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Mint
15 hours ago
- Business
- Mint
IBC's weak spot: Slow, difficult recovery from dubious pre-bankruptcy deals
New Delhi: Companies on the brink of collapse tend to do certain transactions that benefit the promoters or close partners but are detrimental to the organization and its creditors. While such 'dubious transactions' can later be set aside during bankruptcy proceedings by tribunals, getting the money back is proving an uphill task. Data from regulator Insolvency and Bankruptcy Board of India (IBBI) reviewed by Mint showed that in FY25, just ₹1,322 crore or a tenth of the amount involved in 'avoidance transactions' disposed of by tribunals were recovered. And overall, just 12% of the ₹65,650 crore worth voidable deals executed by promoters and management of 368 companies–and where tribunals have given their verdict–were recovered, according to IBBI. Such deals could include paying off a friendly creditor just before bankruptcy proceedings while ignoring others, moving assets to related parties or hiding them, selling assets for less than they're worth, or taking loans on unfair or excessive terms. Also read | A series of court orders changed bankruptcy rules. Now, the govt is amending the law 'There is often misconduct by earlier management pre-insolvency and it might be a reason for the insolvency in some cases," said Dhananjay Kumar, partner (head-insolvency and restructuring) at law firm Cyril Amarchand Mangaldas. 'Recovery of such amounts is a fundamental function of a law like IBC (Insolvency and Bankruptcy Code)," added Kumar. Other challenges pointed out by Kumar include lack of data to challenge these transactions, lack of funds with resolution professionals, and slow movement in National Company Law Tribunal (NCLT). The matter assumes significance because money recovered from dubious transactions adds to the pool of resources available for a corporate restructure plan. According to IBBI's estimates, on a conservative scale, a decision on avoidance transactions by tribunals would add recovery to creditors by at least 10%. Yogendra Aldak, partner at Lakshmikumaran and Sridharan Attorneys, said the high amounts being flagged as avoidance transactions highlight an alarming trend of promoters deliberately using such transactions 'to deprive a company of its resources for self-serving purposes leading to a snowball effect during times of stress". Read this | Scrapping a key bankruptcy rule may yield faster liquidation, better recovery Further, Aldak said IBC has not been designed as a debt-recovery machine and, instead, prioritises resolution of distressed companies. So, to avoid delays in rescuing businesses, taking decisions on avoidance transactions has been kept independent of corporate debt resolution. However, this makes it hard to recover money from avoidance transactions. For example, only deals made within two years before the insolvency process can be reviewed, which means many questionable transactions are never examined, Aldak explained. Another problem, he said, is tracking the money, as it is often moved through shell companies or hidden in other countries, making recovery even harder. Anisha Jhunjhunwala, senior consultant-IBC at NPV Insolvency Professionals Pvt. Ltd, said that despite clear evidence, enforcing clawbacks from avoidance transactions is a lengthy legal battle, with promoters delaying proceedings through litigation, and tracing diverted assets is complex, especially when routed through layers of related entities or parked overseas. Also read | NCLT member crunch slows down bankruptcy resolution 'The high quantum of flagged transactions reflects serious lapses and, in some cases, wilful misconduct by promoters, particularly during the twilight period before insolvency," said Jhunjhunwala. 'It shows that promoters, anticipating distress, often prioritize asset stripping over stakeholder interest, highlighting the need for stricter pre-insolvency oversight and faster adjudication timelines." The fact that it often takes considerable time for a bankruptcy petition by a creditor to be admitted in a tribunal only allows more time for such unscrupulous activities to take place. Till the end of March 2025, close to 1,200 bankrupt enterprises have been restructured under IBC and their creditors got the chance to recover ₹3.89 trillion or about a third of their admitted claims. This is in addition to proceeds from companies liquidated and the recoveries made by lenders who struck settlement deals with corporate borrowers before tribunals initiated insolvency proceedings. And read | Bankruptcy resolution professionals face creditor fury as cases reach courts
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Business Standard
5 days ago
- Business
- Business Standard
IBC in stress: Survival depends on commitment to its core principles
Public laws aim to keep the crime proceeds beyond the reach of criminals while punishing the criminals. Although these proceeds were never the state's property, state benefits from their confiscation M S Sahoo Ashish Makhija Listen to This Article The Indian Parliament in 2016 enacted the Insolvency and Bankruptcy Code (IBC) to address the country's persistent challenges of financial stress and managing bad debts, with the overarching objective of driving economic growth. In its initial years, the IBC benefited from rare institutional alignment. The legislature amended the code six times in the first five years to address implementation challenges and respond to the evolving economic environment. With alacrity, the executive issued the rules and regulations, established the Insolvency and Bankruptcy Board of India (IBBI) and National Company Law Tribunal (NCLT), accredited insolvency professionals, and built the supporting ecosystem. The
The Hindu
05-06-2025
- Business
- The Hindu
Is IBC an effective resolution tool?
The story so far: More than eight years have passed since the enactment of India's Insolvency and Bankruptcy Code (IBC). According to data from the Insolvency and Bankruptcy Board of India (IBBI), creditors have realised ₹3.89 lakh crore under the framework, with a recovery rate of over 32.8% against admitted claims. Why was the IBC enacted? India enacted the IBC, its first comprehensive bankruptcy law, in 2016 to improve the overall corporate insolvency resolution process. Shifting control from debtors to creditors, the IBC introduced a time-bound resolution mechanism to streamline bankruptcy proceedings, reduce judicial delays, and improve creditor recoveries. According to current provisions, a maximum timeline of 330 days is allowed to find a resolution for a company admitted into the insolvency resolution process. Otherwise, the company goes into liquidation. So far, the Code has rescued 1,194 companies through resolution plans. Is IBC a preferred route for debt recovery? As per the Reserve Bank of India report on Trend and Progress of Banking in India released in December 2024, the IBC emerged as the dominant recovery route, accounting for 48% of all recoveries made by banks followed by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act (32%), Debt Recovery Tribunals (17%), and Lok Adalats (3%) in the Financial Year 2023-24. The realisation under IBC is more than 170.1% as against the liquidation value. Resolution plans, on average, are yielding 93.41% of the fair value of the Corporate Debtors (CDs), IBBI said. Further, 1,276 cases have been settled through appeal, review, or settlement, and 1,154 cases have been withdrawn under section 12A. The Code has referred 2,758 companies for liquidation, as per IBBI data. Nearly 10 companies are being resolved against five going into liquidation. Has IBC been an effective recovery mechanism? Akshat Khetan, Founder, AU Corporate Advisory and Legal Services, pointed out that IBC has changed the underlying credit culture. As the Supreme Court once observed, 'the defaulter's paradise is lost' and the Code has created a credible threat that ensures timely repayment. On the recovery rate of 32.8%, Mr. Khetan pointed out that it must be interpreted in light of the distressed nature of the assets that come into the IBC process, often after years of erosion. As the National Company Law Appellate Tribunal has rightly remarked in one of its rulings, 'IBC is not a recovery mechanism; it is a resolution framework.' Compared to legacy systems, where recovery rates were often below 20% with timelines extending into decades, a 32.8% realisation is a leap forward, he said. Mr. Khetan also stated that the statistic does not capture qualitative gains, such as job preservation, improved enterprise value, and restored investor confidence. In a framework designed to balance resolution over liquidation, the broader economic impact of IBC far outweighs numerical recovery alone, he said. The provisions of the IBC have prompted debtors to take early action in distress situations, marking a shift in their behaviour. National Company Law Tribunal (NCLT) data show that 30,310 cases were settled prior to admission, covering underlying defaults worth ₹13.78 lakh crore till December 2024. A study by the Indian Institute of Management, Bangalore, submitted to IBBI, said IBC has injected discipline in the credit allocation process and has prompted borrowers to adhere to stipulated payment schedules. The gross non-performing assets of the scheduled commercial banks have declined from a peak of 11.2% in March 2018 to 2.8% in March 2024. A part of that reduction is attributable to resolution processes enabled under IBC, it said. The study also indicated a 3% reduction in the cost of debt for distressed firms post-IBC, compared to non-distressed firms , indicating an improved credit environment for distressed firms. The IBC has had a positive impact on corporate governance, reflected in the increased proportion of independent directors on the boards of companies resolved under the Code. What are the major challenges? In a recent report, India Ratings and Research said that judicial delays and post-resolution uncertainties continue to affect confidence in the IBC framework. Even when resolution applicants are ready and the Committee of Creditors has granted approval, delays at the NCLT continue to push recovery timelines. In several cases, such delays result in extended litigation or failed implementation, increasing the risk of liquidation for a viable asset that requires timely execution, it said. The future insolvencies also raise questions about the Code's readiness to handle non-traditional enterprise defaults. While the IBC is legally broad enough to accommodate various resolution strategies, key commercial elements such as intellectual property valuation, treatment of employee dues, and tech continuity require a clearer treatment under the framework to make it future-ready, India Ratings said. To enhance its effectiveness, India must invest in strengthening tribunal infrastructure, allow for pre-packaged insolvency, and establish jurisprudential guardrails to protect bona fide commercial decisions from post-resolution uncertainty, Mr. Khetan said. While challenges persist, including process delays and recovery rates below expectations, the Code's foundational structure remains sound. As implementation matures and jurisprudence evolves, the IBC is well-positioned to overcome these hurdles and fully realise its transformative potential in India's financial ecosystem, IBBI Chairman Ravi Mital said in the recent quarterly newsletter. Does the SC verdict on Bhushan Steel pose a challenge to IBC? The recent developments in the Bhushan Power and Steel Ltd. case have reignited concerns around the finality of resolution outcomes and the predictability of the framework. While the decision upholds compliance standards, its timing and implications highlight the need for judicial clarity and faster adjudication to sustain investor confidence in the process in the long term, India Ratings said. By questioning a transaction that had been closed and operational for years, it risks unsettling the core principle of commercial certainty. If resolution applicants fear judicial reversals even after significant investment, they may hesitate to bid, undermining the IBC's very purpose. The Bhushan verdict thus underscores the need for legal sanctity once a resolution plan is approved and implemented, Mr. Khetan said. The IBC is not merely a piece of economic legislation, it is the backbone of India's credit ecosystem. Its future lies in striking a fine balance between judicial oversight and economic pragmatism. As India aspires to become a $5 trillion economy, robust and predictable insolvency mechanisms are indispensable. The Code must remain nimble, continually evolving to meet emerging realities while ensuring that commercial wisdom is not second-guessed endlessly, he said. Almost 78% of the ongoing Corporate Insolvency Resolution Process (CIRP) cases have exceeded 270 days, post-admission by the NCLT, as on March 31, 2025, ratings agency ICRA said. A sustained momentum would be needed to minimise haircuts for lenders, which remain high at 67%, it said. Nevertheless, some of the recent judgments reinforce the need for timely and transparent resolution, thereby putting greater onus on the Committee of Creditors (CoC) and NCLT. However, such rulings may also impact investor confidence in stressed assets setting precedents that the decision made by the CoC and the NCLT may be challenged and overturned by the judicial system, thus impacting the effectiveness of the resolution process, ICRA said.
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Business Standard
05-06-2025
- Business
- Business Standard
Central Bank of India acquires 24.91% stake in FGIICL for ₹451 crore
The bank's strategic acquisition of 350.63 million shares in Future Generali India Insurance marks its entry into the general insurance sector New Delhi Central Bank of India has acquired a 24.91 per cent equity stake in Future Generali India Insurance Company Limited (FGIICL) for ₹451 crore. The acquisition involves the purchase of 350.63 million equity shares in cash and was completed on June 4. The move follows the issuance of a Letter of Intent dated August 20, 2024, under Regulation 29 of the Insolvency Resolution Process for Corporate Persons (IBBI) Regulations, 2016. The transaction was finalised after receiving all requisite regulatory approvals from the Competition Commission of India (CCI), Reserve Bank of India (RBI), and the Insurance Regulatory and Development Authority of India (Irdai). FGIICL performance and ownership This strategic acquisition marks Central Bank of India's entry into the general insurance sector. FGIICL reported a gross direct premium of ₹4,910.89 crore in the financial year 2023–24, providing the bank with a significant platform for expansion. Future Generali India Insurance, incorporated in 2006 and headquartered in Mumbai, operates over 150 offices nationwide. It is engaged in providing general insurance services across retail, commercial, personal, and rural segments to both individuals and corporate clients. Generali currently holds a 74 per cent stake in the company. Steady premium growth Over the past three financial years, FGIICL has posted consistent growth in its gross written premium. In FY24, the figure reached ₹4,910.89 crore, an 8 per cent rise from ₹4,546.23 crore in FY23. The previous year had also seen similar growth, increasing from ₹4,210.35 crore in FY22. This represents a steady annual growth of around 8 per cent for two consecutive years. As of 2022, the company served over 3,900 corporate clients through a network of more than 36,800 individual agents and operated over 150 branches across India. The disclosure was made in accordance with Regulation 30 of the Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015.
Mint
03-06-2025
- Business
- Mint
Parliamentary panel to recommend fresh set of changes to insolvency code
New Delhi: India's insolvency regime is set for further reform as the Parliamentary Standing Committee on Finance will likely recommend a set of measures aimed at speeding up decisions and boosting creditor recoveries under the Insolvency and Bankruptcy Code (IBC), two people familiar with the matter said. The suggestions will follow the committee's ongoing review of the Code. The review comes amid growing demands for speeding up debt resolution and improving recovery rates, and legal complexities exposed by the recent Supreme Court ruling in the Bhushan Power & Steel resolution case. Read this | House panel to scan IBC functioning after SC's Bhushan order The House panel, led by lawmaker Bhartruhari Mahtab, met last week with officials from the ministry of corporate affairs and the Insolvency and Bankruptcy Board of India (IBBI), along with executives of three state-run banks, to assess the performance of the Code since its rollout in 2016. In the meeting, officials told the panel that the IBC has become the principal recovery mechanism for banks and financial institutions, accounting for nearly half of all debt recoveries, and has also helped reduce borrowing costs for distressed companies, one of the persons quoted above said. However, the process continues to suffer from persistent delays and subpar recovery rates in many cases, often due to protracted litigation among stakeholders. So far, creditors have realised ₹3.89 trillion from approved debt resolution plans and ₹9,330 crore from liquidated companies, according to data from the IBBI. Another ₹1 trillion was realised from cases settled directly between creditors and companies. The committee is expected to meet more stakeholders, including insolvency professionals and industry representatives, before finalising its report, one of the people cited above said. Among the concerns raised in last week's meetings were the challenges faced by homebuyers in ongoing insolvency cases, the person added. Queries emailed on Monday to the ministry, the Parliamentary committee and IBBI seeking comments for the story remained unanswered at the time of publication. Experts say that resolving these bottlenecks will require strengthening the judicial infrastructure supporting IBC. 'To improve the IBC process, we need faster court decisions. This can be done by increasing the number of judges, reducing adjournments, and using better technology for case tracking. The process should stick to strict timelines to avoid long delays that reduce the value of assets," said Ritesh Kumar Adatiya, director, NPV Insolvency Professionals Pvt. Ltd. Court ruling questions IBC operations The Supreme Court last month rejected the five-year-old resolution plan for Bhushan Power & Steel Ltd (BPSL), citing jurisdictional issues and violations of IBC provisions. The ₹19,700 crore successful bid by JSW Steel Ltd was overturned, and the court ordered the liquidation of the company. It later granted JSW time to file a review petition. In a landmark ruling, the apex court held that bankruptcy tribunals do not have powers of judicial review over statutory authorities such as the Enforcement Directorate (ED). It also struck down an earlier National Company Law Appellate Tribunal (NCLAT) order that had insulated BPSL's assets from ED attachment, saying the tribunal had exceeded its jurisdiction. Read this | Mint Explainer: The Supreme Court's Bhushan Power ruling that has stunned India's insolvency ecosystem That decision, along with other recent Supreme Court rulings on the priority of statutory dues and the Competition Commission of India's (CCI) clearance requirements for certain resolution plans, has introduced new legal complexities not originally anticipated in the Code. The Ministry of Corporate Affairs is now working on a draft amendment bill to clarify some of these ambiguities and streamline the process. The bill is expected to be tabled in Parliament later this year. Despite the recent judicial setbacks, the Code has a strong foundation and remains robust in ensuring debt resolution, though some glitches persist in areas where the law remains unclear, said the second person cited earlier. NPV Insolvency Professionals' Adatiya added that outcomes under IBC can improve significantly if resolution plans are filed earlier and by credible applicants. 'Proper background checks, faster approvals, and fewer legal hurdles after plans are approved can go a long way in protecting lenders' interests," he said. Also read | A series of court orders changed bankruptcy rules. Now, the govt is amending the law 'IBC has helped change the credit culture in India," he added. 'But to improve outcomes, we need quicker resolution, stronger checks on resolution applicants, and better coordination between regulators, courts, and professionals. This will boost confidence and improve returns for creditors."
