In light of the recent Liberty House bidding case, the government is planning to frame stricter norms under the Insolvency and Bankruptcy Code, with heavy penalty for bidders who backtrack, thus delaying the insolvency process.
Liberty House, after winning the bid for insolvent company Amtek Auto, backtracked after resorting to several delaying techniques including submitting bank guarantees, switching banks. It had not deposited a penny, much to the dismay of stakeholders, lenders and the government.
“The Amtek Auto and Ruchi Soya cases had rattled the process. Bidders cannot go unpunished. While the ministry is considering action against the defaulting bidders, there is a need to tighten the norm for them. The ministry is in the process of introducing a harsh clause and heavy penalty,” a senior Corporate Affairs Ministry (MCA) official told TMS.
In a similar case, Ruchi Soya, with a debt of over Rs 10,000 crore, went for insolvency last year. After Patanjali group won the bid for Rs 4,000 crore in May, it was again offered Rs 6,000 crore using Swiss method by Adani Group, which led to the tug of war between Adani Wilmar and Baba Ramdev’s Patanjali group. After Adani Group backed out from the deal, the case is now back to ground zero, while creditors and lenders fret over the delay.
The MCA official added that the ministry is already considering to move legally against Liberty House. “While we are considering legal options for Liberty House, we would not allow others to follow the example. The ministry needs to fix this loophole. We will come up with a solution soon,” he said.
Last week, MCA secretary Injeti Srinivas had flagged the issue of delays. “I think one of the areas where it has not succeeded in a manner we thought it would, is adherence to timelines. This is an area which is causing deep concern; and even after the apex court has given such a speaking order about the sanctity of timelines, we find that even today, a number of big cases appear to be locked up in unending litigation,” he said.
Similar concerns were raised by the RBI in its latest annual report. “Strengthening the infrastructure of the insolvency resolution process, including the proposed increase in the number of benches of the NCLTs, should help reduce the overall time currently being taken for resolution under the IBC,” the RBI said.