Panel may favour giving NCLT power to halt resolution

MUMBAI: The panel reviewing the Insolvency and Bankruptcy Code (IBC) may suggest that the National Company Law Tribunal (NCLT) should be empowered to halt resolution proceedings if lenders agree, something that only the Supreme Court can do now, said two senior officials with knowledge of the matter.

The suggestion is that such a move should also have 90% support from lenders, they said.

This could help avoid complications like the one that has arisen in the Binani Cement resolution in which the defaulting promoters and UltraTech, which came in behind winning bidder Dalmia Bharat, have struck a deal to take over the promoters’ stake. Currently, only the Supreme Court can exercise powers under Article 142 of the constitution in cases that are pending in the NCLT.


“If this suggestion is accepted, it will have significant implication on the bidding process,” said one of the persons cited above.

“Many assume that a losing bidder would offer to buy out the bankrupt company by sweetening the offer after the bids are disclosed to lenders.”

For the banks, this will mean a greater chance of being able to minimise their losses on defaulted loans. The panel’s recommendation of 90% lender support effectively gives likely buyers an opportunity to enter into one-time settlement with banks, operational creditors and employees while bankruptcy proceedings are on, said the people cited above.

The government last year appointed a 14-member panel headed by corporate affairs secretary Injeti Srinivas and including Insolvency and Bankruptcy Board of India (IBBI) chief MS Sahoo to review the IBC to make the resolution process smoother.

The committee is expected to submit its recommendations for amendments to the IBC this month to finance minister Arun Jaitley, also corporate affairs minister. Parliament will have to approve them before they become law.

In the Binani Cement case, lenders have already approved the bid by the Dalmia Bharat-led consortium. Ultra-Tech said its offer to the Binani promoters improves on the Dalmia
. Under IBC, once a company is admitted to the bankruptcy process, it cannot exit until a resolution plan is put in place within 270 days or the loan account is regularised. If this doesn’t happen before the 270-day deadline, the company has to go into liquidation. However, a case can be withdrawn during the period between the referral to NCLT and before it’s actually admitted to the insolvency process. This happens in the majority of cases.

Officials tracking the bankruptcy process say that out of 2,700 cases that have been referred to NCLT by operational creditors, close to 2,000 were withdrawn before admission since the dispute was settled outside court.

One of the instances in which the Supreme Court exercised its powers was in a dispute between Lokhandwala Kataria Construction and Nisus Finance & Investment, an operational creditor. Here both parties settled the dispute with the borrower paying part of its dues to operational creditors. While exercising its powers in the case, the Supreme Court had pointed out that tribunals do not have the power to do so. ET has reported on various recommendations the panel is likely to make.

Among them is one that lenders should be allowed to invoke personal guarantees of promoters of companies facing bankruptcy while the resolution process is underway. There is no clarity on similar seizures with regard to guarantees made by corporates.

Other recommendations are that homebuyers should be treated on par with unsecured creditors and lenders should be allowed to implement a resolution plan if two-thirds of them by value agree to it, versus 75% now. The first is aimed at protecting those who have bought homes from real estate developers that enter the insolvency process while the second is to prevent smaller borrowers from delaying resolution plans.