‘Penalise bidders who default on proposed plans’

Also, in the past few months, at least three CIRPs that yielded a resolution plan were brought back to the NCLT and subsequently ordered into liquidation, leading to high economic costs.

Published: 27th February 2019 07:51 AM  |   Last Updated: 27th February 2019 07:51 AM   |  A+A-

By Express News Service

With some cases resolved under the NCLT process ending up for liquidation, analysts want the government to set up stringent deterrents ranging from monetary penalties to debarring the applicant. 
As per estimates, about 600 cases have been closed under the Insolvency and Bankruptcy Code (IBC) by various National Company Law Tribunal (NCLT) benches. However, only 82 corporate insolvency resolution processes (CIRP) yielded a resolution plan.

Also, in the past few months, at least three CIRPs that yielded a resolution plan were brought back to the NCLT and subsequently ordered into liquidation, leading to high economic costs. Worse, loan recoveries will likely be lower than the amount creditors would have gained if the application materialised. 

For instance, Amtek Auto Ltd, which was part of the RBI’s list of large defaulting accounts announced in June 2017, was deemed to have completed its CIRP with recovery of Rs 43,300 crore to creditors. The resolution plan was approved in July 2018, 366 days after its admission into the NCLT. Unfortunately, the resolution applicant (Liberty Group) failed to comply and the matter is back to where it all began.

“There’s merit in government setting up strong deterrents to ensure that the resolution applicants do not default on their proposed plans. The deterrents could range from a penalty amount (linked to the realisation promised to the creditors under the resolution plan) to debarring the resolution applicant from participating in any future CIRPs,” ratings firm ICRA noted. It added such deterrents would make applicants cautious and sincere while submitting their resolution plans.

According to ICRA, stringent deterrents will reduce instances of completed CIRPs being brought back to the NCLT benches. Nonetheless, any such amendment would also have to ensure that the culpability of the applicant is established before penalties, for there could be reasonable grounds to justify its actions, like inaccurate information provided to it. 

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