Welcome to INSOL India Newsletter Volume 23, Issue FEBRUARY | Feb 18, 2020

Greetings and welcome to yet another issue (twenty third edition) of your INSOL India Newsletter!

Last month witnessed some remarkable amendments to the Insolvency and Bankruptcy Code, 2016 (IBC). No doubt, IBC is one of the most significant legislations by the Indian Government enacted to address the economic menace of distressed debts in the country, which was on a faster growth track too. No legislation will bring the desired result unless its full implementation is done successfully. The IBC also had its share of teething troubles. Since its enactment, a slew of amendments followed, which became essential to achieve its objective.

When legal proceedings started to increase, certain critical inconsistencies and gaps became evident in respect of the corporate insolvency resolution processes (CIRP). And then, certain judicial pronouncements came to be viewed as contrary to the IBC’s envisioned priority of distribution. The other points of conflict were that financial and operational creditors must be given similar percentage of haircut; and that there is discrimination amongst financial creditors on the basis of existing priorities or security interest.  Another judicial view was that the Committee of Creditors (CoC) has no role to play in determining the manner of distribution of proceeds of a resolution plan amongst the financial or operational creditors.  This is based on the assumption that since the financial creditors in the Committee of Creditors are interested parties, there will be conflict of interest.  Another contributing factor is that initiation of CIRP has taken more time than the prescribed fourteen days, in several cases. Another striking development is litigation by tax authorities against successful resolution applicants for recovery of pre-CIRP tax dues!  The amendment of 2019 is brought to address these burning issues.  More details are in the following pages and therefore, no reiteration is needed here. The present amendments as well as the judicial pronouncements will continue to  storm the minds of professionals, for resolution at the earliest is of paramount interest. 

The NCLAT on August 28, 2019, in the case of Shweta Viswanath Shirke and Others v. The Committee of Creditors and Another set aside initiation of corporate insolvency resolution process initiated by financial creditors subject to payment by promoters/shareholders to all stakeholders in terms of Section 12A with liberty to the Enforcement Directorate and others to continue their investigation processes. The Adjudicating Authority in the case of Bhushan Power & Steel, approved the resolution plan of JWA. However, the matter has been taken to the appeal court and is pending there.

Prof. Scott Pryor, Campbell University School of Law, Raleigh, N.C., has written an article titled “Re-Secure in India,” in the  American Bankruptcy Institute Journal, touching the IBC. The article can be accessed only by members of the American Bankruptcy Institute (www.abi.org). We will try to get his permission to host the same on our website.

The Government of India has announced merger of ten public sector banks to form new four banks, to have financially strong public sector banks in the country. Integration of technology platforms would be a key challenge for the policy of the government to merge various banks into four major banks in the country on the basis of their IT compatibilities instead of geographic positioning.  

My request in one of the previous issues is worth repeating. The newsletter will grow as much as its readers respond. Readers’ response is always welcome!