The government has told banks that they should opt for liquidation of bankrupt companies based on business sense and not under fear of legal complications, because the law leaves negligible room for irregularities that could lead to trouble later. The finance ministry conveyed this informally to state-run banks during its interactions with them, a senior official at the ministry said.
ET reported that bankers were considering liquidation of companies under the Insolvency and Bankruptcy Code (IBC) where they received only one bid for the assets at a low valuation. Accepting such offers means they could get only a part of the loans outstanding, which according to bankers, may lead to investigations in future. Several former and current bank officials are facing investigations over alleged irregularities in loan deals that caused losses their banks. The official said there was no need to have such worries when they are following the IBC. “We have told them that there is no reason for fear as any resolution under the bankruptcy code is process-driven with negligible room for any irregularities,” he said, adding that banks should make decisions based on commercial wisdom.
At present, out of the first 12 cases referred by Reserve Bank of India in June 2017 for IBC proceedings, at least three — Lanco Infratech, ABG Shipyard and Alok Industries are likely to be headed for liquidation. The total exposure of banks to these accounts is around `1lakh crore. “It is their commercial decision. If banks believe they can recover more through liquidation, then it is their call. The government has no role to play in resolution through the bankruptcy code,” the official said.
The finance ministry is also of the view that since the judiciary is involved in some form or the other in most cases under the IBC, there is little scope for undue vigilance given the process has already undergone such stringent scrutiny. “The courts in some cases have asked banks to accept bids of companies which were offering a higher amount than previous ones even after the last date of submission. So, the process is dynamic and both bidders and lenders can approach the court in case of dilemma,” the official said. He was referring to Bhushan Power and Steel, where the bankruptcy court ordered the creditors to consider a late bid by UK’s Liberty House. A banker, however, said it was not only about these large accounts, but also smaller ones where decisions made by the committee of creditors could be questioned. “No one wants that a case is opened against them five years down the line,” he said.
Another finance ministry official said recent investigations carried out by agencies against some bank officials were for indiscretions while sanctioning loans, and not over the recovery process. “There is no witch hunt,” he said, adding that the government had time and again stated that it would not interfere in the commercial decisions of lenders.
Source: Economic Times, May 13,2018