Tag: IBC

Home buyer loses ₹50 lakh claim because she missed a deadline

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

View: India’s ease of doing business transformation

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

In the past decade from 2014 to 2024, India has taken its place as a Top 5 global economy, on track to soon reach third rank behind only the US and China. This formidable trajectory is also reflected in the remarkable leap forward in the Nation’s Ease of Doing Business (EoDB) rank – from 142 in 2014 to 63rd rank in 2019.

Numerous measures across multiple economic sectors have converged towards this favourable EoDB trajectory. The Goods and Services Tax Network (GSTN) unified the country’s states and UTs under one intra-national economic market system by integrating many fragmented tax systems. Heavily digitalised, the GSTN system has wielded multiple breakthroughs in making trade across the country more efficient, increasing tax collections, and decreasing supply chain costs and the overall level of taxation and prices.

The Insolvency and Bankruptcy Code (IBC) was a gamechanger by allowing assets to remain as viable units instead of being made piecemeal, and by allowing creditors to initiate both liquidation, and reorganisation and continuation of essential goods or services critical to protecting and preserving the value of the debtor during the proceedings. IBC also helps with preserving and recovering capital from failed assets, and ring-fences successful bidders of stressed assets from the risk of criminal proceedings. IBC has increased loan repayments and reduced delinquent accounts.

India is one of the few countries worldwide investing over $1 trillion annually in the economy, government and private, combined via Gross Capital Formation. This amounts to a significant 31% of the nation’s GDP. To boost trade activities, significant investments have been made towards increasing the capacities of India’s ports, airports, freight, railways and other critical aspects of trade-related logistics. The trip from Bangalore to Delhi previously took four days, now it’s possible in two. Goods carriage speeds have exceeded 45kmph, from an average of 25kmph earlier. The Dedicated Eastern and Western Corridors for exclusive goods movement up and down the country have been a game-changer. Between GST and infrastructure development, supply chain costs are reducing from 14% of GDP to 8-9%.

Impact of ‘Make in India’

Apart from improving the physical infrastructure, measures like electronic sealing of containers, electronic submission of supporting documents with digital signatures, machine-based automated clearance of imported goods and use of handheld devices for on-the-spot clearances have been taken to improve port operations and reduce turnaround times.

The ‘Make in India’ scheme has paid significant dividends to India’s export and employment outlook. The country is now the second largest manufacturer of mobile phones globally, with Apple producing $10 billion worth of iPhones in the last ten months itself. Value-added mobile manufacturing has steadily increased from 10% to 25%. The PLI schemes in strategic industries are incentivising the expansion of Indian manufacturing and production and making the nation globally competitive. Significant growth has been observed in sectors like pharmaceuticals, heavy chemicals, and electronics. The EV industry got its head start due to various incentives. Expanding the semiconductor industry via large grants to three companies will create a strong foundation for the industry in India while sending a strong signal globally about India’s seriousness regarding business expansion and growth. Bangalore already hosts the largest concentration of chip designers and testers in the world, at 300,000+. This will accelerate India’s growth in semiconductors and chip manufacturing.

Several measures to simplify the process of starting businesses have been taken to boost entrepreneurship and business expansion. Forms like SPICe+ and AGILE PRO integrate various services like PAN, TAN, DIN and GSTN into one, and are processed within two to three days. A single window for construction permits has also been introduced via OBPS.

The tax systems, both direct and indirect, have been automated and efficiency has accelerated. More than 97% of tax assessments are completed within 30 days of filing. Digitalisation has significantly increased tax collections. Digitalisation across the economy has tremendously benefitted common citizens and their productivity—like accessing birth and death certificates, and land records, and registering purchases of land and other assets.

More reforms needed

While there is tremendous progress in increasing the velocity of business and EoDB in India, addressing the following fundamental issues over the next five years will accelerate the ascent. Reforms are sorely needed in India’s justice system. Today commercial disputes take any time between 5-15 years to resolve, working its way through the courts. The system is overloaded with hardly 21 judges/million population, whereas the optimum number is between 50 and 100.

Court proceedings often drag on with frequent adjournments. Lack of judicial capacity, archaic laws (despite repealing numerous old laws), and complicated processes impede justice and EoDB. The Commercial Courts Act 2015 and Amendment in 2018 provided for increasing the number of commercial courts across all levels—district, town and state, decreasing the monetary limit of commercial disputes to include a wider number of beneficiaries, and the use of IT and digitalisation services to hasten court operations, the implementation must accelerate so commercial disputes can be settled within two and three years as in developed economies.

Unnecessary tax disputes are hurting India’s brand equity. The quantum of tax disputes has increased from ₹4.5 lakh crore in 2014 to around ₹12 lakh crore in 2023. Many of these disputes are overturned on appeal necessitating action to eliminate unnecessary high-pitch assessments. Accountability for wrong assessments and tax disputes must be increased, and broad administrative reforms must be enacted to curb any arbitrary powers.

It is also incumbent on government organisations to respond to queries and give approvals within defined time limits to enhance EoDB. For example, while the RBI has complete autonomy on regulatory matters and conducts its role as the government’s banker admirably, their response time to queries or approvals required for business has been lacklustre. Many startups have relocated outside India due to the RBI’s lack of response in the matter of their handling of foreign currencies. RBI must create a KYC-driven digital depository system for investment in unlisted companies, as exists for listed companies.

Overall, the Indian government’s massive drive towards digitalisation, digital and financial inclusion, improvement of processes, and removal of unnecessary approvals over the past decade has paid rich dividends. India is steadily positioning itself as the world’s growth engine over the next 25-50 years. Accelerating India’s EoDB ranking is of vital importance to increase the velocity of business. Some critical measures that are required over the next five years to improve judicial capacity, decrease tax disputes and ease the flow of foreign currency in and out of the country will have an outsized impact on the EoDB in India.

—The authors, Dr TV Mohandas Pai is Chairman at Aaron Capital and former CFO and Board Member of Infosys, and Nisha Holla, is Technology Fellow, C-CAMP(Centre for Cellular & Molecular Platforms). Views expressed are personal

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

GoFirst IBC case: Lenders may go ahead with resolution process with sole bidder Jindal Power

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Industrialist Naveen Jindal-promoted Jindal Power Limited happens to be the only suitor for GoFirst at the moment, and the beleaguered airline’s lenders may be planning to go ahead with the resolution process with the sole suitor, sources told CNBC-TV18 on October 12.

GoFirst received three Expressions of Interest (EOIs) from prospective bidders for the cash-strapped airline’s resolution under the Insolvency and Bankruptcy Code, 2016 (IBC). The other two suitors were lessor-known foreign entities, that are neither strategic players nor financial suitors and did not make the cut, CNBC-TV18 has learnt.

“We received three EOIs (expressions of interest) for GoFirst, but two were some lesser-known companies that did not qualify. So, we have only one suitor (Jindal Power Limited),” said one of the people involved in the matter.

Jindal Power has declined to comment on the development. Jindal Power Limited is a privately held company. It was divested to WorldOne by Jindal Steel and Power Limited (JSPL), a listed entity in 2021. WorldOne is a company owned by Naveen Jindal and his family. It remains unclear what ambitions or interests Naveen Jindal has in the aviation sector.

Jindal owns an aviation company by the name of India Fly Safe Aviation Limited that rents out plans and helicopters, but other than that has no presence in commercial aviation.

With only one suitor in the fray, lenders are yet to take a call on whether they will go ahead with the resolution process. One person in the know indicated that the lenders may invite a monetary bid from Jindal Power Limited and then take a call.

The EOI deadline, originally set for August 9, was extended twice to September 8 and eventually to September 28, amid poor response from bidders. One potential factor contributing to the hesitancy of PRAs in bidding for the airline is the ongoing legal battle between GoFirst and several of its foreign lessors.

In the latest update, sources say a final list of prospective resolution applicants will be released in the coming weeks, in this case, a singular one, after running checks and a Request for Resolution Plan (RFRP) will also be issued. IBC allows 30 days’ time for suitors to submit bids from the date of issue of RFRP.

Also, as per Section 12(1) of the IBC, the Corporate Insolvency Resolution Process (CIRP) needs to be completed within a period of 180 days from the date of initiation and for Go First, the deadline is set to end on November 6. The lenders are yet to take a call on seeking an extension.

The GoFirst bankruptcy filing lists Central Bank of India, Bank of Baroda, IDBI Bank and Deutsche Bank among its creditors to whom the carrier owes a total of ₹6,521 crore. GoFirst carries total liabilities of Rs 11,463 crore.

Separately, the government amended its insolvency law earlier this month to exclude leased aircraft from assets that can be frozen, to bring India’s bankruptcy laws into line with a treaty protecting the rights of foreign lessors. However, the notification will not impact the Go First case as it cannot be applied retrospectively.

The fate of GoFirst remains uncertain as lenders, PRAs, and legal battles continue to shape the cash-strapped airline’s future.

Go First flights are suspended until October 15, 2023, due to operational reasons.

Meanwhile, the Delhi High Court is currently hearing GoFirst’s lessors’ plea for deregistration planes, after a recent government rule said that an insolvency moratorium would not apply to leased planes. This is a potential factor contributing to the hesitancy of suitors with the ongoing legal battle between GoFirst and several of its foreign lessors leaving much room for uncertainty. Since falling under the purview of the Insolvency and Bankruptcy Code (IBC), GoFirst has been entangled in disputes with these lessors.

Also Read: Akasa Air is a great example of Indian aviation sector’s potential, says Boeing India

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

View: The curious case of insolvency battle over Rasna

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

On an application filed by a company that provided transportation services to Rasna Pvt. Ltd, the National Company Law Tribunal (NCLT) at Ahmedabad passed an order directing the commencement of insolvency proceedings against Rasna. This may not have been an event of note, in usual course, but it came under the limelight owing to the fact that most of us growing up, or even now, enjoyed Rasna’s products which became a brand name eponym for summer beverages in India.

Now, as per provisions of the Insolvency and Bankruptcy Code, 2016, (IBC) Rasna had a right to appeal before the National Company Law Appellate Tribunal (NCLAT), which it duly did. Before the appeal could be heard, Rasna received a communication from the Resolution Professional appointed to take charge of the company asking it to not operate its bank accounts etc. While this is a routine correspondence, Rasna approached the Gujarat High Court by filing a writ petition asking for a stay on the NCLT order, even though it had already filed an appeal in NCLAT and presumably would have sought a stay of the NCLT order in its appeal as well.

Extraordinarily, the high court passed an order granting interim relief staying the NCLT order till the time NCLAT heard the statutory appeal. I use the term ‘extraordinarily’ because high courts are reluctant to interfere with judicial orders where another forum has statutory jurisdiction to sit in appeal. It is a self-imposed judicial restriction even though Articles 226 and 227 of the Indian Constitution grant High Courts very wide powers to issue appropriate orders, with Article 227 specifically granting the power to quash judicial orders from subordinate courts within a high court’s territorial jurisdiction.

This is not the first time that a high court has interfered with orders of NCLT passed under IBC. In another high-profile case, the Karnataka High Court in 2019 stayed similar insolvency proceedings initiated against Flipkart India Pvt. Ltd. despite an alternate remedy of appeal under IBC having been available to it. The stay was issued as Flipkart had raised issues related to the jurisdiction of the NCLT in the case, and subsequently, it had filed and succeeded in appeal before NCLAT. Coincidentally, both cases had been filed by operational creditors (vendors) against the companies and not by lenders.

Some statutes, like the ones pertaining to debt recovery and enforcement of securities by banks and financial institutions, specifically bar the jurisdiction of civil courts. In that regard, even the Supreme Court of India has consistently held that high courts should desist from entertaining writ petitions challenging such recovery or enforcement actions as the relevant statutes bar intervention of other courts and there exists a hierarchy of tribunals and courts to to take care of aggrieved parties. However, despite there being a similar bar against civil courts from exercising jurisdiction under IBC, there is no judgment from the Supreme Court restraining high courts from exercising their writ jurisdiction.

Arguably, and as the law on this aspect is not settled yet, high courts can exercise writ jurisdiction under Articles 226 and 227 of the Constitution against NCLT orders if an issue of jurisdiction to pass such orders under IBC is raised by an aggrieved party before a high court. If an aggrieved person is able to demonstrate perversity in any order by NCLT then a high court may interfere in the interest of justice. Even in Rasna’s case, the interim stay order was passed to protect it till the company was able to get a hearing before the NCLAT.

Secondly, while NCLAT is the statutory Appellate Tribunal under IBC, it has not been granted supervisory powers over NCLTs. Occasions may arise where the NCLT may deviate from, or act contrary to, the procedure laid down under IBC. In such cases, the territorial high court would have jurisdiction to issue writs against such errant benches of the NCLT. Similarly, delay in the disposal of cases or interlocutory applications by the NCLT may not result in a judicial order that can be appealed under IBC. In such a scenario an aggrieved party cannot be left remediless, and it would be appropriate for a High Court to exercise writ jurisdiction to ensure speedy disposal by the NCLT, as it would be an effort to meet the ends of justice. This power becomes especially relevant now when the NCLT is over-burdened with cases which ends in a delay in conforming to statutory timelines under IBC. Such delays defeat the purpose for which the IBC was enacted, and it would not be out of place for high courts to interfere in appropriate cases.

I would like to conclude with a caveat that while high courts have powers to interfere with NCLT orders, they should only do so in extraordinary cases where non-interference would result in defeating the purpose of IBC, or cause a miscarriage of justice.

—Chitranshul Sinha is Partner at Dua Associates – Advocates & Solicitors. The author was not arguing for or adivising any of the parties for this case. Views expressed are personal

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Banks oppose changes proposed to IBC in the real estate sector, says could affect recovery

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Banks have opposed the proposed amendments by the Insolvency and Bankruptcy Code (IBC) to speed up the resolution of defaulting or stressed projects in the real estate sector. As per the CNBC Awaaz report, banks have argued that these amendments could affect their recovery due to delays in the resolution process.

The new proposal aims to give relief to projects in IBC and does not apply to projects already applied for insolvency. As reported earlier, one of the key changes is the adjudicatory authority’s responsibility to complete the process of ascertaining default and ruling on the admission of the Corporate Insolvency Resolution Process (CIRP) within 14 days.

Several media reports said that in some of the specific cases involving public interest, the central government has proposed the appointment of an administrator. The Committee of Creditors (CoC) will not have the power to remove or replace the government-appointed administrator.

These amendments aim to improve the efficiency of the CIRP and ensure the timely resolution of stressed projects. The IBC amendment bill is expected to tables in the monsoon session of the Parliament.

Also Read:Monsoon session of Parliament to commence from July 20, conclude on August 11

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Zoomed Out | IBBI Paper — here’s why the ‘Single, Transferable Vote’ for insolvency resolution is a fraught

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The Insolvency and Bankruptcy Board of India (IBBI) has proposed on the 7th June vide a discussion paper that the Committee of financial creditors (CoC) may be asked to decide on the resolution plans for bankrupt companies through a new system. The system by which their vote of preferences can be transferred for quick resolution given the fact that often resolutions are stalled for want of 66 percent majority votes.

What is being proposed is the system of single transferable vote (STV) obtaining in some countries like New Zealand local bodies to ensure that insolvency resolution of a company under Insolvency and Bankruptcy Code, 2016 (IBC) does not lie in limbo and the logjam causes by any proposal not begetting minimum 66 percent votes is gotten over by all the creditors casting their votes case by case in a binary yes or no but in the order of preference.

Let us say an insolvency professional has five proposals i.e., offer from five different buyers for the insolvent company. As it is, each one of the five is put to vote one by one and if the first of the five gets a 66% majority, then the other four are not considered at all. But experience shows that more often than not none of the five begets 66 percent support thus resulting in a prolonged stalemate.

Also Read: Government mulling wide ranging amendments to bankruptcy law to maximise value and reduce delays

The proposal advocates a sledgehammer approach to break the logjam. To wit, if proposal # 1 gets 60 percent first preference votes and leads the pack, it is most likely to go through when the proposal # 5 begetting the least first preference votes is eliminated and those votes are distributed among the remaining four proposals and so on.

In other words, such process of round-by-round elimination might throw up a 66 percent  winner at the end of the day thus ensuring that the resolution exercise takes off instead of getting bogged down interminably if not cynically.

However, the principal objection to STV being foisted on the IBC arena is that while it being kosher on the political arena where multiple members need to be elected with a single vote, it is out of place and downright undesirable in IBC where the committee of creditors (CoC) vote for each proposal. 

For instance, in the elections for Rajya Sabha, there may be five vacancies say from the state of Tamil Nadu. Let us say the TN assembly has 250 members i.e., 250 votes. Thus, each contestant needs a quota of 50 plus 1 votes to be elected to Rajya Sabha from TN. The one who gets 60 votes has surplus of 9 votes which can help the one getting 40 votes to borrow the same (surplus of the first winner and make the grade). This example may be oversimplified but fairly explains how STV operates in the political arena.

Also Read: Reliance Capital vs Torrent IBC Case: Appellate tribunal allows second round of auction

But its importation into the more rarified world of IBC would bring with it avoidable and undesirable consequences. First, in the political arena, we are  electing members and the slots have to be filled up for which STV is a fair regime. But in the IBC proceedings, stakes are much higher for the CoC.

Haste makes waste. To be sure, IBC proceedings invariably overshoot the time allotted by law for resolution but we should not jump from frying pan to fire  in our keenness to fast-track the system. The IBC objective is to empower creditors mainly banks nursing bad debts. Even in the absence STV, banks are taking huge haircuts but at least they aren’t pressured into settling for the lesser evil which STV boils down to.

In the political arena, we have seen operation Kamala—engineer resignations from the ruling dispensation so that the requisite majority figure is lesser and within the reach of the opposition aspiring to topple the ruling dispensation— enacted more than once. STV in IBC would be a cynical extension of operation Kamala in reverse—-the one falling short of the 66 percent mark can count on the votes of those who rejected it in the first place. It qualifies as the eligible buyer on rebound thus making it possible for the first-past-the-post regime to govern CoC proceedings through the backdoor which IBC had shunned and instead plumped for the upfront 66 percent majority.

No backdoor entry or victory by stealth please. The one at the front of the race but apprehending lack of 66 percent majority might prop up non-serious candidates in the cynical hope that the votes garnered by them will ultimately enable it rustle up the requisite majority thanks to the regime of STV.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Acres Buildwell to withdraw insolvency plea against SpiceJet: Report

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Real Estate company Acres Buildwell Private Limited has filed an application in the National Company Law Tribunal (NCLT) to withdraw its insolvency plea against low-cost airline SpiceJet, sources close to the development told Moneycontrol.

Sources further revealed that the parties have resolved the dispute, as a result of which the application for withdrawal has been filed. The application is likely to come up for consideration in July. It is to be noted that in March, SpiceJet informed the tribunal that it was making efforts for amicably resolving the matter.

Despite the withdrawal, SpiceJet will still have to fight insolvency pleas filed by aircraft lessors Willis and Aircastle alleging that the domestic budget carrier has not made payments.

Acres Buildwell filed the insolvency plea in September 2022, on the ground that SpiceJet owed outstanding dues to the tune of Rs 3.25 crore. The NCLT had sought SpiceJet’s response to the plea and issued notice to the airline.

Plea by aircraft lessor Aircastle against SpiceJet is listed for hearing on June 6, while that by Willis is likely to come up for hearing on June 8.

On May 29, the Delhi High Court ordered SpiceJet to pay Rs 380 crore to Kalanithi Maran, the former promoter of the airline and the founder of media giant Sun Group. These were the dues arising out of an arbitration award from 2018.

SpiceJet is also facing contempt proceedings in the Supreme Court against Credit Suisse, for failing to pay its dues from a court mediated settlement with the bank in 2022.

SpiceJet and Credit Suisse entered into a settlement agreement in May 2022 to resolve a payment dispute that arose from SpiceJet’s non-payment of dues to SR Technics, a Switzerland-based company that provides aircraft maintenance services. SpiceJet had defaulted on dues amounting to $20 million.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

69% bankruptcy cases closed till FY23-end, Uday Kotak says IBC concept is great, but needs work

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

As much as 69 percent of the total cases under the Insolvency & Bankruptcy Law, or the IBC, have been closed by March 2023, data from the IBBI quarterly newsletter shows. Out of the 6,571 cases under the IBC since it’s inception, 4,515 cases have been closed. While 2030 of the corporate insolvencies, or 45 percent of the closed cases, are under liquidation, 55 percent comprise corporate debtors which have been rescued, either via settlement, appeal or resolution.

When it comes to ‘resolution plans’ specifically, there were 678 cases by FY23-end. A total of 678 corporate insolvencies have been addressed through ‘resolution plans’ under the IBC in the last six-odd years since it’s inception, which is slightly over 10 percent of the total cases under the IBC and 27 percent of the cases closed till FY23-end.

Creditors, both financial and operational, filed claims worth Rs 8.99 lakh crore under these resolution plans but by the time the insolvency process was initiated , the ‘fair value‘ of assets had declined to Rs 2.65 lakh crore or lost 70 percent of the value, while the liquidation value was even lower at 19 percent of the original claim or Rs 1.70 lakh crore. Financial and operational creditors have realised Rs 2.86 lakh crore by FY23-end, taking a hair cut of 68 percent on the original value of their claims.

Also Read: India cuts windfall tax on crude oil to zero

As Uday Kotak, the CEO of Kotak Mahindra Bank, puts it, banks should be able to recover the money they lend otherwise it restricts their ability to take risks and impairs capacity building in the sector. “I think the concept of IBC was a great concept, it really was the basis of the creditor being in control, but I think there is work to be done. I think, we really need to fix the judicial system which is consistent with a bankruptcy law because at the end of the day if banks lend money we must be able to recover the money. If we have a problem there it constraints our ability to take better risk. “, Kotak told CNBC-TV18 last week.

However, the government has been consistently pointing towards the recovery rates against the ‘fair value ‘ of assets under IBC. In 586 of the 678 resolutions, creditors received over 83 percent of the fair value of the assets , thus implying the haircut was only 17 percent as against the 68 percent loss incurred against original claims.

However, in the last financial year , the extent of haircuts under the IBC seem to have come down. According to the IBBI data, of the Rs 1.42 lakh crore worth of claims admitted during FY23, slightly over Rs 51,000 crore or 36 percent was recovered under various resolution plans. Also, the number of resolutions at 180 in FY23, has been the highest so far under the IBC.

Also Read: India expects export demand to remain muted, hopes for pickup after September 2023 

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Legal Digest: How the waterfall mechanism of IBC ousts priority for workers’ dues

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Case 1: The waterfall mechanism of IBC ousts priority for workers’ dues

The Supreme Court on 2nd May upheld section 327 (7) the Companies Act, 2013, that says workers’ dues will not get preferential payment in case of liquidation under the Insolvency and Bankruptcy Code, 2016 (IBC). The apex court dismissed a batch of petitions led by Moser Baer Karamchari Union seeking to strike down Section 327(7) of the Companies Act, 2013 as arbitrary and violative of Article 21 of the Constitution of India.

The Court made it clear that the earlier enactments namely the Companies Act, 1956 and the Companies Act, 2013 might have given overriding importance and priority to workers’ dues but with the advent of IBC—-with its thrust on making the lot of secured creditors who more often than not are the public sector banks a lot better—has changed this skew in favour of the workers.

Accordingly, in the IBC scheme of things, a secured creditor can choose to stay away from the liquidation proceedings and realise  the mortgage assets himself without conceding anything to workers. But if he relinquishes his security in favor of the liquidator then the proceeds shall be distributed under the IBC waterfall mechanism.

Also Read: Supreme Court upholds bankruptcy code, setback for defaulters 

Accordingly, the insolvency resolution process costs and the liquidations costs shall be first paid in full. Second comes the workmen dues for the period of twenty-four months preceding the commencement of liquidation and debts owned to secured creditors in the event of he having relinquished security in favor of the liquidator. Thirdly, wages and unpaid dues of employees other than workmen for the period of twelve months before liquidation and so on. Government dues have been pushed to the fifth in pecking order under IBC.

The Apex Court thus has resolutely upheld the Parliamentary worldview that secured creditors must rank at the top of pecking order subject to liquidation cost being met out of the various tranche of realisations by the liquidator and subject to the secured creditors yielding to workmen dues for 24 months Pari passu. In other words, workmen can ride piggyback on secured creditors but only to the extent of 24 months’ dues and not fully.

The overriding preference to workers’ dues is a communist construct. IBC has resolutely moved away from it thus batting for the secured creditors. It is another matter that often even secured creditors have to take a huge haircut in the region of 90 percent  under IBC whose aim is first to keep a financially tottering company alive as a going concern failing which alone liquidation is pursued.

Case 2: Icebox — is it invariably a depreciable asset?

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) on 12th April in Hindustan Coca-Cola Beverages Pvt. Ltd. Versus DCIT upheld the decision of the CIT (A) that while sign boards provided by the soft drink manufacturer to his retail sellers were a revenue expenditure deductible in toto from his sale revenue, the cost of iceboxes provided to the same retail sellers were not so in view of they giving enduring benefit and hence only qualified as plant and machinery qualifying for depreciation.

The company argued with a great deal of conviction that ice boxes indeed gave lasting benefiting to a buyer but on the facts of the case, it ought to be treated as a revenue expenditure because actually both sign board and ice box were marketing expenses to boost the sale of the manufacturer. In other words, there was no lasting benefit to it inasmuch as the iceboxes were no longer available with the manufacturer for his storage purposes but were handed over gratis to the retailers to promote the sale of its soft drink.

It does seem the Tribunal has taken a rigid and unpragmatic stand. The High Court may if an appeal is filed against the tribunal take a more realistic view of things, and empathise with the manufacturer. After all, what is a capital asset for one may not be so for another.

To wit, jewellery is a capital asset for a housewife but for the jeweller who sold it, it was his stock-in-trade begetting him business profits and not capital gains. So, whether an expenditure is revenue or capital in nature cannot be straightjacketed into a rigid formula but be weighed on the scales of pragmatism and usage.

Let us face it, iceboxes at restaurants are their capital assets ineligible for straight revenue deduction but only in phases as depreciation. Iceboxes bought for distribution to retailers by soft drink manufacturers however are marketing expenses, period. Let us also call the duplicitous treatment given to sign boards. If iceboxes give an enduring benefit, so do sign boards. Sauce for goose should be sauce for gander also!

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Bill to tweak bankruptcy code to be tabled in Monsoon session, may cover group insolvency

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The Insolvency and Bankruptcy Code (IBC) Amendment Bill is likely to be tabled in the Monsoon session which will pave the way for resolution of group insolvency, enabling lenders to take subsidiary companies to NCLT as a combined entity, sources said.

“The government is working towards group insolvency. It will be part of the Insolvency and Bankruptcy Code Amendment Bill, which is likely to be placed before Parliament in the Monsoon session,” the official told Moneycontrol.

In cases like Amtek Auto and Castex Technologies, the lenders had to file for insolvency separately that leads to waste of resources and prolongs the timeline. The group insolvency is aimed to facilitate and fast track similar insolvency processes going ahead.

Also Read: What happened at the Silicon Valley Bank and why does it matter?

“Group insolvency is the need of the hour to increase recoveries for lenders from the ailing group company and its subsidiaries. The opinion forming is that group insolvency needs to be given priority over cross border insolvency,” he said.

Cross-border insolvency will give the right to access foreign jurisdictions to the insolvency representatives. The corporate affairs ministry had received public comments on the proposed cross-border insolvency framework under the IBC. This framework may have to wait longer as the government focuses on group insolvency amendment first, sources said.

Individual insolvency provision is also likely to be a part of the amendment bill in the monsoon session which may include a tweak to the rights of personal guarantors.

The corporate affairs ministry had published a paper in January on these proposals in which it had proposed the resolution professional to convene a mandatory meeting of creditors which is currently not compulsory.

If a personal guarantor does not submit a resolution plan to lenders, the MCA proposed that the resolution professional could approach the NCLT to file for the debtor’s bankruptcy.

Also Read: NCLAT set aside Nike India’s plea to initiate insolvency against its one dealer

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow