By: Er. Rajesh Pathak
Insolvency and Bankruptcy Board of India reports that the total cases of bankrupted and insolvent properties to have been settled through IBC code is soon to touch the figure of 300 this year. The lenders have so far recovered about 3 lakh crores; whereas, last year the amount was 51,000 crores. Now the total figure of resolution of such cases has gone up by more than 80%.
Notably, the provisions of amended IBC- 2019[Insolvency and Bankruptcy Code] being made more transparent, strict and one of favourable to the creditors led the recovery hurdle free and one yielding the result. According to the World Bank report, earlier before IBC first passed in 2016, the average time period of debt resolution in India was 4.3 years. In order to bring down the time period the branches of NCLT [National Company Law Tribunal] was increased to 15 from 10; and in them 26 more members have been inducted. National Law Colleges were approached to facilitate the training for advocates and members of the tribunals. Under the new law the cases of bankrupted companies are to be resolved within 330 days of once writ filed. The basic spirit behind these approaches is actually to save company from being insolvent; and concerning banks from NPA. As well as the interests of investors, suppliers, employees and all those dependent on the company could be secured. Besides, all the care has predominantly been taken of bringing about first of all some settlement between lenders and debtors. Only in case of failure that the process of insolvency is made mandatory to be initiated. And after this if the successful bidder refuses to clear the debt and other liabilities ample provisions are made to initiate criminal prosecution against him.
In 2008 America underwent an economic recession. In his celebrated book, ‘The Ascent of Money’ the author, Nial Fergusson, threw light with precision on the cause of recession. According to him it was not due to some fault that the Americans did in the process of manufacturing the products. Nor was it due to sudden downfall in the pace of bringing about what is called technological innovations corresponding to the need of the time. On the contrary its nearest cause was that the financial control had gone out of the hands. Actually, due to increasing default in the kind of loan which is, in the words of the author, beautifully called subprime housing loan that the credit-system fast shrunk. And out of its shock how the bank like that of Lehman Brothers’ collapsed that we all know well.
What achieved through IBC- 2019 is, therefore, required to be seen against the bank drop of the above historic event. More notably, financial mismanagement also had emerged as one of the main causes of mounting NPA worth 10.35 lakh crores [as on March- 2018] shown in the different banks of India. In order to tide over it, the government decided to merge some of the banks with dubious records with bigger banks governed by a more accountable Body of Management. Besides several other causes, the loan disbursement mechanism followed by bank management is also held to be the one behind the NPA having assumed so formidable a proportion. The employee of the Bank staff who supervised the process of loan disbursement is allowed to remain on this crucial seat for the maximum 3 years. But by the ‘blessing’ of officials of higher ranks he remained glued to the seat for many years together, and thus continued the unbridled game of giving away loan after loan to defaulter companies!
With the will of Modi’s government to reform the ways so far in practice RBI initiated stern steps against it. Notably, the banks which were taken into the process of merger were those which were already made to work under RBI’s strict provision of PCA [Prompt Corrective Action] for many months back. Means, due to not desisting from their tendency of unwillingness and laxity in recovery of loans disbursed; and, showing all the interest and promptness in distribution of loan that these banks were allowed to do deposit collection alone, but as for commercial lending they had limited freedom, that’s too not without under the supervision of RBI. This also helped a lot in making IBC- 2019 a success.
Two years back when it was Shivsena-NCP-Congress coalition government in Maharashtra in the year 2021, the 100% shares of Dighi Port of Raigad was sold to Gautam Adani’s company by it. The  acquisition could come into smooth execution due to nothing else but IBC-2019. Otherwise, the same Dighi port had gone insolvent, owing 1600 crores rupees to different banks; all kind of operations from it being struck halt over the years either. And there was none to take care of blocked capital, and loss to maritime commerce above all.
The story is not yet over. Essar’s 1,200 MW power plant in MP has been acquired through insolvency resolution with paid up capital of Rs 4, 250 crore, likewise.
