The Cabinet has cleared many key amendments to the Insolvency and Bankruptcy Code (IBC) to reinforce confidence in the regulatory framework that was engulfed by a wave of pessimism following the recent appellate tribunal ruling in the Essar Steel issue.
The amendments reinforce the rights of financial creditors, ensuring a minimum amount under resolution and liquidation in accordance with Section 53 of the IBC, which gives priority to secured financial creditors in the repayment hierarchy.
By placing the manner of distribution of proceeds within the ambit of commercial decisions of the committee of creditors (CoC), the latest amendments have upheld the sanctity of the collective decision of the CoC.
Equally important is the move to put a time limit on the endless delays caused by litigation in bankruptcy courts. At present, the code allows a maximum of 270 days for clearing a resolution plan, but courts have taken the lenient approach of excluding the time spent on legal challenges by various parties from the time frame.
Now the entire corporate insolvency process will have to be completed within 330 days, including litigation and other judicial processes. The amendments are yet to be cleared by the parliament.
Shardul Shroff, executive chairman of Shardul Amarchand Mangaldas & Co, Bahram Vakil, founding partner of AZB & Partners and Sunil Srivastava, former deputy MD and head of corporate group at SBI, have shared their views with CNBC-TV18 on these critical changes to the three-year-old IBC.
Welcoming the move by the government, Shroff said, “The stressed assets would be severely disturbed if this law was to continue. No investments would have come in. These amendments will address several issues which are pending in the Essar case where appeals have been filed. This law will clearly have persuasive value till it is passed and definitely binding value once it is cleared by both the Houses of parliament.”
According to Vakil, the first thing to look at is the speed at which the government has moved. “It is unity of purpose which I hope everyone in India and certainly all the foreign investors will appreciate. Even in terms of the areas, the problem areas covered, I think they have done a tremendous job,” he opined.
Srivastava also cheered the alacrity and the comprehensiveness of the response by the government. “The fact that the legal framework has been reinforced for the CoC to take decisions for resolution within a defined time frame, which has again been restricted to 330 days, is itself very commendable,” he noted.
Source- CNBC TV18.