The government is considering innovative options —including a minimum threshold to trigger insolvency against real estate developers — to ensure that the resolution framework is not abused by vested interests within the home-buyer community, corporate affairs secretary Injeti Srinivas said on Tuesday.
Under the Insolvency and Bankruptcy Code (IBC), home-buyers are treated as financial creditors. Analysts have also warned that home buyers are at times used by realty developers to target their rivals.
The personal insolvency reg-ime would be fully operational in one year and the cross-border insolvency framework will be introduced in the winter session of Parliament, Srinivas said.
Speaking at a function to mark the third anniversary of the Insolvency and Bankruptcy Board of India (IBBI) on Tuesday, finance and corporate affairs minister Nirmala Sitharaman promised all possible help to further strengthen the insolvency eco-system.
While the IBC stipulates a maximum of 270 days to resolve a case, the resolution of many large default cases, including Essar Steel and Bhushan Power and Steel, has dragged on for ages, mainly due to litigations.
Acknowledging the delay, Srinivas highlighted the need to expedite cases that are pending for months. The average time taken for resolving a case is now 315 days, he said. However, the recent amendment to the IBC that mandates that all insolvency cases have to be resolved in 330 days, including the time spent on litigation, will expedite the resolution process, he added.
To be sure, as much as 34% of the 1,292 ongoing cases in bankruptcy courts as of June 30, 2019 are delayed beyond 270 days, up from 26% a year ago and 31% in the March quarter, showed data provided in IBBI’s newsletters. This has raised fears that the promise of a time-bou-nd resolution is proving too ha-rd to be honoured. Similarly, the recovery by financial creditors in the June quarter stood at just 14% of their admitted claims, much lower than the cumulative recovery of 43% since the inception of the IBC in 2016.
Five of the 12 large NPA accounts recommended by the RBI in 2017 for resolution under the IBC are yet to see finality in the resolution process. IBBI chairman MS Sahoo highlighted the achievements of the regulator over the past three years.
Source: Financial express, October 2, 2019