In the seven months since the Insolvency and Bankruptcy Code (IBC) became operational, the resolution process for 200 companies has started, said Insolvency and Bankruptcy Board of India (IBBI) Chairman M S Sahoo on Saturday. This includes the 12 large accounts that were referred to the National Company Law Tribunal (NCLT) by the Reserve Bank of India (RBI).
“A number of steel and power companies have moved the NCLT to file for insolvency, so that they can restructure themselves. Only a few cases have been filed by financial creditors. Debtors and operational creditors have been the ones filling most of the cases,” said the regulator.
Sahoo added that appeals of the insolvency cases in high courts and the Supreme Court were helping clarify the new law. He was addressing an event, ‘Decoding the Insolvency and Bankruptcy Code’, organised by the IBBI and FICCI in the national capital on Saturday.
“The code is such that a resolution professional can use any method he or she feels is suitable for resolution. It includes merger, takeover or a restructuring plan approved by the committee of creditors”
M S Sahoo, chairman, IBBI
He said several insolvency cases had gone to the courts or the National Company Law Appellate Tribunal (NCLAT). One of the earliest cases under the IBC was ICICI Bank versus Innoventive Industries. The company, which had a debt of Rs 900 crore, had challenged in the Bombay High Court the constitutional validity of the IBC and the power to liquidate assets of debtor firms.
200 firms under IBC in 7 months, says IBBI chief M S Sahoo
The court admitted the constitutional validity of the code and the case came back to the NCLT, Mumbai, where the insolvency process has begun.
According to the IBC, if a company does not restructure within 180 days from the initiation of the insolvency proceeding by lenders, its assets can be liquidated. The time given to it can be extended by 90 days.
Supreme Court judge A K Sikri, who also addressed the event, said while the IBC was a wonderful document, its implementation was a challenge for the NCLT and the IBBI. The code provides for a market-determined and time-bound resolution of insolvency proceedings, and became operational in December 2016.
Sikri also said the provision for cross-border insolvency was yet to be implemented.
The rules for cross-border insolvency under the IBC have been notified but not finalised by the regulator. Once they are finalised, India will enter into agreements with countries where the United Nations model for insolvency is followed.
This would help the insolvency process of companies, which have foreign assets like the 12 referred to by the RBI to the NCLT. It would also help with the insolvency process of companies such as PSL Limited, which have foreign lenders.