How the threat of IBC has made debtors pay up Rs 1 lakh crore! MS Sahoo, chairman, IBBI explains

Insolvency and Bankruptcy Board of India (IBBI) chairman MS Sahoo

As the Insolvency and Bankruptcy Board of India (IBBI) turns two on Monday, its chairman MS Sahoo dwells upon the efficacy of the new insolvency law in preventing a pile-up or bad debts in the future. law is applied fairly early. In an interview with FE's Banikinkar Pattanayak, he also says that forcing debtors to pay up, as operational creditors have recovered more than Rs 1 lakh crore even before their insolvency applications were admitted by NCLTs. Excerpts:

How do you see the performance of IBBI over the past two years?
IBBI is one of the four key pillars for the institutional infrastructure for implementation of the IBC. It is a unique regulator: it regulates and develops a profession, institutions and best practices as well as regulates the various processes under the IBC. It has put in place the regulatory framework providing for corporate insolvency resolution process (CIRP), fast track resolution, corporate liquidation, voluntary liquidation, insolvency professionals (IPs), insolvency professionals agencies (IPAs), insolvency professional entities (IPEs), information utilities (IUs), inspection and investigation, and grievance redressal. It has 2.037 IPs, 81 IPEs, three IPAs, one IU, 8 registered valuer organizations (RVOs), and 70 registered valuers (RVs) as on date. The debtors and creditors are corporate enterprise processes. About 1,100 companies, some of them having very large non-performing assets accounts, have been admitted into CIRP. About 250 or themed completed process-yielding either resolution or liquidation. About 250 corporates have commenced voluntary liquidation.

With the IBC becoming the preferred tool for creditors to recover dues from defaulters, does the eco-system have sufficient capacity to handle a large number of cases?
Banks have many options for recovery of their loans. IBC is one of them. There is no compulsion on any stakeholder to use IBC for resolution. They should use it when they do not find an effective resolution outside IBC. In fact, given the inevitable consequence of a resolution process that the firm may move away from the hands of the existing promoters, the debtors are exploring other options for resolution. Nevertheless, it is the duty of IBBI and is the preferred option for stakeholders.

The scheme of incentives and disincentives under the IBC would bring about behavioral changes on the part of every stakeholder, minimizing the incidence of failure, default and under-performance. I firmly believe, in the long run, the best use of the IBC would not be using it at all.

Although the IBC stipulates that the insolvency resolution process must be over in a maximum of 270 days, or the 12 large default cases recommended by the RBI over a year ago, resolution has taken place in only four cases. Some of these cases are being heard by the NCLAT or even the Supreme Court.

India is probably the only country that has a timeline in the process. It is trying to adhere to timeline. When you start something new, many contentious issues arise. In the initial days of the new law, the disposal of cases takes a little longer. Once these issues are sorted out and the law is settled, the process picks up and becomes fairly mechanical after a while. We have crossed this internship as regards admission into CIRP. We are looking forward to this internship as approval of resolution plan. Further, it is not that every CIRP is getting delayed. The CIRPs, which have yielded resolution, took about 230 days on average for filing resolution plans with the Adjudicating Authority for approval. Please compare this with the track record in pre-IBC days.

Once the initial sets or cases are closed, what is the future of recovery through this law?
To me, the IBC is a proactive and behavioral law. It has already been achieved in a paradigm shift in the behavior of both debtors and creditors. Though it is not for recovery, its very existence is prompting recovery within as well as outside the IBC. After we have seen the outcome of a number of CIRPs, Bhushan Steel has changed hands, debtors are leaving no stone unturned to repay the dues on time. They are repaying dues as soon as they occur, or they get notice of an operational creditor, before filing or an application for initiation or CIRP, before admission to CIRP, and even before 90 days of the commencement of CIRP. Hence incidence of default would reduce.

How much of recovery has not been applied to the IBC even though the law was not actually applied?
There is no reliable data to recover before filing or applications to the Adjudicating Authority. After an application filed to trigger CIRP, it can be withdrawn before its admission. Most of such applications are withdrawn on payment of default amount. Reportedly, the creditors have recovered more than `1 lakh crore through this route. Recovery is happening even after admission into CIRP. A few matters have settled with the approval of the Supreme Court. The data indicates that the banking sector is making good recovery through resolutions outside the IBC.

Now that the IBC is relatively fairly streamlined, what next?
Wherever and whenever we find a scope for further bolster the insolvency ecosystem, we address them immediately. A legislative framework for cross-border insolvency is under the Insolvency Law committee. There is a proposal for bankruptcy resolution of personal guarantors to corporates. IBBI is contemplating a 27-month Graduate Insolvency Program to produce world class insolvency professionals.

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