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Despite its success, IBC could not lead to time bound resolution and outcome neutrality
As R Jagannathan said in Swarajya, good asset plus good timing equals low haircuts and the good timing here means the uptick in the commodity cycle, or some other favourable development. This has been proved true.

In the initial resolutions, the commodity cycle has played a large part in bringing global players to bid for stressed assets in India. Also IBC has helped public sector banks recover over Rs 80,000 crore in 2018 and recoveries could top Rs 1 lakh crores in 2019, as per reports in Economic Times. Secretary to the Union Corporate Affairs Ministry had earlier said that Insolvency Bankruptcy Code (IBC), has helped to, directly and indirectly, address over Rs 3 lakh crore of distressed assets. The Code has also acted as a deterrent to errant borrowers and over 3,500 cases have been forced to resolve at the pre-admission stage. This has resulted in claims worth Rs 1.2 lakh crore getting settled without National Company Law Tribunal (NCLT)'s intervention. 

Winding up a business used to require multiple approvals that would lead to a substantial delay in honouring the dues of creditors. The Code provided some respite as a start-up firm that gets insolvent can be wound up on a fast-track basis within 90 days. Thus, creditor interest can be protected and capital can be reallocated to efficient businesses. Also, entrepreneurs can initiate insolvency proceedings voluntarily.

It was the fear of losing control of one's company under IBC that forced promoters pay off their dues at the pre-admission stage, recovering Rs 1.2 lakh crore. But IBC's success will be in danger if cases remain entangled in litigation and the fear evaporates. 

The report of the Bankruptcy Law Reforms Committee in its Executive Summary defined its objective in the following words: The failure of some business plans is integral to the process of the market economy. When business failure takes place, the best outcome for society is to have a rapid renegotiation between the financiers, to finance the going concern using a new arrangement of liabilities and with a new management team. If this cannot be done, the best outcome for society is a rapid liquidation. 

Mark the emphasis on the rapidity of the processes of negotiation and liquidation.

However, time bound resolution has not generally been possible and owing to increased delays at NCLT, banks have had to bear losses of Rs 25,000 crores because interest was not paid on over Rs 2 lakh crores of loans from the top-10 defaulters. Insolvency law is a game-changer but non-adherence to timelines and inordinate delay in admission of cases are major concerns.

Also, it appears that there is a bias in the IBC sphere against liquidation and in favour of only one type of resolution, one that involves the buy-out of the company by a bidder in as-is form. 

It is now believed that the objective of the IBC is to resolve stressed companies by reviving them, and liquidation represents a failure of the IBC process. This belief is gradually and unconsciously gaining popularity all across. Then the IBC amendment lowering the vote threshold required to approve a resolution plan suggests this bias amongst policymakers. Also, some orders given by NCLT, NCLAT as well as the Supreme Court, conform to this bias.

Thus, the two important objectives of the IBC, that are time-bound resolution and outcome neutrality, have been largely not fulfilled. 

The writer is a long-standing commentator on contemporary issues

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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