The adjudicating authorities under the Insolvency and Bankruptcy Code (IBC) are finally taking note of poor recoveries—if not in all cases, at least in some specific ones, and are trying to undo the damage by taking calls that may not strictly be as per the spirit of the law. Recently, an appellate tribunal set aside the approval given by the Mumbai Bench of the National Company Law Tribunal (NCLT) to the resolution plan of Videocon group of firms.
As per the plan submitted by Anil Agarwal-owned Twin Star Technologies, creditors of Videocon group were to get only around Rs 3,000 crore against their claims of over Rs 65,000 crore. Videocon’s successful resolution had led to more angst than relief thanks to the poor recovery numbers. The outrage that followed even forced the committee of creditors (CoC), whose ‘commercial wisdom’ is held sacrosanct under the IBC, to have a rethink and they had petitioned the NCLT to have a relook at the resolution plan that they had already approved with 95% vote share.
The recent turn of events has put the focus back on the role of the CoC in the insolvency code. Court after court has maintained that the CoC’s commercial wisdom is beyond questioning under the IBC, but the same is being challenged, and probably rightly so. Sometimes the CoC’s commercial wisdom has been questioned from within: mostly by dissenting creditors and sometimes by other stakeholders. Last year a parliamentary committee even proposed a set of rules or code of conduct for the CoC. The government and concerned authorities need to look into some of the fundamental deficiencies of the code—one of them being its excessive slant towards the interests of financial creditors.
While the commercial wisdom of the CoC is beyond question, its composition is such that operational creditors or vendors, suppliers, employees, etc., are kept out. A financial creditor, who is part of the CoC, can also bid for the company undergoing insolvency proceedings. In both instances, there’s too much conflict of interest. Unless the balance is tilted slightly in favour of operational creditors and other stakeholders, insolvency cases would continue to be delayed by litigation and disputes.