Welcome to INSOL India Newsletter Volume 28, Issue OCTOBER / NOVEMBER/DECEMBER | Dec 28, 2020

Greetings to all INSOL India members and readers. On behalf of the editorial board, I sincerely hope and pray that you and your loved ones are safe.
 
The approval of Jet Airways resolution plan by its committee of creditors is like a silver lining on the clouds in the Indian insolvency eco system. It was a complex case and odds were piled up against a successful resolution on account of COVID and its adverse impact on the aviation sector. It is an achievement for all the stakeholders involved in the process. I take this opportunity to make a special mention for my editorial board colleague, Ashish Chhawchharia, for ably anchoring the insolvency resolution process.
 
The suspension of initiation of insolvency proceedings has been extended by another three months. As I had mentioned earlier, this period presents an opportunity to strengthen our eco system and we as stakeholders must continue in our efforts to achieve this objective.
 
The recent circular issued by SEBI prescribing a framework for debenture trustee to sign the intercreditor agreement under the Prudential Framework for Resolution of Stressed Assets is a welcome move. It will help in having a coordinated approach for out of court insolvency resolution and will strengthen the out of court insolvency resolution option- a complementary tool for any evolved insolvency framework. In addition to this, measures like specifying eligibility parameters for accounts which can be considered RBI’s Resolution Framework for Covid-19 Related Stress, passage of Banking Regulation (Amendment) Act, 2020 (which enables the RBI to initiate a scheme of reconstruction or amalgamation of a co-operative bank)  and passage of Bilateral Netting of Qualified Financial Contracts Act, 2020 (which facilitates bilateral netting of financial contracts) are steps in the right direction to strengthen our financial system.
 
In this edition, we give an overview of the abovementioned  measures along with snapshots of some of the important judicial pronouncements and news of events and developments related to insolvency regime in India.
 
I hope you will find the newsletter informative. As always, please do share your valuable feedback, especially on the topics you would like us to address.  Also, I encourage the readers to share their vast knowledge on this subject by contributing articles to this monthly newsletter. You may write in to our editorial team at newsletter@insolindia.com
 
 

Greetings!  

COVID-19 has made us to first greet each other with a wellness wish or message.  The virus has affected all human activities and has prescribed us a virtual world to live and work.  And now, an ‘amendment’ has come to the virus spectrum– with a newer, formidable variant which is 40-70% more transmissible!  This means that stricter measures are required to slow down the spread wherever the new variant lands.  Let us take all possible precautions and stay safe, though the danger is looming large.

The Government has extended suspension of the IBC till end March 2021 for helping businesses cope with the lingering difficulties posed by the COVID-19 pandemic.  All defaults that have arisen on or after March 21, 2020, when the national lockdown was clamped to curb the virus spread, will remain out of the insolvency net for a full year now.  
Whether such a prolonged prohibition would incentivise wilful defaults is a question that cannot be avoided.  Because, it can be argued that the move eliminates IBC’s inherent rationale of creditor-in-the-saddle approach and favours a kind of debtor-in-control governance.  While Sections 7 and 9 allow financial and operational creditors respectively to initiate the resolution process, Section 10 facilitates voluntary insolvency by corporates. With operation of all the said three Sections suspended, the concerns regarding unintended consequences are quite natural. Resolution and restructuring being the need of the hour, such consequences can wait.  Of course, suspension of the IBC might help prevent two things – wanton sale of companies crippled by low valuations because of the pandemic and flooding of Adjudicating Authorities with cases.  However, creditors are not bereft of other avenues. Insolvency proceedings against personal guarantors have not been suspended and that is an option in the hands of banks.  Many are of the view that the banks needed to be meticulous in observing risk-based supervisory processes. This is both an academic and practical topic.  And the universal fact is that insolvencies have increased across the globe and will continue to be so because of the effect and after effect of COVID-19.

On 24^thNovember, the Insolvency and Bankruptcy Board of India has published a discussion paper on ‘Voluntary Liquidation Process.’  Section 59 under Chapter V of Part II of the IBC provides that a Corporate Person (CP) may initiate voluntary liquidation proceedings if two conditions are met: (i) the CP has no debt or is in a position to pay all the debts; and (ii) the CP is not being liquidated to defraud any person.  The subject is, of course, worth discussion.
As usual, interesting articles, news etc. are in the following pages.

This is the last issue of an unprecedently eventful year.  Whatever may be the circumstances, we have to stay hopeful and grateful.  Thus, a very happy, more joyous and prosperous New Year to all our readers!
Enjoy reading, stay safe and take care.
 
A.S. Chandhiok
December 24, 2020.