Tribunal (NCLT), there is a need to improve the capacity by increasing staff and establishing more NCLT benches across the States.
At present, NCLT has benches in 11 locations across the country.
While respondent banks have largely had a positive experience in recoveries since the implementation of IBC, they underscored that the resolution process is being delayed owing to limited infrastructure in NCLT and rising cases of frivolous appeals.
The FICCI-IBA survey said banks should be given an option to convert a part of their debt into equity proportionate to amount of haircut (receiving less than what is owed).
To improve the efficiency of the resolution process, the government should come out with guidelines for NCLT to take up petitions, the survey said.
The FICCI-IBA Survey observed that interest from investors and potential buyers is limited only to companies that are operational as on date, and there is limited interest in smaller-sized companies.
According to an analysis by ICRA, as on December 31, 2018, 898 CIRPs (corporate insolvency resolution process) were awaiting a resolution against 768 CIRPs as on September 30, 2018.
The credit-rating agency assessed that the number of CIRPs outstanding are expected to only increase further at least for the next few quarters until adequate steps are taken to ensure that the CIRP does not significantly exceed the 180/270-day timeline prescribed under the IBC.
“Up to December 31, 2018, 79 CIRPs yielded a resolution plan, while 302 cases entered liquidation, which is a very high proportion.
“Even the CIRPs that are eventually yielding a resolution plan are witnessing an increase in the duration between the commencement of the CIRP and the final approval from the National Company Law Tribunal (NCLT),” said ICRA.
According to Abhishek Dafria, Vice-President and Co-Head, Corporate Ratings, ICRA, almost 68 per cent of the NCLT cases exceeded the 270-day timeline allowed under the IBC. Furthermore, CIRPs that concluded in the quarter ending December 2018 took an average duration of 354 days, compared to 340 days taken for CIRPs concluded in the quarter ending September 2018.
“The CIRPs for the pending seven corporate debtors from the RBI’s initial set of 12 large defaulter cases identified in June 2017 that are still ongoing have seen the average duration of the process now exceed 500 days which does not help the investor sentiment,” said Dafria.
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