Indian politicians too are unable to differentiate the blurred and thin line between business failures and frauds in companies. Bureaucracy believes in status quo and do not want to bell the cat making resolution of failed companies painfully slow. This results in huge economic loss due to job losses, obsolescence of technology and relevance of the industry in changing times.

Proactive and dynamic legislations including the Insolvency and Bankruptcy Code (IBC) is intended to bring about time-bound resolution of such companies instead of going in for liquidation, which is to be avoided. These legislative amendments coupled with pragmatic and quick judicial interventions are aimed at leaving behind the dilatory regimes and recovery mechanisms like Debt Recovery Tribunal, Board for Industrial and Financial Reconstruction, SARFAESI and ARC.

IBC is very clear that the attempt should be not recovery but the borrower successfully resolve the insolvency through sale of a going concern while maximizing value of assets, promoting entrepreneurship, availability of credit and balancing interests of all stakeholders. The Resolution Applicant takes over the management and assets of the corporate debtor.

But when one goes through several case studies of debt ridden companies, resolution seems to be not happening rapidly as envisaged in IBC code. There is unusual delay eroding the value of the company.

The Economic Survey 2020-21 showed serious hurdles being faced due to prolonged litigation initiated by various parties. The Code prescribes time limits to conclude resolutions and the Supreme Court through multiple judgements, has tried to ensure that there are no prolonged litigations for companies undergoing resolution under IBC. The report also states that the legal system / Code is to be used as an ex-post dispute resolution mechanism (and is not required to fix ex-ante issues in the system). Any stay on the process under IBC will only result in making the revival of the companies more difficult and the future for its employees more uncertain. Allowing indefinite delay will plainly defeat the object of the statute.

The case in point is Videocon. The Group's former promoter, Venugopal Dhoot, has moved the National Company Law Appellate Tribunal (NCLAT) against the NCLT's approval to the bid of Twinstar Technologies for Videocon Industries Ltd. Along with the plea to set aside the resolution plan of Vedanta Group firm Twinstar, Dhoot has also urged the appellate tribunal to direct the Committee of Creditors (CoC) to consider his resolution plan, that entails "zero haircut", under Section 12A of the Insolvency and Bankruptcy Code.

Every delay caused, not only devalues the assets but also creates uncertainty in the process. The delay in the case of Videocon will lead to wear and tear of machineries lying idle and will need higher capex to restart. Furthermore, the technology deployed in the company will also become obsolete.

If the system interferes too frequently with a view to obtaining a higher price, this will prove a self-defeating exercise for bidders, shake confidence and lead to loss of faith in the actual resolution taking place. Successful resolution of debts requires an economic lens and evidence based analysis rather than an emphasis on haircuts & hearsay.

While the fair value or the liquidation value were not known, why did many bidders not participate, today the erstwhile promoters are positioning it as a lucrative proposition, why? Generally the erosion of the value from the enterprise value to the fair value attributable to the mismanagement of the company by the previous promoters.

Right from the Essar Steel Judgment, the Supreme Court has clarified that the commercial wisdom of the CoC will prevail. The Supreme Court has consistently laid down the manner in which the law is to be interpreted with regard to approval of resolution plan and the primacy given to the commercial wisdom of the CoC with respect to the feasibility and viability of the resolution plan.

A strong emphasis has been placed on limited judicial review in respect of any CoC decision and there is no residual equity jurisdiction with NCLT/NCLAT to interfere in the merits of a business decision taken by the requisite majority of CoC.

When the resolution plan is approved with an overwhelming majority (a collective decision) and is approved by adjudicating authority it should be fully given effect to in a time bound manner especially since IBC is not a recovery mechanism and the emphasis is on the revival of the company and saving jobs and assets. (IPA Service)