The two lists of bad loan accounts referred by the Reserve Bank of India (RBI) for quick insolvency resolution account for over 40% of all non-performing assets (NPAs) in India’s banks. According to Bahram Vakil, co-founder of law firm AZB & Partners and one of the architects of the Insolvency and Bankruptcy Code (IBC), once these cases are resolved by the end of the year, it would be a “terrific achievement”, accomplished in record speed. In an interview, Vakil spoke of protecting homebuyers, status of resolution professionals and the involvement of regulators. Edited excerpts:
How do you see the recent amendments in IBC including putting homebuyers on par with financial creditors and dilution of lenders’ voting percentage from 75% to 66% for approval of the resolution process?
The ordinance has clarified several issues raised in the past 18 months and has made changes to effect a more efficient and fast resolution. The issue of homebuyers which needed clarity has now been equated with financial creditors to ensure their rights are protected.
Also, in many cases, the banks could not reach the required 75% threshold but were falling short by just a few percent. Therefore, they urged the committee to consider a lower threshold, such as other countries, including the US, have adopted and this threshold is now reduced to 66%.
Recently, Tata Steel was the successful bidder (resolution applicant) for the acquisition of Bhushan Steel Ltd. This is by far the biggest resolution plan getting materialized after the implementation of the code. What implications do you see from the lenders’ perspective?
The Bhushan Steel case was the largest and first of the ‘Big 12’ to be resolved whereby the banks have recovered approximate 70% of their dues, which amounts to a whopping ₹35,000 crore. I think this has been a big win, especially given the time within which this was achieved by Tata Steel and do hope this is just the first of many.
There have been several amendments to IBC since it was enacted a year-and-a-half ago. How do you compare the current Act with the older bankruptcy laws of the US and Europe?
It is a very new law, just 18 months old, compared to bankruptcy laws of developed markets such as the US and the UK. But I feel that this is a very crucial year for the law. The reason behind this is that the first 12 cases which were referred to by RBI will either get resolved or go into liquidation. Also, the majority of the second lot of about 25 cases should also get decided by year-end. Together, these cases constitute over 40% of the total number of NPAs, so if we achieve success in these cases, that would be a terrific achievement. I believe no other country has ever seen such a dramatic clean-up so quickly.
Currently, companies like Videocon Industries and BILT Graphic Paper have approached the high courts to stall the insolvency proceedings against them. Also, companies including UltraTech Cement and Liberty House have approached the National Company Law Tribunal (NCLT) seeking various reliefs as an intervener to the ongoing process. What kind of measures do you think tribunals, as well as resolution professionals, can take to deliver time-bound resolution as it was envisaged in the code in situations like these?
These are two separate sets of cases. Videocon is similar to the Essar case filed against RBI, where their argument was that the company should not have been pushed into the IBC process and once again, the court rejected their argument and the petition has been admitted. The second set of cases relates to the conduct of the bidding process and challenges by unsuccessful bidders. Any new law inevitably has to face such challenges; the key is to achieve beneficial jurisprudence in a timely manner. Also to enhance this process, Insolvency and Bankruptcy Board of India (IBBI) will be coming out with detailed regulations shortly.
The government has given lots of powers as well as responsibilities to the resolution professionals. Do you think while dealing with huge companies including in power, infrastructure and steel sectors, an individual will be competent over an institution?
In the large cases, most of the heavy lifting has been done by the six major accounting firms and Alvarez & Marsal. All these firms have been experts in the administration and restructuring space for decades in other common law jurisdictions. They, therefore, have substantial experience and bandwidth. Of course, there are also over 1,800 qualified resolution professionals who are (working) and will continue to work on the mid/small ticket cases. IBBI is on top of this issue, as it should be, especially in the first few years.
How do you see the role of Competition Commission of India (CCI) in the transactions where the potential bidder’s plan has been approved by the committee of creditors (CoC) and timeline of 270 days to finish the process is sacrosanct? What role do you force //FORCE? CHECK// from the regulators such as Sebi going forward to make the bankruptcy code more robust?
The CCI has been very timely in granting approvals. There is active communication between all regulators including Securities and Exchange Board of India (Sebi), with a unified goal to make the IBC a success. Of course, the ministry of corporate affairs (MCA) is leading and coordinating this process.
How do you see the move by the authorities to bar promoters from taking part in the resolution process as bidders?
There is no bar on promoters from taking part in the resolution process as bidders in general; the bar is only on defaulting promoters.
Do you think NCLT has enough infrastructure to deal with the humongous amount of cases? What can be done to improve the infrastructure?
As we need the decisions to be taken within a strict timeline, there is no doubt that both the number of NCLT members and benches (including National Company Law Appellate Tribunal (NCLAT) benches) need to be increased periodically. In fact, three new benches have just been announced. Failing this, there will be a huge backlog of cases and delay, which will defeat the entire purpose of the IBC.
Recently, the government has put homebuyers on par with unsecured creditors in the case of realty companies. Do you think this may lead to many more cases by such homebuyers against developers?
The government and courts have taken an understandable view that the homebuyers have to be protected. Once again, as the cases are sub-judice, I cannot say too much except that this issue is getting the attention it merits.
Source: June 12,2018 Livemint