Money & Banking

How delays are throwing a spanner in the IBC works

PALAK SHAH Mumbai | Updated on November 15, 2018 Published on November 15, 2018

After the resolution plan is approved by the Committee of Creditors, NCLT should have no reason to interfere, say experts

Are dissenting financial lenders and operational creditors creating inordinate delays with their repeated intervention in the resolution of cases before the National Company Law Tribunal (NCLT)? Of the initial cases shortlisted by the RBI for a speedy resolution two years ago, only four have seen closure so far.

More than half of the companies on the RBI’s first list – which were referred to the NCLT for resolution – have completed more than 400 days of CIRP (computation of time period of corporate insolvency resolution process) duration against the stipulated 270 days.

These companies include Jyoti Structures (486 days), Alok Industries (472 days), Bhushan Power and Steel (464 days), ABG Shipyard (458 days), Essar Steel (457 days), Lanco Infratech (452 days) and Jaypee Infratech (450 days).

“A lot of matters are stuck in the NCLT or the NCLAT and taking substantially longer than anticipated to get resolved, which has wider implications: it adds to the operational losses to creditors, who cannot receive interest for the period. This will impact foreign investments and force companies to remain in a liquidity crisis,” said a lawyer, who mainly deals with IBC cases.

For Alok Industries, even after the approval of the resolution plan by the Committee of Creditors (CoC) in June this year, there is no closure in sight. The resolution plan was approved by CoC with 72 per cent voting by value, and various dissenting financial lenders such as Kotak Mahindra Bank, Dena Bank, SICOM and IDBI Bank filed their objections to the resolution plan.

After a few of them withdrew the cases, operational creditors such as GAIL jumped in to file an objection with the NCLT.

In the past, the NCLT has rejected such interventions by an operational creditor, resulting in a delay in the process. In August, the NCLAT rejected claims of engineering and construction major L&T, an operational creditor of Bhushan Steel, opposing Tata Steel’s resolution plan seeking a higher priority in debt resettlement.

Banks at loss

Experts say that the delay also results in substantial losses for banks in terms of interest. Banks can book interest on an account only up to the date of commencement of insolvency proceedings. The interest rate is calculated as per the loan agreement between the two parties, and as soon as the account is admitted by the tribunal, the claims get frozen; no further interest can be booked.

Experts say that once a resolution plan is approved by the CoC as per the requisite majority, no such objection should be entertained, as many entities unnecessarily delay the closure out of self-interest. If at all these entities have to be heard on the point of view of natural justice, it should be time-bound so that the entire process does not go for a toss.

Dissenting financial creditors are those lenders who have either abstained from voting or voted against the resolution plan approved by the CoC. But these dissenting and operational creditors come one after the other on similar issues, thereby delaying the approval process.

Once the CoC has approved the plan, NCLT should have no reason to interfere in and take cognisance of such delaying tactics, legal experts said.

Published on November 15, 2018
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