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Implementation of Insolvency and Bankruptcy Law in India
Fearing action under the newly-enacted Insolvency and Bankruptcy Code (IBC), over 2,100 companies, who had defaulted on loan repayments, have settled their dues of around Rs 83,000 crore, the Times of India has reported.

A majority of the outstanding amount was cleared after the government amended the code. These amendments aim to keep-out such persons:

I.            who have wilfully defaulted, or

II.            are associated with non-performing assets, or

III.            are habitually non-compliant

and, therefore, are likely to be a risk to successful resolution of insolvency of a company.

In addition to putting in place restrictions for such persons to participate in the resolution or liquidation process, the Amendment also provides such check by specifying that the Committee of Creditors ensure the viability and feasibility of the resolution plan before approving. 

The delays in the insolvency/bankruptcy resolution area have largely been due to three factors—emergence of the home buyers’ issue and hitherto unimagined issues in the process, the plethora of legal cases that different stakeholders have initiated against one another and conflicting interpretations of the IBC by concerned parties.

The government had, on November 17, 2017, constituted a 14-member committee under the chairmanship of the secretary, department of corporate affairs, to assess the functioning of the IBC and examine issues that could impact the framework prescribed under the law. This committee, after examining many emerging issues, finalised and released its report on March 26, 2018. 

On the home buyers’ issue, after considering the peculiarity of the Indian real estate sector and reviewing the financial terms of various agreements between the buyers and the builders, the committee concluded that the disbursement of money is in relation to the delivery of a future asset and the amounts so raised are used as a means of financing the project. The committee, therefore, concluded that the amounts so raised from a home buyer may be classified as “financial debt”. The home buyers, therefore, are to be treated as financial creditors and in the resolution process, they will be a part of the committee of creditors and their claims will be met according to the manner specified in the law.

The committee also wants that the resolution plans under the Code must be compliant with the provisions of the Real Estate (Regulation and Development) Act, 2016 (RERA). However, while it is true that RERA gives powers to the regulator to pass orders in favour of home buyers, it has no powers to enforce its orders. Also, RERA is silent on the eventuality of the developer itself declaring insolvency. Thus, RERA also needs to be amended to plug these loopholes and make it totally in sync with the Code to protect the interests of home buyers. 

In the meanwhile, the Supreme Court, when approached, has been asking the promoters or parent companies of insolvent housing companies to deposit large amounts upfront so that home buyers could be refunded. In the case relating to Supertech, it has already ordered the refund of principal to home buyers and has been ordering upfront deposits of instalments on hearings. Similarly, on May 16, in the case of Jaypee Infratech, it ordered its parent company, Jaiprakash Associates, to deposit Rs 1,000 crore by June 15, 2018, for refunding the home buyers. 

On the other issues, there are legal cases instituted against resolution professionals by different actors—employees of the insolvent company in one case and bidders whose bids have been disqualified in many cases. There are appeals against disqualification of bids to the NCLATs and Supreme Court. There are petitions in the NCLATs and Supreme Court for and against rebids and for postponement of rebids. There are petitions for accepting out-of-court settlements after the start of the resolution process and there are petitions for withdrawing the insolvency process. 

Despite these roadblocks, over the next few months, there will be a closure — either through a resolution or liquidation in the case of the 12 large firms referred to the National Company Law Tribunals under the IBC, thus promising to ease the pain for Indian lenders by writing back about Rs one lac crore of NPAs.

This trend means there is a thriving market for stressed assets in India and instead of no takers we have keen bidders willing to fight to the end. 

(The writer is an author and a commentator.)

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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