The government on Wednesday approved amendments to the Insolvency and Bankruptcy Code (IBC) to ensure time-bound resolution of cases. Among the seven key changes is a new deadline to complete the resolution process of an insolvent company within 330 days, including the litigation period. At present, the IBC says corporate insolvency resolution process (CIRP) should be completed within a maximum of 270 days. But many cases involving large amounts are going on for more than 270 days due to litigation at appellate tribunal and in courts.
The Cabinet also approved amendments that aim towards smoother approval of resolution plans and removing bottlenecks. While earlier a decision of financial creditors could only be approved if 66 per cent of total creditors voted in favour of the decision, the Cabinet approved that now the decision will be approved if 50 per cent of those ‘present and voting’ vote in favour of the decision.
“Votes of all financial creditors covered under Section 21(6A) shall be cast in accordance with the decision approved by the highest voting share (more than 50 per cent) of financial creditors on present and voting basis,” the government said. “This will lead to faster approval of resolution plan and will remove stalemate. On several occasions it is seen that around 20-30 per cent of the financial creditors are absent and in such a scenario it is very tough to get the decision approved as you needed 66 per cent of total financial creditors,” a senior government official said
The official added that the amendment gives more powers to other creditors such as homebuyers as their votes will be treated separately and if 50 per cent of homebuyers vote in favour of a resolution, it will be treated as an affirmation of the entire class of homebuyers. “The move empowers homebuyers,” he said.
The amendments to IBC are aimed at filling critical gap in the corporate insolvency resolution framework while at the same maximising value from the resolution process, the government said. The amendments would “enable the government to ensure maximisation of value of a corporate debtor as a going concern while simultaneously adhering to strict timelines,” a release said.
One of the amendments allows for the votes of financial creditors to be as per the decision of the highest voting share of financial creditors. It also allows for dissenting creditors to get a minimum liquidation value retrospectively. An official said that it will go on to protect the small creditors.
The amendment further provides that an approved resolution plan will be binding on central and state governments as well as local authorities. An outer time limit on resolving resolution cases is expected to speed up the process which has been facing delays.
As on March 31, 2019, out of total 1,143 cases that were undergoing resolution under the IBC, a total of 548 exceeded the 180-day deadline. This reflects that in nearly 48 per cent of the cases (or 548 CIRPs), resolution could not be achieved within 180 days.
A total of 362 cases – or 31.67 per cent of the ongoing CIRPs – surpassed the outer limit of 270 days set out in the IBC. Lack of appropriate bids to take over companies, differences among the lenders, legal challenges posed by existing promoters and operational creditors are among the reasons resulting in delay.
Among the first 12 large NPA cases that banks referred to various National Company Law Tribunal (NCLT) benches, the case of Essar Steel India Limited has been facing significant delay. While insolvency proceedings were initiated against Essar Steel India Ltd in June 2017 and admitted in August 2017, it has breached the mandated 270 days resolution norm by more than a year.