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The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 1
Foreword
1
The evolution of the Insolvency & Bankruptcy Code, 2016 since its commecement from December, 2016 has been significant. The code was necessary
because the banks were going through rough patches with burgeoning NPAs.
Some noteworthy results of IBC 2016 so far:
IBBI acting as a strong & vigilant regulator
1770 + Insolvency Professionals (IP) registered throughout India
75 + Insolvency Professional Entity (IPE) registered throughout India
11 Benches of National Company Law Tribunal (NCLT) actively pursuing IBC cases
3 Insolvency Professional Agencies (IPAs) and 1 Information Utility (IU) in place
3 Valuer organisations have been registered throughout India
800 + insolvency proceedings are going on in various Benches
Already 130+ cases have either been resolved or put into liquidation
The menace of stressed assets regulations revolves around:
Timelines of the resolution process; Maximization of value that can be obtained; Enforceability of the outcome.
The initial progress has been slow with companies under phase I of IBC going through various hurdles, interpretation of the code & bidding battleground. Further, as of now, there is more liquidation than resolution i.e. 3:1 which has never been the intent & objective of reviving the entity.
However, we are sure that these obstacles are being tackled effectively. IBBI, NCLT & other stakeholders are working towards preserving the rescue culture within the IBC. A co-ordinated ecosystem needs to develop gradually for IBC to deliver efficiently.
CII-Sumedha has prepared this knowledge paper for providing inputs to the prevailing ecosystem within IBC along with key issues therein.
Vijay Maheshwari Director,
Sumedha Management Solutions Pvt. Ltd
Sumedha Fiscal Services Ltd.
&
Chairman,
CII-ER Corporate Finance Taskforce
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics2
Contents
The Insolvency and Bankruptcy Code, 2016 3
Revisiting the code 6
The Code evaluation 8
Stress in the banking system 10
A revised framework for the resolution of stressed assets 14
A handful of resolutions 17
More liquidation than resolution 19
Important amendments suggested by Insolvency Law Committee in IBC Code 24
Operational Creditors are worse off 28
Top NCLT Cases 32
Selected Judgements 43
Annexures 48
Bibliography 52
Glossary 53
About CII 54
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 3
The Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016
(the code, IBC) has been one of the biggest
economic reforms in India in recent
times. The code was formed with the following
objectives:
To balance the interest of all stakeholders by
consolidating and amending the existing laws
relating to insolvency and bankruptcy;
To promote entrepreneurship;
To make credit available;
To reduce the time of resolution for
maximizing the value of assets;
Highlights of the code
The Code brings a paradigm shift from
“Debtors in possession” to “Creditors in
Control”
Insolvency test moved from “erosion of net
worth” to “payment default”
Single insolvency and bankruptcy framework.
It replaces/modifies/amends certain existing
laws
Time-bound resolution process at each stage
Establishment of Insolvency and Bankruptcy
Board-a regulator as an independent body
A clearly defined distribution of recovery
proceeds
Insolvency Professional to take over
management and control of the Corporate
Debtor
Government dues would rank below the
claims of other creditors
Have provisions to deal with concealment,
fraud and /or manipulation leading to fine
and/or imprisonment
Provide confidence to Lenders and Investors
in the debt market
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics4
A corporate commits a default
The financial creditor, individually or jointly with other financial creditors may file an application for initiating the insolvency resolution process against the corporate debtor before NCLT, the Adjudicating Authority. (AA)
If AA is satisfied about the default and all other parameters are met it accepts the application. Else rejects allowing 7 days’ time to rectify mistakes
AA declares moratorium for prohibiting certain things.
Appointment of an interim resolution professional.
Makes public announcement for the initiation of the process, call for the submission of claims.
Commencement of corporate insolvency resolution process
Constitute a Committee of Creditors (COC)
COC accepts one of the Plans
AA accepts Resolution plan
RP implements Resolution plan and handover management to existing/new promoters
AA rejects resolution plan
Corporate debtors goes into Liquidation
RP submits Resolution Plan to Adjudicating Authority approves or rejects the plan14
COC rejects all Plans
RP prepares Information Memorandum. Resolution Applicant prepares resolution plan and submit to RP. RP examines all Resolution Plan and presents such plan to COC which meets the criteria
Appointment of the resolution professional (RP) (Either Interim resolution professional can continue or a new one can be appointed by COC with backing of 75% majority (in Value terms)
AA admits the application if default has not been rectified and if application is complete. Else rejects allowing 7 days’ time to rectify mistakes
The AA accepts the application if it is complete Else rejects allowing 7 days’ time to rectify mistakes
An operational creditor send a demand notice to the corporate debtor. Within the 10 days, if the operational creditor does not receive payment or notice of dispute, it applies before NCLT for resolution process.
A defaulting corporate debtor may also file an application for initiating corporate insolvency resolution process with the NCLT the Adjudicating Authority.
Insolvency resolution process for corporate
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 5
Liquidation
TimelinesParticulars Timeline (in days)
NCLT admits the application (commencement of corporate insolvency resolution process) X
Constitution of Committee of Creditors X+30
Identification of Prospective Resolution Applicants X+105
Submission of Resolution plan to NCLT X+165
Completion of Insolvency Resolution Process X+180
Extension of the resolution Process X+180+90
If the COCs or the NCLT reject any resolution plan, the corporate debtor goes for liquidation
Appointment of Liquidator
Submission of the preliminary record to the Adjudicating Authority (Y+75)
Submission of claims by different stakeholders. Verification of stakeholders’ claims and preparation of final list of stakeholders by the liquidator.
Asset memorandum by the liquidator and valuation by at least two independent valuers
Asset sale either by auction or by private sale. Distribution of proceeds (Y+2 yrs)
To make public announcement - to call upon stakeholders to submit their claims as on liquidation commencement date and to provide last date for submission of claim (30 days from the liquidation commencement date –Y*+30)
* Liquidation commencement date: means the date on which proceedings for liquidation commence in accordance
with section 33 or section 59 of the Code (Y)
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics6
Revisiting the code
Innoventive Industries - the first CIRP under IBC admitted on 17 Jan, 17
As much as 38% or 30 out of 79 corporate cases were closed on commencement of liquidation.
From the 10 CIRP cases closed by approval of resolution plan, FCs could recover only 33% of their claim. Only three cases have recovery rate of over 50%.
Steel had remained most vulnerable sector in the past. As many as 45 steel companies were admitted in CIRP till December 2017**
During the calendar year 2018 till date, 89 cases were closed either by resolution or by liquidation. There have been much more liquidation cases than resolution.
*Till May 18
*Voluntary liquidation: As per IBC, a corporate person, who has not committed any default, can go for voluntary liquidation process
**Source: Economic Survey, which drawn data from IBBI/NCLT web-site. The data is tentative and have not considered many major cases.
Source: IBBI, ibcorders.com, media report, Sumedha Fiscal, Economic Survey
540
30
Dec 16 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19*
10
278
74
15
During 2QFY 18, 11 large cases under NCLT I were admitted, financial creditors gross outstanding (princ.+int) with this 11 cases is Rs. 3.06 lakh crores
First liquidation order – Bhupen Electronic on 31 Jul 17
Nicco Corp.’s liquidation order (17 Oct 17), - the 1st company whose case was transferred to NCLT after BIFR scrapping.
4QFY18 – highest number of voluntary liquidation* case admitted in a quarter – 68
4QFY18 – highest number of liquidation orders – 56
Resolution of 2 large NCLT1 cases – Bhushan Steel and Electrosteel Steel
First resolution order of Synergies Dooray (02 Aug, 17), FCs realized only 5.63%
LiquidationCIRP closure by commencement of liquidation
Admitted Cases
ResolutionCIRP Closure by approval of resolution plan
Closed by
38%
49%
13%
Appeal/Review ResolutionLiquidation
Resolution vs Liquidation
83%
17%
Resolution Liquidation
FCs recover only 33.62% of claims
3709
11033
FC’s realization (Cr) FC’s claim (Cr)
CIRP Initiated by
20%
43%
37%
Financial Creditors Corporate DebtorsOperatioanl Creditors
No. of companies from each sectors
304
45 1245
1733
39
19
40
131
2
SteelRetailCapital GoodsTextilesTradingChemicalsShip BuildingConstructionComputer EducationMining & mineralOthers
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 7
900
162
116
140
234
12838
656
800700600500400300200100
04QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19*
CIRP Cases admitted
120
100
80
60
40
20
0
18
8656
23
7004QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19*
Closed by liquidation
IPs registered with IPA
150
582
1058
ICAI (CA) ICAI (Cost Accountants) ICSA (CS)
30
25
20
15
10
5
0
4
21
11
8
2004QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19*
Closed by resolution
900
162
116
140
234
12838
656
800700600500400300200100
04QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19*
Voluntary Liquidation Cases
2000
1600
1200
800
400
0Mar 17 Sep 17 Dec 17 May 18
IPs registration trend
ICAI (CA) ICSA (CS)ICAI (Cost Accountants)
*Till May 18
Source: IBBI, MCA, SBI, Sumedha
NCLT BenchesNew Delhi Principal Bench
Delhi Ahmedabad Allahabad Bengaluru Chandigarh Chennai Guwahati Hyderabad Kolkata Mumbai
Delhi Rajasthan
Gujarat MP
UP Uttarkhand
Karnataka HP J&K Punjab Haryana
Tamil Nadu Puducherry Kerala Lakshadweep
Entire North East
Telangana AP
WB Andaman Bihar Jharkhand Odisha
Maharashtra Goa Chhattisgarh
Active Companies 247204
Active Companies 84101
Active Companies 73118
Active Companies 65519
Active Companies 60375
Active Companies 106677
Active Companies 8047
Active Companies 88855
Active Companies 179227
Active Companies 238030
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics8
14 days periodAs per the section 7, 9 and 10 of the IBC, the NCLT shall admit or reject an application
for initiating insolvency proceedings within 14 days of filing. However, in many cases, it
has exceeded the 14-day timeline. In the case of Surendra Trading Company vs. J K Jute
Mills Company Ltd, NCLAT says that the 14-day timeline is an indicative period rather
than mandatory. The NCLT doesn’t have to adhere to this deadline.
Constitutional validityThere have been numerous petitions regarding the constitutional validity of the
Insolvency and Bankruptcy Code, 2016 or the National Company Law Tribunal in
different High Courts. However, in all the cases, the judgements have gone against the
petitioners and their appeals have not impacted the process. For example, in case of
Shivam Water Treaters Pvt Ltd vs. Union of India and Ors (SLP No.1740/2018), the
Supreme Court advised the High Court of Gujarat not to enter into the debate around
the constitutional validity of the IBC or the constitutional validity of NCLT. The
Supreme Court issued a notice to the Central Government in a petition challenging the
vires of various provisions of the IBC and, has prayed to declare Section 3(12), 5(7),
6, 7, 12, 29, 62, 214(f), 231 and 238 of the code as ultra vires of the Constitution of
India, 1950.
Extension of 270 days periodAs per the IBC, the resolution plan has to be finalized and approved within 270 days
from its admission to NCLT. However, there are few cases where NCLT has given
relaxation based on certain grounds. For example, in the case of Deccan Chronicle, the
NCLT has given an additional 87 days relaxation beyond 270-day initial deadline on
account of deducting the litigation period. The NCLT has similarly given extension in
other cases like KSS Petron, Mack Soft as well.
Promoters and disquieted applicants approaching courtsDuring the resolution approval stage, defaulting promoters, resolution applicants,
other stakeholders and sometimes unrelated parties have delayed the process by
pursuing legal option. In the case of Bhushan Steel the litigation made by Liberty
House or in the case of Electrosteel Steel litigation made by Renaissance ultimately
delayed the resolution process.
Decoding the basis of bidsIn certain cases, the NCLT ordered lenders to consider fresh bids offered by
unsuccessful resolution applicants. The court also allowed the erstwhile top bidder to
The code evolution
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 9
offer competitive bid under the process. For example, in the case of Binani Cement,
the Kolkata bench of NCLT has ordered the RP to accept the revised bid offered by
Ultratech Cement, which has not been the top bidder. The bid offered by a consortium
of Dalmia Cement, Piramal Enterprise and Bain Capital has been considered as top bid
by CoCs.
Status of personal guarantee/corporate guaranteeUnder IBC, the financial creditors can invoke personal guarantees calling upon the
guarantor to pay the debts of the debtors for which they stood surety in spite of the
fact that the corporate insolvency resolution process is still pending. On analysis of
Section 5(7) and 5(8) of IBC, 2016 along with Section 128, 140 and 141 of the Indian
Contract Act, 1872, it becomes clear that on payment of debt to financial creditors,
the surety steps into their shoes. He is entitled to recover from the principal debtor
any amount paid on his behalf and also gets the benefit of every security to which
the creditor was entitled to. It is worthwhile to mention here that although personal
guarantees can be invoked by financial creditors, personal assets of guarantors
cannot be liquidated during the moratorium period, in companies facing corporate
insolvency resolution process under IBC as decided in a landmark case of SBI against V
Ramakrishnan (Director as well as personal guarantor for Veesons Energy Systems).
Applicability of Limitation Act, 1963 to IBCLimitation Act, 1963 and/or the Schedule to it is applicable to the petitions filed under
the provisions of IBC, 2016 in view of Section 60 and 179 IBC, 2016 and Section
433 of the Companies Act, 2017. The period of limitation and the period from when
it starts shall be based on the description of the suit. However, there is a provision in
Section 238 in IBC, 2016 which enables the Code to override the other laws. In the
case of Deem Roll-Tech Ltd vs R.L Steel & Energy Ltd, the Principal Bench suggested
that the period of limitation would be applicable as the operational creditor’s claim
was barred by limitation and was made after the expiry of the period of three years.
In a contrast judgement, NCLAT in the case of M/s. Speculum Plast Pvt. Ltd. vs. PTC
Techno Pvt. Ltd. held by the Limitation Act shall not apply to IBC. However, the
NCLT may take into account the doctrine of laches while considering an application
for initiating the insolvency process.
We are sure that the code would evolve in maximization of value and amendment in
IBC code is round the corner to clear certain doubts.
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics10
Stress in the banking system
As bad loan near Rs. 9.5 lakh crore, the last
few years have not been good for the banking
sector in India. 19 out of 21 state-run
banks have reported losses in FY 2018. The
combined loss of these banks during 4QFY18
stand at Rs. 63117 crores.
The average NPA ratio for PSU banks has
shot up to 14.5%. The NPA of UCO Bank,
IOB and IDBI Bank is above 25%. The NPA
ratio for the banking sector as a whole is
12.1% at the end of FY 2018
The cumulative loss of PSU Banks during FY
2018 has exceeded the government’s capital
infusion on them during the year.
The reported CET 1 of six banks is lower
than the rate stipulated by the regulator.
RBI’s Prompt Corrective Action on BanksThe Prompt Corrective Action (PCA) is a
regulatory framework, which is imposed on
weaker banks for encouraging them to improve
their financial health. The framework advocates
weaker banks to restrict certain riskier activities
and focuses on preserving capital so that their
financial health revives. The framework was first
applied during 1980s global financial crisis. The
RBI released the modified version of the PCA
framework for banks through notification on
April 13, 2017. The PCA is invoked when risk
thresholds prescribed by RBI, based on certain
parameters, are breached.
RBI’s PCA frameworkUnder the PCA framework, the RBI has put
certain trigger points based on capital structure,
asset quality, and profitability, to assess the health
of the banks. If a bank breaches any of the risk
threshold level mentioned below, PCA will be
invoked against them.
Area Metric Risk threshold 1 (RT1) Risk threshold 2 (RT2) Risk threshold 3 (RT 3)
CapitalCAR 10.25%>CAR>7.75% 7.75%>CAR>6.25% NA
CET -1 6.75%>CAR≥5.125% 5.125%>CAR≥3.625% <3.625%
Asset Quality NNPA 6.0%≤NPA<9.0% 9.0%≤NPA<12.0% ≥12%
ProfitabilityRoA
Negative RoA for 2 Consecutive years
Negative RoA for 3 Consecutive years
Negative RoA for 4 Consecutive years
Leverage Tier 1 Leverage
ratio
≤4.0% but ≥ 3.5%, (leverage is over 25 times
the Tier 1 capital)
< 3.5%, (leverage is over 28.6 times the Tier 1
capital)NA
Source: RBI
CET-1 ratio – the percentage of core equity capital, net of regulatory adjustments, to total risk-weighted assets as defined in RBI Basel III guidelines
NNPA ratio – the percentage of net NPAs to net advances
ROA – the percentage of profit after tax to average total assets
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 11
Restrictions
11 PSU banks placed under PCA framework
Mandatory Restriction on dividend (RT1+RT2+RT3)
Capital infusion by promoters/owners/parent in case of foreign banks
(RT1+RT2+RT3)
Restriction on branch expansion (R2+R3)
To make a higher provisions as a part of coverage regime (R2+R3)
Restriction on management compensation and directors’ fees as applicable (R3)
Discretionary Curbs on lending and deposits
Special audit/inspections
Restriction on investment in subsidiaries/associates
Restriction on business line expansion, staff expansion
Restriction on capital expenditure (other than technology upgradation)
As per the latest position, 11 banks are already under PCA framework, as they have breached at least two of the top three conditions (capital, asset quality and profitability). Further, few banks have already breached one of the three conditions. Based on the current stress in the system and applicability of the revised framework for stressed assets resolution, they may be under PCA within the next few quarters.
No. PCA Banks No. Potential PCA No. Relatively Strong1 Bank of India 1 PNB 1 SBI
2 IDBI Bank 2 Canara Bank 2 Bank of Baroda
3 Central Bank 3 Union Bank 3 Indian Bank
4 I O B 4 Andhra Bank 4 Vijaya Bank
5 Oriental Bank 5 Pun. & Sind Bank 5 Syndicate Bank
6 Allahabad Bank
7 Corporation Bank
8 UCO Bank
9 Bank of Maharashtra
10 Dena Bank
11 United Bank
Source: RBI/Company/Sumedha Fiscal
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics12
PCA Framework rating of PSU Banks
Net NPA
Capital Adequacy
3
5
7
9
11
13
15
17
Net NPA (%)
16
13.112.2
11.6 11.5 11.2 10.9 10.7 10.5 10.39.5
8.4 8 7.7 7.56.9
5.7 5.4 54.3
3.8
RT 3
RT 2
RT 1
3
5
7
9
11
13
15
Capital Adequacy (CER - 1 and CAR %)
CET -1 CAR
CAR –RT 1
CET-1 RT 1
Source: RBI/Company/Sumedha Fiscal
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 13
Profitability
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
RoA (%)
FY15 FY16 FY17 FY18
RT 3
RT 2
RT 1
** Based on 9MFY 18 results and annualized thereon Source: Company/RBI/Sumedha
Based on this framework, 11 PSU banks are under
PCA and another 5 PSU banks are potential
candidates for PCA and only 5 PSU banks are
relatively stronger. The cumulative loan book for
11 PSU banks under PCA is Rs. 17 lakh crores,
which is approximately 20% of the total lending
in the system. If discretionary sanctions are to
be imposed, then these 11 PSU banks will be
restricted on borrowing and lending to a large
extent. The total loan book of potential PCA
candidates is Rs. 13 lakh crores, hence the overall
situation is alarming. The promoters (here the
Government) need to pump more money in the
form of recapitalization to save them. Globally,
many banks, who moved this framework, failed
badly and those survived by a thin margin
remained under PCA for more than three years.
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics14
A revised framework for resolution of stressed assets
The Reserve Bank of India vides its circular
on 12th February 2018, has set a new
framework for the resolution of stressed
assets in the banking system. The framework
has been set with an objective of early detection
of stressed assets and immediate action thereon,
which is in synchronization with the Insolvency
and Bankruptcy Code, 2016. With this new
framework, all existing schemes like CDR, JLF,
SDR, and S4A has been officially dismantled.
All such mechanisms have hardly produced any
fruitful outcomes so far and bad loans in the
banking system have been growing at an alarming
rate. With this rule, NPA recognition will be
simplified and will be done in a transparent
manner.
Lenders, like all scheduled commercial banks and
all India Financial Institutions, shall identify initial
stress on loan accounts immediately on non-
payment of debts (principal or interest or both)
for more than 30 days. These accounts should be
classified as ‘Special Mentioned Accounts (SMA)’
based on a number of days overdue.
Early identification
Key Features
Early IdentificationIdentification of stress accounts immediately on non-payment of debt for more for than 30 days
Monitoring Weekly (accounts in default with exposure Rs. 5 crore and above) and monthly (accounts with exposure Rs. 5 crore +) reporting of credit information to CRILC
ResolutionsResolution on a time-bound manner either through regularisation of the accounts, sale of the exposure by creditors or restructuring
To be referred to the IBC (Rs. 2000 crore or above accounts)If the resolution plans not implemented within the timeline then lenders shall file insolvency application under IBC.
SMA 0
(1-30 days overdue)
SMA 2
(61-90 days overdue)
SMA 1
(31-60 days overdue)
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 15
MonitoringLenders shall report credit information including
SMA classifications to Central Repository of
Information on Large Credits (CRILC) on all
borrower entities having aggregate exposure of
Rs. 5 Crore and above on monthly (on credit
information and classification) and weekly (on
accounts on default) basis.
Resolution On default, all lenders singly or jointly – shall
initiate steps to cure the default by way of a
resolution plan in a time-bound manner.
Time-bound processAccounts with an aggregate exposure of Rs. 2000
crores and above as on March 1, 2018 (reference
date) and thereafter, resolution plans shall be
implemented with the following timelines:
If in default as on the reference date, then 180
days from the reference date
If in default after the reference date, then 180
days from the date of first such default
If a resolution plan is not implemented as per the timeline specified, then the lenders shall file insolvency application, singly or jointly, under the IBC within 15 days from the expiry of the said timeline. For accounts, where a resolution plan involving restructuring and change in ownership is
implemented within 180 days period, the account should not be in default at any point of time during the specified period#, failing which the lenders shall file an insolvency application, singly or jointly under IBC within 15 days from the date of such default.
The RBI will come out with a similar structure within two years for loans with cumulative exposure between Rs. 100 crores and Rs. 2000 crores.
(#Specified period: Period from the date of implementation of RP up to the date by which at least 20% debt is repaid from the date of implementation of the resolution plan. Such period cannot end before one year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with the longest period of moratorium under the terms of RP)
Resolution plans*
Regularisation of the accounts by payment of over dues
Sale of the exposures to other entities/investors
Change in ownership
Restructuring
*Conditional.
Post implementation, the borrower will no longer in default with any other lenders, In case of restructuring – there should be proper documentation of the agreements between lenders and borrowers and the
new capital structure should be reflected in the books of both the parties. For large accounts, where exposure is Rs. 100 crores or above, shall require independent credit evaluation (ICE) of the residual debt by
the credit rating agencies. In case of average exposure of above Rs. 500 crores and above, it requires two ICEs.
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics16
Strict regulation
Needs banks to downgrade loan first to NPA before implementing the resolution
Time-bound process – needs to resolute within 180 days otherwise refer to IBC (for Rs. 2000 crore and above exposure)
Stringent upgrade norm – will be upgraded only if a minimum 20% debt is repaid from the date of implementation. Earlier upgrade is possible after one year of good performance
Independent credit evaluation by credit rating agencies before resolution if the loan amount is Rs. 100 crores and above
The immediate impact of this rule will be a sudden
jump in NPA in the banking system in the next few
quarters. As per the different media and brokerage
reports, assets under various dispensations is
between Rs. 2.5 and 3 lakh crores, out of which
30-35% would be converted into NPA. So, expected
slippage would be around Rs. 0.65 – 0.90 lakh
crores during the Q4FY18 and 1QFY19.
For banks, the resolution of such huge NPA accounts would be an enormous job within the stipulated timeframe of 180 days. So many large accounts, where cumulative exposure is Rs. 2000 crores and above would be referred to IBC in the
next 3-4 quarters.
Impact
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 17
Resolution of corporate debtor is said to be
the sole of the IBC, however, the outcome
of closed cases till date shows a different
picture. During the first one year of IBC, only 10
cases were closed by approval of proper resolution
plan, as against 30 companies which had gone for
liquidation, i.e. ratio of firms facing liquidation
to resolution is 3:1. The ratio worsened during
the calendar year 2018 to 5:1. Few companies
admitted under CIRP, have been struggling since the
past few years, so for them, liquidation is almost
inevitable. Till date, 25 CIRP cases were closed after
resolution plans were approved. Among 25 cases
of resolution, 5 cases were reported each from steel
and engineering sector and two each from the auto
component, infra, and hotels respectively.
Synergy Dooray was the first company to
be resolved under the IBC. During 1st year,
the recovery rate in 10 resolution cases was
as low as 33.62%. The resolution case of
Trinity Auto Components was unique in
the sense the financial creditor Axis Bank
extended credit limit to the corporate
debtor rather going for recovery. In case
of MBL Infrastructure, the resolution plan
submitted by the promoter was accepted by
the CoCs.
A handful of resolutions
18
8 8
9
7
BIFR Non BIFR Operational Creditors
Corporate Debtors
Financial Creditors
BIFR vs NON BIFR Cases* Triggered by
*BIFR Cases – that transferred to NCLT after the scrapping of the BIFR
5
5
22
2
10
Engineering
Steel
Auto Compoent
Infrastructure
Hotels
Others
Resolution by sectors
Source: IBBI, Sumedha Fiscal
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics18
Bhushan Steel: One of the successful resolution cases
where the acquirer Tata Steel had offered to pay
Rs. 35,200 crores to financial creditors against their
gross exposure of Rs. 56079 crores (principal and
interest). In addition, Tata Steel’s plan also included
Rs. 1200 crore payments to operational creditors
and a small stake to financial creditors.
Electrosteel Steel: The acquisition of Electrosteel
Steel by Vedanta is another successful case closed
by approval of resolution plan. Under this plan,
Vedanta will make upfront payment of Rs. 5320
crores to the creditors against their exposure of Rs.
13582 crores (principal and interest, out of which
Rs. 10270 crores is the principal amount.
Resolution of two NCLT I accounts with the cumulative default amount of Rs. 70000 crores
IBBI Chairperson Dr. M. S. Sahoo says
“The objective of a CoC is to generate competitive resolution plans, and then approve that
plan which maximises the value for everybody, in contrast to recovery which maximises
the value only for one set of people. There is a lot of facilitation in the law for making it
happen. The objective is to revive if viable, or close it (the asset), if not viable. You can’t
directly go to liquidation”,
“Probably we are not making the best use of the code (IBC). The code is a much
more powerful thing, it can be used for much higher purposes so that the resolution is
sustainable. If the objective was just to discover a price, get a big value, perhaps we could
have had gone to the stock market,”
Taken from: Times of India
(Refer annexure 1 for list of CIRP cases closed by approval of resolution plan)
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 19
From the first few closed cases, it is clearly seen that liquidation has dominated over resolution. From the 129 cases closed as on May 29, 2018, as many as 104 cases ended up with the commencement of liquidation as against only 25 cases closed with proper resolution plan.
Why are more firms going for liquidation
More liquidation than resolution
The core object of the Code is to frame and implement a proper resolution plan
so as to keep a corporate going and to maximize the value of its assets. However,
the liquidation rate is very high owing to certain limitations, which are beyond
the scope of CoCs or resolution professionals. From the admitted cases, it has
been observed that the corporate debtors did not co-operate with the resolution
professionals, and thus there was no other option left other than liquidation.
In certain cases, the responsible parties have failed to submit a resolution plan
within the statutory time limit of 270 days. In case of Nicco Corporation Ltd,
the statutory time limit of 270 days for submission of resolution plan was over,
and, the corporate debtor had gone for liquidation.
Many SME and MSME are under liquidation, where there is no interest among
the investors other than its own promoters, who are not allowed to invest in
own companies till date. However, this norm would be relaxed as there is a
proposal, where promoters of companies with turnover of up to Rs. 250 crores
might be allowed to bid.
1
2
3
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics20
26
21
34
74
49
Non BIFR Cases BIFR CasesCorporate Debtor Financial Creditors Operational Creditors
BIFR vs NON BIFR Cases* Triggered by
*BIFR Cases – that transferred to NCLT after the scrapping of the BIFR
1QFY 19*
4QFY 18
3QFY 18
2QFY 18
18
56
23
7 Mumbai
Chennai
Ahmedabad
Kolkata
Chandigarh
Bengaluru
Hyderabad
Allahabad
Principal Court
New Delhi
20
19
17
17
8
6
6
5
4
2
Progress Cases by NCLT Benches
*Till May 21, 2018Source: IBBI, Sumedha Fiscal
Summary of the liquidation cases
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 21
0 2000 4000 6000 8000 10000 12000
Rei Agro
Gujarat NRE
Roofit Industries
Rotomac Global
Gupta Corp
JODPL
Gupta Coal
Rotomac Exports
Cethar Ltd.
Innoventive
Top 10 companies under liquidation
As on May 21, 2018, a total 104 liquidation cases were reported. From the available data on 94 such companies, the total admitted claims both by financial creditors, operational creditors and others, were Rs. 52884 crores. For another 10 companies, the report on the admitted claims was not available. Out of these 94, top 10 companies account for 77% of the outstanding claims and top 20 companies account for 90% of the outstanding claims.
Rs. 529bn 7.2%The cumulative claims of creditors in 94 companies going for liquidation. The cumulative claim in top 10 defaulters going for liquidation is Rs. 407 bn
The cumulative recovery value on 39 companies going for liquidation, where creditors have Rs. 380 bn exposure.
Source: IBBI, Sumedha Fiscal
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics22
We have identified 39 cases from 104 liquidation
cases, where a reliable data on liquidation value is
available. The total admitted claim by creditors on
these 39 companies is Rs. 38038 crores. Interestingly
the cumulative liquidation value of these 39
companies is only Rs. 2733 crore, i.e. only 7.18% of
the outstanding amount. REI Agro was the largest
account that has gone for liquidation so-far. The
total outstanding debt of REI Agro was Rs. 10715
crores, however, creditors would be able to recover
only 451 crores (4.21% recovery rate) through the
liquidation process. In certain cases, the recovery
rate is as high as 102%, however, in that account,
the outstanding loan amount is very small.
Poor realization of stressed assets under liquidation
0%
5%
10%
15%
20%
0
4000
8000
12000
Default (Rs. crore) Recovery Rate
Large accounts with low liquidation value
020406080
100120
Default (Rs. Crore) Liquida�on Value (Rs. Crore)
Few small accounts with a very high liquidation value
Source: IBBI, Sumedha Fiscal
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 23
IBBI has amended the regulation, where it removed
the requirement for disclosing the liquidation
value of an asset under the resolution. The move
is expected to help better price discovery for the
stressed assets under the code. So, the data on
liquidation value is not available for all companies.
SBI Chairman Mr. Rajnish Kumar’s view on liquidation
It is important that we give a message that if potential bidders are trying to suppress the values, then banks are not going to accept it;
If bidders or the indebted firm cannot service even 5 percent or 7 percent of outstanding credit obligations, then I don’t see any reason for reviving each and every enterprise;
If the recovery could be more than 25 percent, then resolution is always an option;
(Taken from Mr. Rajnish Kumar’s interview to Bloomberg TV)
(Refer Annexure 2 for a list of CIRP cases closed by the commencement of liquidation)
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics24
Important amendments suggested by Insolvency Law Committee in IBC Code (Awaits Notification)**
Recent Key Recommendation of the Insolvency Law Committee
Streamlined section 29A by barring only those bidders who contributed to
default by the company
MSME promoters except wilful defaulters can
bid for troubled MSME Cos
Home Buyers should be treated as financial
creditors
Voting thresholds re-calibrated to 66% creditors vote required for passing resolution plan. 90% vote required for
removing company from insolvency process
Home buyers to be treated as Financial Creditor The union cabinet approved ordinance to amend the IBC code for treatment of home
buyers at par with financial creditor in the liquidation process of the defaulting
builder. The ordinance has very recently come into force after getting approval from
the president. Home buyers were treated as unsecured creditors/operational creditors
who came after secured and institutional creditors in terms of priority for recovery
of dues. As operational creditors home buyers interest are also not fully optimised.
This change is likely infuse confidence in millions of home buyers to invest their
money. This move is also likely to have positive impact on the claims of homebuyers
in pending court cases against leading real estate group such as Jaypee Infratech and
Amrapali Group.
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 25
Recalibration of the voting threshold for decisions of the committee of creditorsPresently section 21(8) of the code provides that all decisions of the Committee of
Creditors (CoC) shall be taken by a vote of not less than 75 percent of the voting share
of the financial creditors. This high threshold of 75% of the voting share of financial
creditors for decisions of the CoC was considered as a road-block in the resolution
process. The committee noted the voting thresholds across various statutes and
guidelines that deal /have dealt with the rehabilitation of companies as follows:
Threshold proposed by the committee for various approvals required from the CoC under the code:
Voting share in CoC reduced from 75% to 66% in case of approval of following:
Approval of resolution plan
Extension beyond 180 days
Replacement or appointment of RP
Resolution for Liquidation
For all other cases voting share requirement for approval being reduced to 51%
Deals with Threshold for approval
Section 230(6) of Companies Act
(CA), 2013 deals with the power to
compromise or make arrangements
with creditors and members
Approval of 75% in value of Creditors or
class of creditors or members or class of
members, as the case may be
Section 262 of CA 2013 deals with
Scheme of Rehabilitation
Approval by (i) Secured Creditors
representing 75% in value of the debts owed
by the company to such creditors; and (ii)
Unsecured Creditors representing 25% in the
value of the amount of debt owed to them
Joint Lenders’ Forum Framework
by RBI (now replaced) deals with
Restructuring of account
60% of Creditors by value and 50% of
Creditors in number
Section 13(9) (SARFAESI) Act,2002
deals with Joint Financing of
Financial Assets by secured creditors
At least 60% of secured creditors by value of
the amount outstanding
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics26
RP to continue management even after expiry of CIRP period till NCLT takes a decision on the resolution planTo insert a provision to section 23(1) to state that the RP shall continue to manage the operations of the corporate debtor after the expiry of the CIRP period post submission of the
resolution plan under section 30(6) until an order is passed by the NCLT under section 31.
Withdrawal of an insolvency application post admission Withdrawal of an insolvency application post admission is permitted with the approval
of 90% voting share of the CoC on certain conditions.
Applicability of Limitation ActThe Committee recommends applicability of Limitation Act to the proceedings under the Code. It is proposed to insert a new section 238A to state that the provisions of the Limitation Act, 1963 shall, as far as may be, apply to proceedings or appeals under the Code before the NCLT or the NCLTA, as the case may be.
Accordingly, changes have been proposed in the affidavit required to be furnished along with Forms B/C/D/E/F to include a requirement to affirm that the claim is not time-
barred under the Limitations Act, 1963.
Relaxation in section 29Aa) By limiting the scope of applicability of the disqualifications in section 29A by
deleting reference to “person acting jointly or in concert”
b) Amendment in section 21(6) by disqualifying the participation of authorized representative of FC being the related party.
c) Resolution applicants not to attract disqualification under Section 29 A in respect of NPA account if such account was acquired pursuant to a prior resolution plan approved under this Code for a period of three years from the date of approval of such prior resolution plan by the NCLT.
d) Pure play Financial Entities such as ARC, AIF etc which are regulated by financial regulator, shall not attract disqualifications on holding NPA account, in case they are not related party of CD.
e) Expansion of definition of NPA to include declaration of NPA by other financial regulators such as Housing Finance Bank.
f) Disqualification on account of NPA to be considered at the time of submission of resolution plan.
g) Schedule of offence attracting disqualification to be decided by Central Government akin Companies Act.
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 27
h) Section 29A (d) to be further amended stating that disqualification shall extend from the date of conviction and shall continue for a period of seven years from the date of conviction or from the date of release from imprisonment, whichever is later.
i) Disqualification in case of classification as a wilful defaulter (section 29A(b)), conviction for certain offences (section 29A(c)), disqualification to act as director under the CA 2013 (section 29A(e)), prohibition by SEBI (section 29A (f)) and so on not to attract if an appeal has been preferred against the concerned order within prescribed period.
j) Narrow downed the disqualification u/s 29A (g), by exempting those RAs who has acquired a CD in which a preferential, undervalued, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the CD pursuant to a resolution plan approved under the Code or pursuant to a scheme or plan approved by a financial sector regulator or a court of law.
k) Disqualification of guarantors is now being restricted to guarantees invoked - This will remove ambiguity as earlier provision literally meant even if guarantee is issued but not invoked shall result in disqualification.
l) Insertion of Section 240A exempting from all eligibility criteria of section 29A except the criteria that they should not be a wilful defaulter to RAs of MSME going under CIRP.
A) Implication: This shall enable promoters of very large section of companies to bid for their own companies provided they are not classified as wilful defaulter. MSME has been defined to have annual turnover of less than Rs.250 crore.
Others:1) Related party is defined to include
a) Members of a Hindu Undivided Family, husband, wife, father, mother, son, daughter, son’s daughter and son, daughter’s daughter and son, grandson’s daughter and son, granddaughter’s daughter and son, brother, sister, brother’s son and daughter, sister’s son and daughter, father’s father and mother, mother’s father and mother, father’s brother and sister, mother’s brother and
b) Wherever the relation is that of a son, daughter, sister or brother, their spouses shall also be included.
2) Filling under Section 10 by Corporate Applicant now will require approval from shareholder by way of special resolution or approval from three fourth of the total number of partners of the CD.
3) Moratorium shall not be applicable to a surety in a contract of guarantee to a corporate debtor.
4) Amendment of section 16 to provide that the term of the IRP shall continue till the appointment of the RP.
** The Government of India has notified amendments vide “The Insolvency and Bankruptcy Code (Amendment) Ordinance 2018” dated 6 June, 2018. Most of the provisions are highlighted above.
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics28
Operational Creditors are worse off
Unlike the Companies Act 2013, IBC has
classified creditors into financial and
operational creditors. According to the
section 5(7) of the IBC, a financial creditor means
any person to whom a financial debt is owed and
indicates a person to whom such debt has been
legally assigned or transferred. Section 5(20) of
the IBC defines operational creditor as a person to
whom an operational debt is owed and includes
any person to whom such debt has been legally
assigned or transferred.
Insolvency proceedings
Financial creditors can initiate the insolvency process even the debt is disputed one
Operational creditors cannot initiate the process in case of a disputed debt. For
operational creditors to initiate a resolution process, it must satisfy the NCLT
with respect to certain documentation. If the corporate debtor doesn’t admit the
obligation, there is a chance that the case may not be accepted.
Committee of creditors
Section 21(2) of the IBC explains that the Committee of Creditors (CoC) shall
comprise of all financial creditors of the corporate debtor. That means, all decisions
including acceptance of resolution plans, liquidation etc. will be taken by a
committee where financial creditors are the only representatives. However, Section
24(3) states that an operational creditor can participate in the meeting of CoCs, if
the amount of their aggregate dues is not less than 10% of the debt.
Liquidation waterfall
Section 53 of the Code deals with distribution of assets sale proceeds along with
liquidation waterfall. Here also, secured financial creditors have the priority over
operational creditors, who are considered as unsecured creditors
Major differences
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 29
Wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date
Financial debts owed to unsecured creditors (including operational creditors)
Entire insolvency resolution process cost and liquidation cost
Any remaining debts and dues
Preference shareholders, if any
Equity shareholders or partners, as the case may be
Workmen’s dues for the period of twenty-four months preceding the liquidation commencement date
Debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52
Any amount due to the Central Government and the State Government
Debts owed to a secured creditor for any amount unpaid following the enforcement of security interest
As per Section (5)8 - “financial debt” means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes:
a. Money borrowed against the payment of interest;
b. Any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent;
c. Any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
d. The amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;
e. Receivables sold or discounted other than any receivables sold on nonrecourse basis;
f. Any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;
g. Any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;
h. Any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;
i. The amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;
Section 5(21) of IBC defines operational debt as a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics30
In majority of the cases, the loan of the financial creditors are secured in nature. So their dues would be recovered first along with the workmen’s due. As the haircut is expected to be very high, the operational creditors would hardly get their dues in the corporate insolvency resolution process. These operational creditors are small business entities, mainly SMEs, and create huge employment for the society. If they don’t get their outstanding, they may be defaulters to the banks again. Additionally, on
their closure, there would be job loss and the losers
would be people living at the bottom of the pyramid.
From the RBI’s 1st reference list of 12 companies,
we have compiled data for 10 companies (excluding
Jyoti Structure and Era Infra), where the cumulative
claim of the operational creditors is worth Rs.
39000 crores and the admitted claim is worth Rs.
9550 crores and the total number of operational
creditors are 6692.
0
500
1000
1500
2000
A total 6692 operational creditors from 10 of RBI’s 1st 12 accounts
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%100% claim admi�ed
Operational Creditors’ claim admitted
Source: IBBI, companies, Sumedha Fiscal
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 31
There is a great degree of variation in terms of operational creditors’ claim and the admitted amount. In certain cases, the acceptance is almost 100%. However, in many cases, the acceptance rate is below 50% with 10.5% being the lowest.
Company Operational Creditors’ claim (Rs Crore)
Admitted Claim (Rs Crore)
Acceptance %
Bhushan Steel 2547 1212 47.6%Lanco Infra 8800 3117 35.4%Essar Steel 23868 2541 10.6%Bhushan Power 779 621 79.7%Alok Industries 659 544 82.5%Amtek Auto 224 224 100.0%Monnet Ispat 8 8 100.0%Electrosteel Steels 1688 783 46.4%Jaypee Infratech 463 463 100.0%ABG Shipyard 36 36 100.0%Total 39072 9549 24.4%
Source: Companies/Sumedha Fiscal
Selected cases
Binani CementIn case of Binani Cement, the association of the operational creditors (The Binani Operational Creditors Forum) has approached the Supreme Court to consider their interest before finalization of any resolution plans. Later, the Supreme Court declined any relief to the operational creditors of the company.
Alok IndustriesA group of operational creditors appealed to NCLT and requested not to move with the liquidation decision and accept the resolution plan submitted by a consortium of Reliance Industries and JM Financials. As per the appeal, the operational creditors said that, a sudden closure of the Alok’s business will have a disastrous effect on its large vendor base and their dependents.
Bhushan SteelIn Bhushan Steel acquisition case, operational creditors’ interests were protected very well. Tata Steel has offered to pay Rs. 1200 crores against operational creditors’ admitted claim of Rs. 1212 crores, which implies almost 100% recovery (based on January 10, 2018 claim report). The financial creditors have taken approximately 37% haircut on their exposure.
1
2
3
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics32
Top NCLT Cases
The NPA issue in the banking system has
been growing leaps and bound. With total
NPA in the system being over Rs. 9.5
Lakh Crores, RBI has always been proactive in
solving the problem. In its recent initiative, the
apex body has directed banks to resolve the issue
within a stipulated timeframe or put them into
NCLT for resolution.
NCLT IIn the middle of the calendar year 2017, an
Internal Advisory Committee of RBI has
identified twelve companies (NCLT I), whose
cumulative default amount is approximately
25% of the non-performing assets in the
banking system (the figure is indicative only,
as total outstanding of the financial creditors
includes principal outstanding and accumulated
interests. Financial creditors comprise not only
domestic banks but also NBFCs, foreign financial
institutions, ARCs, insurance companies etc.).
NCLT IIRBI has also released a second list of 28 large
defaulters (NCLT II), out of which banks
decided to refer 25 cases to the NCLT. These 37
companies (12 NCLT I and 25 NCLT II) account
for approximately 40% of the NPAs. So in terms
of size, these two sets of companies are highly
significant. A better recovery would ultimately
strengthen the banking system, and banks would
have more funds to kick-start lending aggressively.
Banks are now very much skeptical and cautious
in their lending decision. For a mediocre company,
it is now difficult to get bank credit either for
expansion or for day-to-day operation.
25% 40%The Cumulative default amount of NCLT I companies is approximately 25% of the non-performing assets in the banking system.
37 companies (12 NCLT I and 25 NCLT II) accounts for 40% of the non-performing assets in the banking system.
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 33
From the RBI’s 1st reference list of top 12 defaulters, 11 cases were admitted in between July – August 2017. So almost all of them have crossed the 270 days stipulated period under IBC unless the process is put on hold. In two cases, top bidders received a nod from NCLT to acquire the target companies. Four cases are in advanced stages, where resolution plans submitted by potential acquirers would be accepted. There is no clear direction in two cases, where any of the two outcomes, acceptance of resolution or liquidation may be possible. Four companies are likely to go for liquidation (based on ongoing development).
NCLT I – slowly progressing
2 2 44In two cases, top bidders received nod from NCLT to acquire the target companies
Bhushan Steel by Tata Steel
Electrosteel Steel by Vedanta
Four cases are in the advanced stages of resoluton
Bhushan PowerAmtek AutoEssar SteelMonnet Ispat
No clear direction in two cases
Jaypee InfratechEra Infra
Four companies are likely to go for liquidation (based on ongoing development)
Lanco Infra Alok IndustriesJyoti StructureABG Shipyard
Company Lead Bank Admission Date 270 days from admissionBhushan Steel SBI 26 Jul 17 22-04-2018Lanco Infra IDBI 7 Aug 17 04-05-2018Essar Steel SBI/SCB 2 Aug 17 29-04-2018Bhushan Power PNB 26 Jul 17 22-04-2018Alok Industries SBI 18 Jul 17 14-04-2018Amtek Auto Corporation Bank 24 Jul 17 20-04-2018Monnet Ispat SBI 18 Jul 17 14-04-2018Electrosteel Steels SBI 21 Jul 17 17-04-2018Jaypee Infratech IDBI 9 Aug 17 06-05-2018ABG Shipyard ICICI Bank 1 Aug 17 28-04-2018Jyoti Structures SBI 4 Jul 17 31-03-2018
Source: IBBI, Sumedha Fiscal
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics34
12 NCLT I companies owe more than Rs. 3 lakh crore to financial creditors, which includes principals and accumulated interest. However, the total claims admitted is little lower. The principal outstanding of all 12 companies is approximately Rs. 2.6 Lakh crores.
The financial creditors have selected a total 25 companies (there is no clarity on two companies, so we have considered 23 companies for our analysis) from the RBI’s 2nd reference list of 28 companies. Based on the available data, financial creditors’ total exposure in these 23 cases is close to Rs. 1.2 Lakh Crores.
NCLT I – financial creditors’ claim exceeds Rs. 3 lakh crores
NCLT II – companies owe Rs. 1.2 lakh crores to banks
Company Sector Outstanding (Princ. + Int.) (Rs Crore)
Outstanding (Princ.) (Rs Crore)
Bhushan Steel Metals 56079 44480Lanco Infra Infra/Construction/EPC 45263 44370Essar Steel Metals 54851 37280Bhushan Power Metals 47216 42100Alok Industries Textile 29740 22080Amtek Auto Auto anc 12854 12500Monnet Ispat Metals 10290 9500Electrosteel Steels Metals 13582 10270Jaypee Infratech Infra/Construction/EPC 9985 9640ABG Shipyard Shipbuilding 18245 16000Jyoti Structures Power 7625 5170Era Infra EPC 13000 10070Total 318730 263460
Source: Companies, Media
Company Sector Due (Rs Crore)
Company Sector Due (Rs Crore)
Amtek Ring Gear Auto Comp. 2000 Visa Steel Metals 2980
Asian Color Metals 3900 Essar Projects Infra/Construction/EPC 5030
Castex Technologies Auto Comp. 6300 Jai Balaji Industries Metals 2980
Coastal Projects Infra/Construction/EPC 3700 Sakti Bhog Food Processing 2045
East Coast Energy Power 950 Monnet Power Power 5000
IVRCL Infra/Construction/EPC 10900 Nagarjuna Oil Refinery Oil 8800
Orchid Pharma Pharma 3760 Ruchi Soya Industries Food Processing 5330
SEL Manufacturing Textile 3140 Wind World India Power 3901
Uttam Galva Metallic Metals 3000 Metalyst Forging Auto anc 3473
Uttam Galva Steel Metals 5040 Unity Infra Infra/Construction/EPC 2405
Transstroy India Infra/Construction/EPC 725 Ushdev International Power 7100
Videocon Industries Electronics 28500 Total 118959
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 35
In either of the outcome, be it liquidation or acceptance of resolution plans, the creditors may have to take a haircut in the range of 17% to 80% and the expected cumulative haircut will be in excess of 52% in case of NCLT I. For NCLT II, the expected recovery rate is even lower at 30%, implying an expected haircut of 70%. The expected blended haircut of these 35 companies is approximately 58%, i.e. creditors will only be able to recover 42 cents on a dollar of loan exposure. Metal is the only sector where expected recovery rate is high.
NCLT I & II – banks may have to take 58% haircut
-10000
0
10000
20000
30000
40000
50000
60000
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
haircut
Exp
osur
e (R
s. C
rore
)
Bhushan Stl Lanco
Essar
Bhushan Pwr
Alok
AmtekMonnetElectrosteelJaypee
ABG
Jyoti
A cumulative 52% haircut for NCLT I companies
-5000
0
5000
10000
15000
20000
25000
30000
35000
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Exp
osur
e (R
s. C
rore
)
haircut
Videocon
IVRCLNagarjuna OilUshdevCastexRuchi Uttam Galva
Essar ProjectsMonnet Power
Wind World India
NCLT II – top ten defaulters
Source: Companies, IBBI, Media, Sumedha Fiscal
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics36
52%
58%
Cumulative haircut in NCLT I cases will be in excess of 52% of the total exposure
The blended haircut of NCLT I and II companies is expected to be 58% of the total exposure
Data Source: Media Reports/Sumedha/Business Standard
Source: Companies, IBBI, Media, Sumedha Fiscal
From the RBI’s reference list of 35 companies, financial creditors’ total exposure in term of principal
outstanding is Rs. 3.84 Lakh Crores. Among sectors, the financial creditors have the highest exposure
in metal, predominantly steel companies (Rs. 1.63 lakh crore), followed by EPC, diversified (Videocon
Industries is the only representative), Textiles, Auto-Components, Power and Shipping. A total 10 metal
companies and 9 EPC companies are in the list of these 35 companies.
Sectoral Update
0.00% 20.00% 40.00% 60.00% 80.00%
Metals
Food Processing
Diversified
Pharma
Tex�le
Auto Component
Infra/Construc�on/EPC
Power
Oil
Shipbuilding
70% and above haircut
70% and above expected haircut in five sectors
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 37
Source: Companies, IBBI, Media, Sumedha Fiscal
Steel companies have gone through a difficult
time in the past one decade. Companies, which
turned underperformers, made a very aggressive
expansion target during the earlier industry
upcycle and post sub-prime crisis, but ultimately
got affected due to a prolonged bear cycle. The
bull cycle of the early 2000s was led by China,
where, steel demands surged due to infrastructure
boom backed by 2008 Olympics. Post Olympics,
the Chinese demand for steel tapered and prices
plummeted. In 2015, steel prices, including
steel spread, became lowest in years, probably
lowest since 2003. So many projects, be it new or
brown-field expansions, turned unviable. Further,
many projects got interrupted due to a delay
or halt in environmental clearances and mine
cancellations. Gradually, the banks’ and financial
institutions’ exposure to those projects turned
non-performing.
After a prolonged down cycle, the steel prices
and steel spreads have started moving upward.
The current spread is approximately $230-280/
tons, which is quite healthy. Most importantly,
China, which used to park excess production
into different countries including India, is
gradually reducing steelmaking capacity because
of pollution. In the domestic market, no major
capacities are being added beyond the financial
year 2020. However, demand is expected to grow
at a healthy 4-8% backed by economic recovery.
In this backdrop, all bankrupt steel companies
have become a target for takeover (through a
proper resolution under IBC).
Steel Sector - the biggest defaulter
0 50000 100000 150000 200000
Metals
Infra/Construc�on/EPC
Diversified
Tex�le
Auto Component
Power
Shipbuilding
Oil
Food Processing
Pharma
Two sectors account for 65% of defaulted debt
Exposure by sectors (Rs. Crore)
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics38
-10000
0
10000
20000
30000
40000
50000
60000
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Bhushan Steel
Essar Steel
Bhushan Power
MonnetElectrosteel
Asian ColorU�am Gal. Met.U�am Gal. Steel
VisaJai Balaji
Steel Companies – Exposure (Rs crore) and haircut (%)
Two of the top three accounts in steel sectors
viz. Bhushan Steel and Essar Steel have attracted
good response from the potential acquirers under
IBC. The cumulative expected haircut on steel
companies would be approximately 40% on the
loan exposure, whereas haircut for these two
would be 25% and 17% respectively. Jai Balaji
Industries, Visa Steels, and Monnet Ispat are
three companies, where, financial creditors may
have to take approximately 70% haircut on their
exposure.
Infra/Construction/EPC (EPC)
The RBI referred 9 defaulters from
the EPC sector and almost all of them
performed badly due to some common
reasons like overall economic slowdown,
higher borrowing costs, delay in getting
environmental clearances, issues related to
land acquisition, failure to establish fuel
linkage etc. Mr. L Madhusudhan Rao of
Lanco Infratech, the largest defaulter in EPC
space, blamed the macroeconomic headwinds
and change in government policies for the
dismal performance of the sector. Lanco rode
in the wave of merchant power business
which ultimately ended miserably. Between
2009 and 2012 the tariff of merchant
power collapsed by 70% and banks became
skeptical in extending loans. Many of these
infrastructure companies carried away
unplanned expansion, borrowed money in
Source: Companies, IBBI, Media, Sumedha Fiscal
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 39
excess of their repayment capacities on the
back of easy money available in the system.
However, that excess debt had not converted
into revenue. Hyderabad based IVRCL is an
example, whose debt increased by 13 times
between 2007 and 2017 from Rs. 790 crores
to Rs. 10723 crores, however, sales remained
almost flat during the same time at Rs. 2597
crores and interest burden rose 22 times from
Rs. 54 crores to Rs. 1194 crores, which is
45% of the top line.
Unlike steel, the haircut is much higher for
EPC companies, as physical assets are very
low compared to the total bank exposure.
The cumulative outstanding of nine EPC
companies is Rs. 92000 crores and it is
expected that the CoCs would have to take
a haircut in excess of 70% of their exposure.
Jaypee Infra is the only company in EPC
space, where lenders would have to a haircut
of 25% or even less. The lead financial
creditor IDBI Bank valued the company at Rs.
17111 crores compared to the outstanding
amount of Rs. 9985 crores (excludes flat
buyers’ claims). The expected haircut for
Lanco Infratech wound be approximately
75% and for the rest six companies, it would
be in the range of 80-90%.
-2000
0
2000
4000
6000
8000
10000
12000
14000
0% 20% 40% 60% 80% 100% 120%
Jaypee Infratech Era Infra
Coastal Projects
IVRCL
Transstroy India
Essar Projects
Unity Infra
Jyo� Structures
EPC Companies – Exposure (Rs crore) and haircut (%)
Source: Companies, IBBI, Media, Sumedha Fiscal
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics40
AutoComponent
Power
Textiles
Shipbuilding
Leader Speaks “The basic issue is that the entire infrastructure space we are in has serious macro issues and most of the macro issues came out, I would say, sometime in October-November 2011... That was the time when, one after another, the macro surprises kept coming. And various policies kept coming out,” L Madhusudhan Rao/Lanco Infratech (Source: Mint)
In auto-component sector, a total four companies are in the list referred by RBI and all four belong to the Amtek Auto Group. The sector in general is performing well, backed by revival of CV segment and superior growth in passenger cars and two wheelers segment. However, this group made a few aggressive acquisitions that were funded by debts, which ultimately went against the company. Its interest coverage ratio started deteriorating since financial year 2014 and went down below one at the end of FY 2015 and ultimately turned negative in FY 2017.
ABG Shipyard, part of 1st list referred by RBI, was a victim of the world wide downtrend in shipbuilding industry. Post 2008, the global seaborne trade witnessed a prolonged slowdown, which resulted some leading names in the shipbuilding industry across the world went bankrupt.
In the textiles sector, Alok Industries and SEL Manufacturing are the two companies with cumulative exposure of Rs. 25000 crores (principal outstanding). The expected haircut for Alok Industries is 60%, whereas for SEL it is 80%. The resolution plans received for Alok is not satisfactory and the 270 days period stipulated under the IBC is over, the company may go for liquidation.
In power, four companies (Monnet Power, Wind World India, Ushdev, East Coast Energy) are in the list of top 35 defaulters with cumulative outstanding of Rs. 22000 crores. This is however a very small list compared to the total stress in the power sector. As per media report, 2/3rd of the private power companies are struggling due to multiple headwinds in the industry like lack of proper coal linkage or power purchase tie-ups and poor payment structure of distribution companies.
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 41
In 10 of the 12 NCLT I companies (excluding Era
Infra and Jyothi Structure), the claim of financial
creditors is worth Rs. 2.98 lakh crores, out of
which PSU Banks’ claim is Rs. 2.17 lakh crores.
Rest of the claim amounts are from private banks,
foreign banks, insurance companies, ARCs, and
NBFCs.
The State Bank of India Group, being the
largest lender in the country, has the highest
claim amount of Rs. 61160 crores, which is
approximately 21% of the total financial creditors’
claims in these 10 companies. IDBI, although
relatively small in size, has the second highest
claim of Rs. 22308 crores. Total claim amount of
top five PSU banks (SBI, IDBI, PNB, Can Bank
and BOI) is Rs. 1.28 Lakh crores.
Banks’ exposure in NCLT I
0 10000 20000 30000 40000 50000 60000 70000
SBI (Group)
IDBI
PNB
Can Bank
BoI
BoB
IOB
Union Bank
Central Bank
OBC
Claims of financial creditors (Rs. crores)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
48% 48%
PSU Banks Financial Creditors
Exp. Haircut Exp. Haircut
Claims
Claims
Claims and expected haircut (Rs. lakh crores)
Source: Companies, Sumedha Fiscal
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics42
LIC has the highest claim among non-banking
companies. In private banking space, ICICI Bank
has the highest claim of Rs. 18734 crores. SBI’s
exposure in Essar Steel of Rs. 13653 crores is the
single largest claim.
Rs. 1.43 lakh crore expected haircut by financial creditors
Based on media reports, the progress of the cases
and our own assessment, the expected blended
haircut of the financial creditors would be Rs.
1.43 lakh crores out of total claim amount of Rs.
2.98 lakh crores in the top 10 NCLT companies,
which implies an expected haircut rate of 48%.
PSU banks, on the other hand, is expected to take
a haircut of Rs. 1.04 lakh crores out of their total
claim of Rs. 2.17 lakh crores.
Four of the financial creditors, Andhra Bank, IOB, ICICI and Dena Bank, have to take an expected
haircut of 60% or above on their exposure in 10 NCLT I companies. Whereas, expected haircut rate of
the bottom five is below 45%.
Source: Companies, Media, Sumedha Fiscal
40.00%
45.00%
50.00%
55.00%
60.00%
65.00%
70.00%
60% or above
45% or lower
Expected haircuts
Selected Judgements
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 43
Innoventive Industries Limited vs. ICICI Bank (Supreme Court, August 2017)
Insolvency and
Bankruptcy Code
to override state
laws passed prior
to Insolvency and
Bankruptcy Code
coming into effect
The Hon’ble Supreme Court extensively interpreted the Code with a message: “we
thought it necessary to deliver a detailed judgement so that all Courts and Tribunals
may take notice of a paradigm shift in the law. Entrenched management are no
longer allowed to continue in management if they cannot pay their debts.”
It summed up the Code: “The scheme of the Code, therefore, is to make an attempt,
by divesting the erstwhile management of its powers and vesting it in a professional
agency, to continue the business of the corporate body as a going concern until a
resolution plan is drawn up, in which event the management is handed over under the
plan so that the corporate body is able to pay back its debts and get back on its feet. All
this is to be done within a period of 6 months with a maximum extension of another 90
days or else the chopper comes down and the liquidation process begins.”
Interpreting section 17(b) of the Code, it observed: “once an insolvency professional
is appointed to manage the company, the erstwhile directors who are no longer in
management, obviously cannot maintain an appeal on behalf of the company. In
the present case, the company is the sole appellant. This being the case, the present
appeal is obviously not maintainable.”
Interpreting the non-obstante clause in Section 238 of the Code, it observed: “it is clear
that the latter non-obstante clause of the Parliamentary enactment will also prevail over
the limited non-obstante clause contained in Section 4 of the Maharashtra Act. For these
reasons, we are of the view that the Maharashtra Act cannot stand in the way of the
corporate insolvency resolution process under the Code.”
M/s Bell Finvest (India) Limited vs Intercon Container Survey & Commodities Private Limited.
(NCLT Mumbai, November 2017)
Financial
Creditor cannot
charge interest on
loan extortionate
to the principal
amount
A Financial Creditor filed a petition for initiation of Corporate Insolvency
Resolution Process on account of a default by the Corporate Debtor in payment
of principal and interest on the loan. The Loan attracted an interest rate of 24%
payable in advance, and in case of default, an additional interest at the rate of
1% per day. The Adjudicating Authority held that since the Code has come into
existence to deal with distress situation of the companies, it is not expected to allow
a creditor to fleece whatever is left in the company in the name of interest. Further,
if claims of this nature are allowed, the other creditors who are genuinely entitled
to have their say in COC will get affected. The Adjudicating Authority invoked the
discretion given under the Usurious Loans Act, 1918 to deprecate the claim made by
the Financial Creditor and dismissed the application stating that the interest claimed
over the principal is usurious.
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics44
Black Pearls Hotels Private Limited Vs Planet M Retail Limited. (NCLAT, October 2017)
All debts shall
have a fresh
period of
limitation after
1st December
2016
The Hon’ble NCLAT, while adjudicating on the applicability of the Limitation Act,
1963 over the initiation of CIRP under the code, held: Insolvency and Bankruptcy
Code, 2016 has come into effect from 1st Dec 2016. Therefore, the right to apply
under I&B Code accrues only on or after 1st Dec 2016 and not before the said
date. As the right to apply under Section 9 of I&B Code accrued to appellant since
1st Dec 2016, the application filed much prior to three years, the said application
cannot be held to be barred by limitation.
Surendra Trading Company vs Juggilal Kamlapat Jute Mills Limited and Others.
(Supreme Court, September 2017)
Timelines
in IBC are
recommendatory
and not
mandatory
The Apex Court ruled that the timelines provided in Sections 7, 9 and 10 for
deciding a matter within 14 days as well as the time to remove a defect within 7
days are directory and not mandatory.
The SC ruled that rejecting an applicant on a lapse in 7 days alone will not debar
the applicant from filing a fresh application and therefore, not serve any apparent
purpose in holding the provision mandatory. The court also opined that it is only in
the interest of the applicant to remove the defect and therefore the applicant has no
reason to cause any undue delay.
However, the applicant needs to submit in writing showing sufficient cause as to
why the applicant could not remove the objections within 7 days. It is for the AA
to decide as to whether sufficient cause is shown. If it is satisfied that such cause
is shown, only then it would entertain the application on merits, otherwise, it will
have right to dismiss the application. The SC held that no purpose is going to be
served by treating this period as mandatory.
Further, in the same case, NCLAT held that time period of 180 days or 270 days for
completion of CIRP is mandatory.
Neelkanth Township and Construction (P) Limited vs Urban Infrastructure Trustees Limited.
(NCLAT, August 2017)
Debt is not time-
barred if admitted
in recent financial
statements
The Hon’ble NCLAT considered the issue whether the application under Section 7
of the code is admissible if the claim is barred by limitation.
It held that: There is nothing on record that Limitation Act is applicable to I&B
Code… The I&B Code, 2016 is not an act of recovery of money claim, it relates to
the initiation of CIRP.
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 45
SBI vs. Vessons Energy Systems. (NCLT Chennai, September 2017)
Banks cannot
sell personal
properties of
the guarantor of
the Corporate
Debtor during
the Corporate
Insolvency
Resolution
Process
In this case, the honorable court restrained the Financial Creditor from selling the
assets of the personal guarantor, which in this case was a promoter of the corporate
debtor, during the moratorium period granted under the insolvency process.
The applicant stated if such property is sold by the Bank, the personal guarantor
will assume the rights of a creditor against the corporate debtor and in a way, a
charge would be created on the property, which would be against the purpose and
object of the moratorium granted by the Code.
The Tribunal on hearing the petition restrained the Financial Creditor from selling
the assets of the personal guarantor during the moratorium period granted under
the insolvency process on the grounds that such action to recover the debt by selling
of the guarantor’s property will be a violation of the provisions of the moratorium.
A similar stand was taken by the Allahabad High Court in Sanjeev Shriya vs. State
Bank of India. However, the honorable NCLT Delhi Bench, in the case of Phoenix
ARC Private Limited vs. Schweitzer Systemtek India Private Limited, ruled that the
word “its” in Section 14(1) only refers to the properties and security interests of the
Corporate Debtor, not the promoters and guarantors.
Edelweiss Asset Reconstruction Company vs. Raj Oil Mills. (NCLT Mumbai, September 2017)
Appointment of
RP allowed with
less than 75%
votes by Financial
Creditors
The Insolvency Resolution Professional moved an application in the NCLT seeking
direction to remove the deadlock to an unclear verdict of the CoC with regard
to Section 22(2) of the Code, which requires 75% of the voting shares of FCs to
either appoint or replace the Insolvency Resolution Professional as Resolution
Professional.
The NCLT ruled that 2 FCs with a 62.4% share should have their way in
appointing the Resolution Professional as opposed to 10 other Financial Creditors
with a 31.5% voting share even though they are more in number.
The court founded that the intention of the Code states that the largest stakeholder
should be taken into account while choosing a Resolution Professional and that
Financial creditors with the largest percentages of voting rights in CoC should be
given preference over stakeholders with a nominal percentage of voting rights.
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics46
Akshay Jhunjhunwala & Anr vs. Union of India & ors. (High Court Calcutta, February 2018)
High Court upheld the arguments regarding the constitutionality of the Insolvency and Bankruptcy Code
A Director and Shareholder of the Corporate Debtor challenged the constitutionality of various provisions of the Code including Section 7, 8 and 9 claiming that there was an absence of a nexus between the object sought to be achieved by the IBC and that the operational creditors were not given a say on the COC and failure to recognize ‘secured creditors’ appropriately by the legislation and IBC compromises the principles of natural justice.
The Court dismissed the challenges mounted observed the following principles:
The classification made by IBC between financial Creditors and Operational Creditor is based on reasonable differentia and does not offend any provision of the Constitution of India.
The rationale provided for the difference in treatment between financial creditors and operational creditors is a plausible view taken for an expeditious resolution of an insolvency issue of a company and cannot be said to offend any provisions of the Constitution of India The contentions of breach of principles of natural justice were misplaced.
The judgement of the High Court of Calcutta is the first instance and a landmark in developing the jurisprudence around the IBC
Roofit Industries. (NCLT Mumbai, January 2018)
Bidders should look to acquire all the assets of a distressed corporate debtor and piecemeal offers to buy assets might not be given preference.
In the case, the Resolution Professional filed an application for liquidation of the corporate debtor under IBC since the CIRP period of 180 days ended and no resolution plan had been received by the Resolution Professional, except for a factory. Considering the fact that the resolution plan submitted was only for factory, excluding other units, the NCLT Bench was of the view that the resolution plan could not be considered as a resolution under the Code. Roofit Industries has other immovable assets, including land and building, plant and machinery, shop and office.
Quinn Logistics vs. Mack Soft Tech (NCLAT New Delhi, May 2018)
NCLAT allows to exclude 166 days of litigation period for the purpose of counting the total period of 270 days
In the Case, the Financial Creditor filed appeal towards need to extend CIRP period by way of excluding 166 days from CIRP considering stated days wherein process was stayed due to order of Adjudicating Authority (AA). NCLAT directed AA to exclude 166 days for the purpose of counting the period of CIRP and thereby allowing Resolution Professional to complete the process.
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 47
Innovsource Pvt. Ltd. Vs Getit Grocery Pvt. Ltd. (NCLT New Delhi Principal Bench, May, 2018)
Creditors can submit their claim even if they fail to submit proof of claim after the date given in the public notice but it must be done before the approval of the resolution plan by the CoC as per section 12(2)
Innovsource Private Limited (Operational Creditor-OC) filed case against Getit Grocery Pvt. Ltd. (Corporate Debtor-CD) before NCLT under section 9 for non-payment of dues to the tune of Rs.3.96 cr. CD approached OC for providing manpower outsourcing services for their online services related to grocery items. Now CD failed to reimburse the amount for the month of July and August, 2016 for the aforesaid services enjoyed by them despite the fact that the invoices for the months were raised by OC on time and approved by the CD as per agreement.
However RP/IRP appears to have rejected the claim of the OC stating that the claim has been filed after the date given in the public notice.
But order has been given in favour of OC towards admit once of claim since under section 12(2) “A creditor, who failed to submit proof of claim within the time stipulated in the public announcement, may submit such proof to the IRP/RP till the approval of a resolution plan by the committee.
Sunrise Polyfilms Pvt. Ltd. V/s. Punjab National Bank (NCLT Ahmedabad Bench, May, 2018)
As per objective of the code RPs must invite resolution plans towards revival of the company and CoC will not be able to go for liquidation directly
Sunrise Polyfilms Pvt. Ltd. (CD) filed case against RP and Punjab National Bank (FC) and for not inviting resolution plans and directly going for liquidation without considering chances of revival of the CD.
The Bench has given order in favour of the CD towards permitting of exclusion of time consumed in legal proceedings pending before a court under section 12, 14 and 15 of the Limitation Act and under section 25 RP must invite prospective resolution applicants for resolution plan towards revival of the company before initiating the liquidation proce ss under IBC.
Binani Cement Limited Vs Bank of Baroda (NCLT Kolkata Bench, May, 2018)
NCLT allows Consideration of revised offer by Ultratech upholding the objective of IBC
Bank of Baroda (FC) filed case against Binani Cement Limited (CD) under section 7. In this case a plethora of interim applications were filed by the various stakeholders as well as director of the CD. CD also challenged about the transparency, mismanagement and huge expenditure towards the resolution process under sub section 5 of the section 60 of the code against RP. Ultra Tech Cement Limited also filed application under section 60(5) for accepting its offer to maximise the value of the assets of the CD with support of objective of IBC code towards safeguarding the enterprise value of the CD and uphold the interest of all stake holders as going concern.
RP and CoC have been directed to accept the revised offer quoting the bid amount of Rs.7960 crores alongwith resolution plan of Ultra tech. CoC is also directed to reconsider the resolution plan of Rajputana Properties Pvt. Ltd. alongwith Ultratech and to take best decision towards revival of the CD.
Confederation of Indian Industry
Annexure
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics48
Annexure - 1
CIRP closure by approval of resolution plan
Sl. No.
Name of Corporate Debtor Whether under BIFR
CIRP initiated by
Date of CIRP
Date of Approval of Resolution
1 Synergies Dooray Automotive ltd. Yes CD 23-Jan-17 02-Aug-17
2 Chhaparia Industries Pvt. Ltd. Yes CD 24-Feb-17 29-Sep-17
3 Prowess International Pvt. Ltd. No OC 20-Apr-17 17-Oct-17
4 Sree Metalic Ltd. NO FC 30-Jan-17 07-Nov-17
5 WB Essential Commodities Supply
Corporation Ltd.
NO FC 29-May-17 20-Nov-17
6 Kamineni Steel & Power india Pvt.Ltd. YES CD 10-Feb-17 27-Nov-17
7 Shirdi Industries Ltd. YES CD 18-May-17 12-Dec-17
8 Hotel Guadavan Pvt. Ltd. NO FC 31-Mar-17 13-Dec-17
9 Nandan Hotels Ltd. NO OC 17-Aug-17 14-Dec-17
10 JEKPL Private Ltd. NO CD 17-Mar-17 15-Dec-17
11 Trinity Auto Components Ltd. YES CD 25-May-17 22-Jan-18
12 Kalyanpur Cements Ltd. YES OC 01-May-17 31-Jan-18
13 Precision Engineering & Fabricators
Pvt. Ltd.
NO OC 04-Apr-17 01-Feb-18
14 Palogix Infrastructure Pvt. Ltd. NO FC 16-May-17 12-Feb-18
15 Shree Radha Raman Packaging Pvt.
Ltd.
NO OC 28-Apr-17 15-Feb-18
16 Sharon Bio Medicine Ltd. NO FC 11-Apr-17 28-Feb-18
17 Burn Standard Company Ltd. YES CD Jun-17 06-Mar-18
18 Divya Jyoti Sponge Iron Pvt. Ltd. NO FC 23-Aug-17 13-Mar-18
19 Propel Valves Private limited NO OC 11-Aug-17 19-Mar-18
20 Forward Shoes (India ) Private Limited NO OC 19-Jun-17 27-Mar-18
21 Haldia Coke & Chemicals Limited NO CD 11-Jul-17 27-Mar-18
22 Electrosteel Steels Limited NO FC 21-Jul-17 17-Apr-18
23 MBL Infrastructures Ltd. NO FC 30-Mar-17 18-Apr-18
24 Ved Celluse Ltd. NO OC 30-Jun-17 14-May-18
25 Bhushan Steel Limited NO FC 26-Jul-17 15-May-18
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 49
Annexure - 2
CIRP closed by commencement of liquidationSl.
No.Name of Corporate Debtor Whether
under BIFRCIRP
initiated byDate of CIRP
commencementDate of
Liquidation Order
1 Bhupen Electronic Ltd. No FC 19-Jan-17 31-Jul-17
2 Wind Ways Packaging Pvt.Ltd. No OC 07-Apr-17 04-Aug-17
3 REI Agro Ltd. Yes OC 27-Feb-17 24-Aug-17
4 VNR Infrastructures Ltd. Yes CD 10-Feb-17 24-Aug-17
5 Hind Motors Ltd. No CD 14-Feb-17 28-Aug-17
6 Hind Motors India Ltd. No CD 09-Mar-17 12-Sep-17
7 Hind Motors Mohali Pvt.Ltd. No CD 20-Feb-17 12-Sep-17
8 VNR Infra Metals Pvt. Ltd. Yes CD 03-Mar-17 22-Sep-17
9 Blossom Oils & Fats Ltd. Yes OC 22-Mar-17 10-Oct-17
10 Helpline Hospitality Pvt. Ltd. Yes CD 24-Apr-17 11-Oct-17
11 Nicco Corporation Ltd. Yes CD 18-Jan-17 17-Oct-17
12 Stewarts & Lloyds of India Ltd. Yes CD 01-May-17 26-Oct-17
13 Hada Textile Industries Ltd. Yes FC 13-Nov-17
14 Keshav Sponge & Energy Pvt.Ltd. Yes CD 16-Feb-17 14-Nov-17
15 Abhayam Trading Ltd. No CD 31-May-17 17-Nov-17
16 DCS International Pvt.Ltd. No FC 10-Jul-17 17-Nov-17
17 Swift Shipping and Freight Logistics Pvt.ltd. No OC 19-Apr-17 20-Nov-17
18 Oasis Textile Ltd. No CD 31-May-17 22-Nov-17
19 Pooja Tex-Prints Pvt. Ltd. No CD 29-Mar-17 29-Nov-17
20 Innoventive Industries Ltd. No CD 17-Jan-17 08-Dec-17
21 RG.Shaw & Sons Pvt. Ltd. No FC 12-Apr-17 15-Dec-17
22 Micro Forge (India) Ltd. Yes CD 29-May-17 12-Dec-17
23 U.B. Engineering Ltd. No FC 18-Jan-17 05-Dec-17
24 New Tech Forge and Foundry Ltd. Yes FC 29-May-17 12-Dec-17
25 Ajudhia Distributors pbt.Ltd. No CD 01-May-17 15-Dec-17
26 New-Tech Fittings Pvt.Ltd. Yes OC 23-May-17 18-Dec-17
27 Advantage Projects & Consultants Pvt.Ltd. No OC 30-May-17 18-Dec-17
28 JODPL Pvt. Ltd. No OC 17-Mar-17 18-Dec-17
29 Eolane Electronics Banglore Pvt.Ltd. No CD 31-Aug-17 20-Dec-17
30 Wegilant Net Solutions Pvt.Ltd. No CD 28-Jul-17 21-Dec-17
31 Gupta Coal India Private Limited No CD 09-Mar-17 01-Dec-17
32 Auro Mira Energy Company Private Limited No CD 19-Jun-17 04-Dec-17
33 Shree Rajeshwar Weaving Mills private Limited No CD 02-Mar-17 16-Jan-18
34 Esskay Motors Pvt. Ltd. No FC 29-Jun-17 08-Jan-18
Confederation of Indian Industry
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics50
Sl. No.
Name of Corporate Debtor Whether under BIFR
CIRP initiated by
Date of CIRP commencement
Date of Liquidation Order
35 Thirupur Suriya Textiles Private Limited No CD 14-Jun-17 11-Jan-18
36 Thiruppur Surya Hitec Apparel Private Limited No CD 14-Jun-17 11-Jan-18
37 Gujarat NRE Coke Limited No CD 07-Apr-17 11-Jan-18
38 Radheshyam Fibres Pvt. Ltd. Yes FC 07-Aug-17 15-Jan-18
39 Orieon Kuries and Loans Private Limited No OC 07-Oct-17 16-Jan-18
40 Gujarat Oleo Chem Limited Yes CD 13-Apr-17 11-Jan-18
41 Roofit Industries Limited Yes CD 28-Jun-17 22-Jan-18
42 Mahaan Proteins Limited Yes OC 27-Jun-17 24-Jan-18
43 Jackonblock Facility Services Private Limited No OC 17-Apr-17 25-Jan-18
44 Raman Ispat Pvt. Ltd. Yes CD 11-Apr-17 31-Jan-18
45 Gupta Corporation Pvt. Ltd. No CD 03-Apr-17 20-Feb-18
46 Best Deal TV. Pvt. Ltd. No OC 05-May-17 02-Feb-18
47 Somnath Textile Private Limited Yes CD 28-Jul-17 05-Feb-18
48 Dev Cotex Pvt. Ltd. No CD 21-Aug-17 05-Feb-18
49 Ruby Cables Limited No CD 02-Aug-17 05-Feb-18
50 Diamond Polymers Pvt. Ltd. No OC 09-Aug-17 06-Feb-18
51 Dunn Foods Pvt. Ltd. No CD 02-May-17 06-Feb-18
52 MM Cargo Container Line Private Limited No OC 27-Jul-17 06-Feb-18
53 Sri Maharaja Oil Imports and Exports India Pvt. Ltd.
Yes FC 04-Aug-17 09-Feb-18
54 Asian Natural Resources (India) Limited No FC 23-May-17 09-Feb-18
55 Jenson & Nicholson (India) Limited Yes FC 17-Apr-17 24-Jan-18
56 Rolex Cycles Pvt. Ltd. No OC 13-Jul-17 13-Feb-18
57 Clutch Auto Limited Yes CD 10-Apr-17 15-Feb-18
58 Ultra Drytech Engineering Limited No CD 06-Mar-17 19-Feb-18
59 Infinity Fab Engineering Company Pvt. Ltd. No OC 27-Jun-17 20-Feb-18
60 RHD Enterprises Pvt. Ltd. No OC 21-Aug-17 22-Feb-18
61 Karpagam Spinners Pvt. Ltd. No OC 19-Jul-17 22-Feb-18
62 SRS Modern Sales Ltd. Yes CD 17-Apr-17 26-Feb-18
63 DLS Industries Limited No FC 03-May-17 27-Feb-18
64 Mega Soft Infrastructure Pvt. Ltd. No FC 23-Aug-17 28-Feb-18
65 Upadan Commdities Pvt. Ltd. No OC 29-Aug-17 01-Mar-18
66 Sri Padmabalaji Steels Pvt. Ltd. No OC 11-Sep-17 05-Mar-18
67 Suvarna Karnataka Cements Pvt. Ltd. No CD 28-Apr-17 23-Mar-18
68 Maa Tara Industrial Complex Pvt. Ltd. No OC 08-Sep-17 16-Mar-18
69 Veesons Energy Systems Pvt. Ltd. Yes CD 19-Jun-17 19-Mar-18
70 Diamond Power Transformers Pvt. Ltd. No CD 06-Jun-17 19-Mar-18
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 51
Sl. No.
Name of Corporate Debtor Whether under BIFR
CIRP initiated by
Date of CIRP commencement
Date of Liquidation Order
71 Aarohi Motors Pvt. Ltd. No CD 21-Sep-17 19-Mar-18
72 Varadha Steels Pvt. Ltd. No OC 22-Aug-17 20-Mar-18
73 Jhelum Industries Pvt. Ltd. No OC 05-Sep-17 20-Mar-18
74 Barjora Steel & Re-Rolling Mills Pvt. Ltd. No OC 18-May-17 21-Mar-18
75 Super Agri Seeds Pvt. Ltd. No CD 18-Sep-17 21-Mar-18
76 Tirupati Ceramics Ltd Yes FC 29-Sep-17 22-Mar-18
77 Laxmivinayak Rice Mills Pvt. Ltd. No FC 19-Sep-17 23-Mar-18
78 LML Ltd. Yes CD 30-May-17 23-Mar-18
79 Kadevi Industries Ltd. No FC 15-Mar-17 05-Mar-18
80 Ennore Coke Ltd. No CD 20-Jun-17 23-Mar-18
81 Rotomac Global Pvt. Ltd. No FC 20-Sep-17 23-Mar-18
82 Rotomac Exports Pvt. Ltd. No FC 20-Sep-17 23-Mar-18
83 Bumblebee Electronics Pvt. Ltd. No OC 25-Sep-17 28-Mar-18
84 Gupta Energy Pvt. Ltd. No CD 21-Mar-17 26-Mar-18
85 Deahsan Trading India Private Limited No OC 16-Jun-17 27-Mar-18
86 Deep Water Services (India) Ltd. No OC 06-Jun-17 27-Mar-18
87 Aseem Ispat Pvt. Ltd. No OC 20-Sep-17 02-Apr-18
88 Raphael Engineering Pvt. Ltd. No FC 18-Aug-17 05-Apr-18
89 Nag Yang Shoes Pvt. Ltd. No OC 07-Sep-17 06-Apr-18
90 Nag Leathers Pvt. Ltd. No OC 07-Oct-17 09-Apr-18
91 Jalaram Cotton & Proteins Limited No CD 15-Nov-17 09-Apr-18
92 Yog Industries Ltd. No OC 22-Aug-17 12-Apr-18
93 Mehadia Sales Trade Corporation Pvt. Ltd. No CD 06-Jul-17 13-Apr-18
94 Everonn Skill Development Ltd. No FC 23-Nov-17 23-Apr-18
95 Servalakshmi Paper Ltd. No OC 21-Jun-17 24-Apr-18
96 Cethar Ltd. No OC 16-Jun-17 25-Apr-18
97 Swiber Offshore (India) Pvt. Ltd. No OC 31-Mar-17 26-Apr-18
98 Vijay Mahalaxmi Spinning Mills India Pvt. Ltd. No OC 07-Nov-17 27-Apr-18
99 Shiv Cotgin Pvt. Ltd. No CD 21-Aug-17 27-Apr-18
100 Deivaanai Sinter Metals Private Limited No FC 11-Oct-17 03-May-18
101 Metal Link Alloys Ltd. No CD 17-Aug-17 21-May-18
102 Metal Holdings India Pvt. Ltd. No CD 18-Aug-17 21-May-19
103 Sky Blue Papers Pvt. Ltd. No CD 07-Apr-17 17-May-18
104 Shivkripa Ispat Pvt. Ltd. No FC 14-Aug-17 09-May-18
105 Zenith Computers Ltd. No FC 12-Jun-17 08-May-18
Confederation of Indian Industry
Bibliography
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics52
1 www.ibbi.gov.in
2 www.rbi.org.in
3 www.mca.gov.in
4 https://www.thehindubusinessline.com/companies/alok-ind-ocs-tribal-employees-want-liquidation-plan-stalled/article23739679.ece
5 https://economictimes.indiatimes.com/markets/stocks/news/operational-creditors-files-application-to-stop-aloks-liquidation/articleshow/63990617.cms
6 https://www.financialexpress.com/industry/binanis-operational-creditors-approach-supreme-court/1128809/ https://www.livemint.com/Companies/bVYhbYbNepGSkwpK4Upq8M/SC-agrees-to-hear-Binani-Cements-operational-creditors-peti.html
7 Economic Survey
8 http://www.business-standard.com/article/economy-policy/ibc-s-objective-not-to-emphasise-on-liquidation-nclt-118010301115_1.html
9 https://www.thehindubusinessline.com/economy/resolution-under-ibc-has-not-been-significant-so-far/article22577219.ece
10 https://www.business-standard.com/article/markets/relief-ahead-for-banks-as-deadline-for-resolving-10-major-nclt-cases-nears-118040401507_1.html
11 https://www.financialexpress.com/industry/banking-finance/npa-fix-only-2-from-rbis-dirty-dozen-resolved-under-ibc-what-about-others-is-the-delay-hurting/1160770/
12 https://www.bloombergquint.com/business/2018/05/29/as-liquidation-looms-in-four-large-cases-banks-prepare-for-the-long-haul
13 http://www.business-standard.com/article/companies/banks-reject-lone-bid-for-jyoti-structures-may-go-for-liquidation-or-rebid-118032900028_1.html
14 https://economictimes.indiatimes.com/news/economy/policy/ibc-ordinance-may-restrict-relief-proposed-for-msmes/articleshow/64117487.cms
15 https://economictimes.indiatimes.com/news/economy/policy/why-ibc-panels-new-recommendations-may-defeat-the-very-purpose-of-the-law/articleshow/63994517.cms
16 https://economictimes.indiatimes.com/news/economy/policy/government-considers-time-limit-for-withdrawal-of-cases-under-ibc/articleshow/64070274.cms
17 http://www.ibcorders.com/amendment/amen-detail.php?amenid=51
18 http://www.thehindu.com/business/Industry/review-insolvency-code-regulations-nclt-tells-bankruptcy-board/article23794666.ece
19 http://www.ibcorders.com/amendment/amen-detail.php?amenid=52
20 https://realty.economictimes.indiatimes.com/news/regulatory/ibc-panel-eases-insolvency-rules-treat-home-buyers-as-creditors/63474659
21 https://www.livemint.com/Companies/yDlsM2LW9h32lbD6iK3wLP/Insolvency-and-Bankruptcy-Code-set-for-major-overhaul.html
22 https://economictimes.indiatimes.com/industry/banking/finance/banking/bigger-say-for-home-buyers-in-modi-governments-bankruptcy-code-tweak/articleshow/64288579.cms
23 http://www.financialexpress.com/industry/ibc-amendments-no-relaxing-of-related-party-rule/1108216/
24 https://www.livemint.com/Companies/rq4DIRDA8vP66Av26Qvm2J/Panel-seeks-more-amendments-to-Insolvency-and-Bankruptcy-Cod.html
25 https://www.moneycontrol.com/news/business/cnbc-tv18-comments/amendments-to-the-insolvency-bankruptcy-code-likely-soon-2521975.html
26 https://economictimes.indiatimes.com/news/economy/policy/ibc-amendments-likely-to-resolve-cross-border-cases/articleshow/63358135.cms
27 https://economictimes.indiatimes.com/markets/stocks/news/psbs-fy18-losses-have-wiped-out-governments-13-billion-cap-infusions/articleshow/64414495.cms
28 https://www.business-standard.com/article/finance/psb-losses-eat-up-centre-s-13-billion-infusion-in-fy18-fitch-ratings-118060200059_1.html
Glossary
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics 53
NCLT National Company Law Tribunal
NCLAT National Company Law Appellate Tribunal
IBBI Insolvency and Bankruptcy Board of India
IP Insolvency Professional
COC Committee of Creditors
CD Corporate Debtor
FC Financial Creditor
OC Operational Creditor
NPA Non-Performing Assets
IBC/The Code The Insolvency and Bankruptcy Code,2016
RBI Reserve Bank of India
MCA The Ministry of Corporate Affairs
NCLT 1 RBI’s 1st list of large defaulters
NCLT 2 RBI’s 2nd list of large defaulters
CIRP Corporate Insolvency Resolution Process
CRILC Central Repository of Information on Large Credits
CAR Capital Adequacy Ratio
CET 1 Common Equity Tier 1
AA Adjudicating Authority
NNPA Net Non Performing Assets
CDR Corporate Debt Restructuring
JLF Joint Lenders Forum
SDR Strategic Debt Restructuring
PCA Prompt Corrective Action
Confederation of Indian Industry
About CII
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics54
The Confederation of Indian Industry
(CII) works to create and sustain
an environment conducive to the
development of India, partnering industry,
Government, and civil society, through advisory
and consultative processes.
CII is a non-government, not-for-profit, industry-
led and industry-managed organization, playing
a proactive role in India’s development process.
Founded in 1895, India’s premier business
association has around 9000 members, from the
private as well as public sectors, including SMEs
and MNCs, and an indirect membership of over
300,000 enterprises from around 265 national
and regional sectoral industry bodies.
CII charts change by working closely with
Government on policy issues, interfacing with
thought leaders, and enhancing efficiency,
competitiveness and business opportunities for
industry through a range of specialized services
and strategic global linkages. It also provides a
platform for consensus-building and networking
on key issues.
Extending its agenda beyond business, CII
assists industry to identify and execute corporate
citizenship programmes. Partnerships with
civil society organizations carry forward
corporate initiatives for integrated and inclusive
development across diverse domains including
affirmative action, healthcare, education,
livelihood, diversity management, skill
development, empowerment of women, and
water, to name a few.
As a developmental institution working towards
India’s overall growth with a special focus on
India@75 in 2022, the CII theme for 2018-19,
India RISE : Responsible. Inclusive. Sustainable.
Entrepreneurial emphasizes Industry’s role in
partnering Government to accelerate India’s
growth and development. The focus will be
on key enablers such as job creation; skill
development; financing growth; promoting next
gen manufacturing; sustainability; corporate
social responsibility and governance and
transparency.
With 65 offices, including 9 Centres of
Excellence, in India, and 11 overseas offices
in Australia, Bahrain, China, Egypt, France,
Germany, Iran, Singapore, South Africa, UK, and
USA, as well as institutional partnerships with
355 counterpart organizations in 126 countries,
CII serves as a reference point for Indian industry
and the international business community.
Confederation of Indian Industry
Eastern Region Headquarters, 6 Netaji Subhas Road, Kolkata – 700 001
T: +91 33 22307727-28/1434/3354, F: +91 33 22301721, 22312700, E: ciier@cii.in, W: www.cii.in
The Insolvency and Bankruptcy Code, 2016: Evolving Dynamics56
Confederation of Indian Industry
Notes
Disclaimers
1. The information contained in this report is extracted from different public sources. Reasonable care has been taken to ensure that the information contained herein is not misleading or untrue at the time of publication.
2. The report is for general information only and we are not soliciting any action based on this material.
3. The document is confidential and prepared for private circulation only. This is not an advertisement material.
4. Facts and views expressed in the document are subject to change without any notice to the recipient.
CONTACT US
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SMSPL is an IBBI recognized Insolvency Pro-fessional Entity vide IPE Recognition no: IBBI/IPE/0020
Board of Directors of SMSPL consists of seven eminent CAs and IPs supported by a team of fourteen Insolvency Professionals
In-house team of Lawyers, Company Secretaries, assisting in legal and compliance matters
Wide bouquet of services - Insolvency Advisory, Business Turnaround & Growth, Voluntary Liquidation, Management Buy-outs, Resolution Application, Insolvency Professional, Resolu-tion plan preparation and related advisory
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Resolution/Recovery under IB Code with expe-rienced professionals
Proactive & specialized services to help compa-nies transform themselves
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