House panel to scan IBC functioning after SC's Bhushan order
The parliament's top finance panel is set to scrutinize the country's insolvency and bankruptcy framework, in the wake of a recent Supreme Court order quashing the rescue of Bhushan Power & Steel Ltd (BPSL) and ordering its liquidation.
Officials from the corporate affairs ministry, the Insolvency and Bankruptcy Board of India (IBBI) and public sector banks will brief the Parliamentary Standing Committee on Finance on the bankruptcy framework and its operational aspects as policymakers look for a way forward after the landmark Supreme Court judgement. The committee is led by Bharatiya Janata Party's Lok Sabha MP Bhartruhari Mahtab.
BPSL was among the 12 large bad loan accounts identified early for priority resolution. In September 2019, a company law court approved JSW Steel Ltd's ₹19,700 crore BPSL rescue plan, which was also upheld by an appeals tribunal the next year. The Supreme Court on 2 May this year overturned the plan, citing non-compliance with the insolvency and bankruptcy code (IBC) provisions and certain jurisdictional issues. The order, which came five years after the final clearance, is seen as a milestone in India's debt resolution framework as it highlights the need to ensure the integrity of the debt resolution process.
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Taking evidence
After a briefing by the corporate affairs ministry on 29 May on 'the working of IBC and emerging issues', the panel will take oral evidence from representatives of three leading state-run banks, according to the panel's schedule made available by the Lok Sabha Secretariat. On 30 May, the panel will discuss the matter with the representatives of bankruptcy rule maker and regulator of professionals, IBBI.
The working of IBC came under the spotlight after the SC said that following procedures and legal provisions—and not just the end result—was critical in debt resolution. The judgement also highlighted lapses by the resolution professional and the creditors of the distressed company.
Roadmap for growth
Apart from the working of IBC—an important policy tool for addressing industrial sickness—the House panel will also discuss the 'roadmap for Indian economic growth in light of global economic and geopolitical circumstances' with chief economic advisor (CEA) V. Anantha Nageswaran on 9 June, showed the schedule. This discussion is expected to cover the impact of reciprocal tariffs imposed by the US on India as well as the broader policy goal of making India a developed economy by 2045, a person aware of the development said.
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JSW Steel declined to comment. Queries emailed to the ministry of corporate affairs, IBBI and to the CEA on Sunday seeking comments remained unanswered.
The choice of topics suggests the House panel is focused on issues having a bearing on investments, jobs and economic growth. The panel's recommendations often influence policymaking and administrative decisions, although they are not binding on the government.
The Supreme Court's order in the BPSL case is a wake-up call for all stakeholders that IBC, which is to facilitate resolution of corporate debtor in a just and equitable manner, must be followed in letter and spirit, said Ashok Haldia, former chairman of the governing board of Institute of Insolvency Professionals of ICAI (IIIPI), a body which enrols and regulates insolvency professionals.
No excuse for non-compliance
Haldia, who also chaired a committee of the Institute on improving real estate bankruptcy resolution, said that the mere fact that one has gone far ahead in the process of debt resolution cannot be an excuse for non-compliance with the law.
'Commercial wisdom of the committee of creditors (COC) cannot be stretched to exceed associated legal boundary. There is also a case for reviewing how the profession of insolvency professionals is structured, organized and equipped—not only to comply with legal and regulatory requirements but also to handle the complexities of resolving distressed businesses as going concerns," said Haldia.
Key measures that could make IBC more efficient include inducting a scheme for group insolvency in IBC, allowing project-wise insolvency and extending the scheme of pre-pack insolvency now allowed for micro, small and medium enterprises, to larger companies, according to Siddharth Srivastava, partner, Khaitan & Co.
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'While the concept of group insolvency has been recognized by adjudicating authorities starting with SBI v. Videocon Industries Ltd. and subsequently allowed in the insolvency resolution of Lavasa Corporation Ltd., Sachet Infrastructure Pvt. Ltd etc., it is, however, essential that statutory recognition may be given to the concept. In the absence of the same, many adjudicating authorities have not recognized the principle, leading to non-consolidation of assets and loss in value maximization of corporate debtors," said Srivastava.
While the avenue for exploring project-wise insolvency has been allowed under regulations, there is no clarity in regard to the same, said Srivastava. 'It is also important to note that the Code only recognizes resolution of a company as a whole. The corporate insolvency resolution regulations cannot negate the principles of the Code, hence it is imperative that recognition and guidelines for initiating project wise insolvency may be introduced as provisions under the Code," said Srivastava.
Following the apex court's rejection of JSW Steel's resolution plan, the National Company Law Tribunal (NCLT) principal bench in New Delhi last Tuesday considered representations from different parties including the central government's request to implead on the matter.
NCLT is expected to hear the matter further on 30 May and issue directions regarding implementation of the Supreme Court decision, showed the NCLT order seen by Mint. One of the creditors told the tribunal that other options are under consideration including a fresh debt resolution process.
'The profession insolvency resolution professionals needs to restore in it the confidence of stakeholders. It is high time for revisiting IBC which amongst others addresses the legal, institutional and judicial reforms so that finality in resolution is arrived at within 360 days," said Haldia.
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