While the ever-evolving Insolvency and Bankruptcy Code is gaining ground as an effective recovery tool, the inordinate delay in resolution process still remains a worrying factor.

Of the 1,723 ongoing insolvency cases as of March-end, 79 per cent or over 1,361 cases have breached the outer limit of 270 days for resolution set out by IBC. Gautam Bhatikar, Partner at Phoenix Legal said the delay in resolution was due to the fact that NCLTs have been functioning via virtual hearings since the lockdown last year.

Moreover, he added a large number of vacancies across tribunals has been a major hindrance and the Supreme Court has already directed the government to fill up vacancies in two months.

Following the strict timeline of 120 days is the only way to reduce the statutory delays in resolution processes, he added.

Slowdown in cases

The number of cases admitted for insolvency last fiscal slowed to 499 against 1,978 in FY20 due to the suspension of fresh bankruptcy proceedings for Covid defaults which ended on March 24.

However, there will be no sharp increase in number of fresh insolvency cases as the government has given a six-month moratorium for stressed borrowers followed by a one-time restructuring and emergency credit guarantee scheme.

Of the 4,376 cases registered for CIRP, 29 per cent or 1,269 cases have ended into liquidation while about 946 cases were that of BIFR/non-operational companies or their resolution value was less than the liquidation value. Interestingly, eight per cent of the cases under ₹1 crore default have been withdrawn under Section 12A.

Amrita Tonk, Partner at L&L Partners said while having pre-packaged resolution mechanism leads to quicker resolution process and provides for retention of management control by the corporate debtor, it would be advisable to set up administrative framework/infrastructure specifically to oversee the pre-packed resolution plans.

Of the 12 cases pushed by RBI for insolvency proceedings in 2017, resolution plans for nine firms were approved while liquidation orders were passed against two firms.

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