Making a record within a very short period, the IBC has the most significant role in restructuring the Indian financial sector. Led by the Insolvency and Bankruptcy Board of India (IBBI) Chairperson, Ravi Mital, the IBC has directly returned a staggering ₹3.4 lakh crore to creditors in the past eight years.
IBC Journey
The IBC was enacted in 2016 to simplify the existing insolvency processes, strengthen the position of creditors, and improve the efficiency of the bankruptcy resolution mechanism. It signified a shift from the previous rather fragmented legal structure. In 2017 and 2018, India witnessed record NPAs that accounted for ₹ 12 lakh crore.
The IBC intervened and ensured the reprieve of ₹3.4 lakh crore to creditors, of which 2 lakh crores has already been paid. The effectiveness of the IBC is supported by increases in the number of annual resolutions over time. An average of 125 resolutions per year has been seen over the past eight years and 270 in the last year alone.
Accountability and Diverse Success
As early as when the formal resolution processes had not started, 28,000 of the applicants withdrew their applications. Consumers clear up underlying obligations voluntarily, pointing to improvement. Another is that the IBC makes the promoters take responsibility for bearing the losses resulting from the insolvency of the company. On this front, India is a global standout. Ranging from cases related to steel plants to real estate projects, the IBC has seen successful resolutions. India has made much more progress than this.
Key Provisions of IBC
The Insolvency and Bankruptcy Code (IBC), passed in 2016, occupies a significant position in the Indian financial world. The IBC seeks to support the creation of new ventures, safeguard creditors, and foster the smooth wind-down of struggling businesses. The corporate Insolvency Resolution Process (CIRP) begins when a company fails to pay the debt and there are time-bound processes with a maximum of 330 days for the resolution.
The CoC is the committee of creditors that participates in the CIRP and approves resolution plans. The moratorium allows no legal process to be taken against the debtor during CIRP. If the resolution fails, the company goes into liquidation, and the belongings are sold to clear the debtors. Provisions for handling cases of insolvency where the companies involved are from other countries.
Some Successful Cases Resolved under the IBC
The Dewan Housing Finance Limited (DHFL) scandal began in 2019 when the company accused the promoters Kapil Wadhawan and Dheeraj Wadhawan of cheating and mismanaging the housing finance firm. After a lot of bidding between Oaktree Capital and Piramal Capital & Housing Finance, the Piramal Group prevailed with an offer of ₹37,250 crore after receiving NCLT approval.
Essar Steel’s resolution was highly appreciated and people paid much attention to it. For the lenders, it witnessed differentiated haircuts where Essar Steel was asked to provide only 15% of haircuts. This success showed how well IBC worked in preventing losses due to corporate insolvency across different organizations.
During the chairmanship of Rajnish Kumar in SBI, Bhushan Steel and Bhushan Power & Steel major cases were effectively closed. Recovery rates were not significantly high but the debtor-creditor relationship that IBC provided was a clear paradigm shift. Videocon Industries was forced to give a 96 percent haircut to its lenders. Nonetheless, the resolution process to some extent revealed how IBC worked to address stressed assets. Important case law on the IBC-related judgment delivered by the Supreme Court of India.
Conclusion
Experts in resolution are encouraged to work faster. Keeping the accounts resolved as an ongoing concern remains important. IBC 2.0 is in the offing and subsequent changes are anticipated. The IBBI lays particular emphasis on the proper valuation of plant and machinery. With the change of dynamics in the Indian financial market, the IBC stands tall as hope for an efficient resolution of insolvency.
