Welcome to the latest updates on the insolvency and bankruptcy law!

First, let’s survey some of the data that gives us a birds-eye-view of the functioning of the Insolvency and Bankruptcy Code (IBC), almost two years after its inception.

212 companies, that is nearly 80 per cent of all companies that have completed the new process, have ended in liquidation.

Corporate Affairs Secretary Injeti Srinivas said more than 9000 cases have come for redressal under the IBC. While the cases that have been resolved have led to the recovery of Rs 71000 crore, there has been a direct and indirect impact on stressed assets worth over Rs 3 lakh crore.

But ratings agency ICRA struck a note of caution. Despite closing 123 cases in the third quarter — the highest so far, the number of corporate debtors increased nearly 13% during the second and third quarters to 816. And even though the petitions to NCLT remain significantly high, the number of cases admitted by the NCLT also witnessed a decline to 216 in the second quarter compared to 244 in the previous quarter.

It observed that “one of the key reasons for the delays in the completion of the resolution process has been the litigations filed by different parties”.

MS Sahoo, the chairman of the Insolvency and Bankruptcy Board of India has sought inputs from the industry to hasten the process of case disposals.

A young law

The law remains a work in progress. The Insolvency and Bankruptcy Board of India has notified a set of procedures to be followed for making or amending regulations under the IBC.

Recent recommendations of the Insolvency Law Committee on cross-border insolvency are in line with the provisions set out in the UNCITRAL Model Law.

The government is also exploring the feasibility of a “pre-packaged” bankruptcy scheme to allow a stressed company to prepare a financial reorganisation plan before the filing of an insolvency application by any party.

This ongoing evolution has not dampened enthusiasm for the new law. Global advisory firm Duff and Phelps has said that the law has helped in the creation of value in stressed assets.

And because of some big accounts lined up for resolution under this law, the government expects recoveries of bad loans to exceed the Rs 1.80 lakh crore target for FY19.

Stressed sectors

The Deputy Governor of the Reserve Bank of India has said that there should not be special treatment for any defaulter that genuinely wants to pay but cannot.

There is no consensus yet among bankers regarding the resolution of stressed assets in the power sector as they wait for the results of the challenge before Supreme Court of the RBI circular dated February 12, on resolution of stressed assets.

Essar resolution

The State Bank of India (SBI) alone expects to recover Rs 6,000 crore from the resolution of Essar Steel.

This resolution, which has been at the centre of attention and is even seen as a test case for the process set out under the IBC, entered a controversial phase when after the committee of creditors directed the resolution professional to accept ArcelorMittal’s resolution plan and file it with the NCLAT, Essar Steel’s promoters, the Ruia family, issued a statement offering to clear all dues – financial, operational, and unsecured creditors, including an upfront cash payment of Rs. 47,507 crore.

This delayed bid has been controversial to say the least and nearly everyone seems to agree that it was improper.

But the Gujarat government is set to lose as much as Rs 1,150 crore if the committee of creditors’ recommendation to accept the resolution plan of ArcelorMittal is upheld.

Several lawyers now expect the insolvency proceedings to drag on.

From the docket

With the Binani Cement case, the Supreme Court has balanced the procedure under the IBC with its objective to maximize the value in stressed assets.

Are financial service providers such as non-banking financial companies outside the purview of the IBC? The National Company Law Appellate Tribunal (NCLAT) thinks so.

In Sudhi Sachdev v. APPL Industries Limited, the NCLAT held that the pendency of the case under Section 138/441 of Negotiable Instruments Act, 1881 does not amount to the existence of a dispute. The appellants had submitted that the proceedings under Section 138 are really a civil case for the recovery of the money and therefore, in view of the pendency of such case, an application under Section 9 of the IBC is not maintainable. The NCLAT was not inclined to accept the submission.

In SICOM Limited v. Alok Employees Benefit and Welfare Trust and Others, the NCLAT ruled that resolution plans that had not been approved before the IBC (Amendment) Ordinance, 2018 was introduced, will require the lowered voting of 66% as opposed to 75%.

In Rajesh Arora v. Sanjay Kumar Jaiswal, the NCLAT held that the admission of an application under Section 9 of the IBC without any notice to the corporate debtor contravenes the rules of natural justice and set aside an order passed by the NCLT in New Delhi.

The NCLAT has also held that insolvency can be triggered against an unincorporated joint venture between two companies. It observed in Mrs. Mamatha v. AMB Infrabuild Private Limited and Others, that “if the two ‘Corporate Debtors’ collaborate and form an independent corporate unit entity for developing the land and allotting the premises to its allottee, the application under Section 7 will be maintainable against both of them jointly and not individually against one or other”.

In Usha Holdings v. Francorp Advisors, the NCLAT has held that since the Adjudicating Authority under the IBC, was not a ‘court’ or a ‘tribunal’, it cannot decide the legality of a foreign decree.

In Radius Infratel v. Union of India, the NCLAT held that suspended directors cannot maintain an appeal on behalf of the corporate debtor.

In Naveen Luthra v. Bell Finvest, the NCLAT held that an application under Section 7 of the IBC cannot be rejected on the ground of “usurious and extortionate penal interest”. The provisions of the Usurious Loans Act, 1918 did not apply to proceedings under Sections 7 or 9 of the IBC.

In Gaurav Pandey v. Eternity Investment Services, the NCLAT declared illegal the admission of an application under Section 7 of the IBC after a settlement between the parties.

That’s all for now. Thank you for reading and stay tuned for more updates on the IBC from all of us at Sarthak Advocates and Solicitors.

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