Tag: National Company Law Tribunal

Siva Industies lenders, slammed NCLT over settlement deal, to move NCLAT, BFSI News, ET BFSI

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The Siva Industries resolution has many a twist left.

After the National Company Law Tribunal rejected the one-time settlement offer made by Siva Industries and ordered that the company will go into liquidation, the lenders are planning to move the appellate tribunal NCLAT.

The NCLT order

The NCLT Chennai Bench, comprising R. Sucharitha and Anil Kumar B., said in the order, “The purported settlement plan proposed by the promoters of the Corporate Debtor is not a Settlement simpliciter, rather it is a ‘Business Restructuring Plan’. As per the plan, there is no final offer made by the promoter of the corporate debtor and also the acceptance made by the CoC in this regard. There is no finality reached between the promoter of the Corporate debtor and the CoC of the Settlement proposal; hence based on ambiguity of the terms of settlement, we cannot order for the withdrawal of CIRP.”

The order also said that seeking liquidation should there be a default was beyond the scope of IBC.

The NCLT said the application made by RCK Vallal, one of the shareholders of the company, is not conforming to the Section 12A of the Insolvency and Bankruptcy Code.

Paltry recovery

Eyebrows had been raised at the settlement offer as public sector banks agreed to settle with the promoter of Siva Industries, a huge loan of Rs 4,863 crore at just 318 crore — recovery of only 6.5 per cent.

Lenders were even withdrawing the bankruptcy process of Siva Industries,

It was pointed out that the settlement amount accepted by banks is even lower than the liquidation value of Siva Industries — will result in loss of approximately Rs 4,700 crore public money

Instead of invoking personal guarantee of promoters, the public sector bank Canara Bank privately sold its exposure of Rs 1,148 crore to a foreign owned ARC — International Asset Reconstruction Company Private Limited (IARC).

CBI has also filed criminal case against former senior officials of IDBI Bank and Sivasankaran for allegedly defrauding the lenders to the tune of Rs 600 crore.

Other rejections

Bankruptcy experts have termed the settlement unusual, citing the rejection of such offers by promoters in the past.

The acceptance of Sivasankaran’s offer differs from the usual pattern of rejection by creditors of such deals proposed by promoters seeking to withdraw their companies from bankruptcy proceedings.

Atul Punj of Punj Lloyd, Videocon’s Venugopal Dhoot, Sanjay Singal of Bhushan Power and Steel, and the Ruias of Essar Steel had all made offers to creditors to persuade them to drop bankruptcy proceedings. All were rejected.

In DHFL’s case, the promoter Kapil Wadhawan had offered to repay the debt in full, but the lenders ruled in favour of Piramal.

Experts say while banks may be getting the most out of such settlement in absence of any serious bid, but such a move weakens the IBC, especially Section 29A that bars promoters from bidding for their assets in a bankruptcy court. The Siva deal, if it goes through, could set a precedent of promoters striking settlement deals with banks when there are no bidders.



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NCLT orders liquidation of Siva Industries, BFSI News, ET BFSI

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The National Company Law Tribunal (NCLT) Chennai has dismissed the C Sivasankaran application and ordered the liquidation of Siva Industries.

NCLT said that Sivasankaran application under section 12 (A) does not stand. NCLT has also dismissed the SBI application.

Siva Industries and Holdings Limited (Siva Industries) will go into liquidation after the NCLT rejected the application.

This is as per provisions of the Insolvency and Bankruptcy Code where 90 per cent of the lenders had not given approval.

Lenders of Siva Industries and Holdings Limited (Siva Industries), founded by C. Sivasankaran (the former promoter of Aircel) had filed application under Section 12A of Insolvency and Bankruptcy Code 2016 (IBC) in National Company Law Tribunal (NCLT), Chennai Bench for withdrawing the insolvency proceedings against Siva Industries.
Siva Industries and Holding owes Lenders approx Rs 5,000 crore.

The settlement

The lenders to Siva Industries had told the National Company Law Tribunal that they will get 26% of their dues after taking into account third-party guarantors. Operational creditors were to get part of their dues under the settlement plan.

The deal had raised eyebrows as such offers by promoters were rejected in the past.
On the reason why they approved the 12A petition of promoters banks had told the court that if a company is liquidated or in a resolution plan involving a third party, all operational creditors, including tax authorities, are wiped out.

Also, the IDBI Bank‘s claim of Rs 644 crore will be paid while Blackstone-backed International ARC will get an additional amount of Rs 510 crore via land sale, they had said.

Unusual deal

Bankruptcy experts had termed the settlement unusual, citing the rejection of such offers by promoters in the past.
The acceptance of Sivasankaran’s offer differed from the usual pattern of rejection by creditors of such deals proposed by promoters seeking to withdraw their companies from bankruptcy proceedings.

Atul Punj of Punj Lloyd, Videocon’s Venugopal Dhoot, Sanjay Singal of Bhushan Power and Steel, and the Ruias of Essar Steel had all made offers to creditors to persuade them to drop bankruptcy proceedings. All were rejected.
In DHFL’s case, the promoter Kapil Wadhawan had offered to repay the debt in full, but the lenders ruled in favour of Piramal.



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Parliamentary panel that includes former PM Manmohan Singh wants IBC overhaul, BFSI News, ET BFSI

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A parliamentary standing committee led by former Union minister Jayant Sinha set up to examine the workings of the Insolvency and Bankruptcy Code (IBC) has recommended an overhaul of the present system including a threshold rate of haircut for creditors.

The 29 member committee includes former prime minister Manmohan Singh.

Low recovery rates with haircuts as much as 95% and 71% of the cases pending beyond the 180 days timeframe envisaged by the law point towards a

deviation from the original objective of the Code.

“As the insolvency process has fairly matured now, there may be an imperative to have a benchmark for the quantum of “hair-cut”, comparable to global

standards,” the committee said without specifying what this benchmark could be.

It noted that though the new code has helped in substantially improving credit culture, there are long delays in cases due to the time taken to admit cases, allowing bidders even after the deadline and various challenges to the NCLT judgements.

The committee also expressed apprehension about fresh graduates being appointed as resolution professionals (RPs) expressing doubts over their handling of large cases. It pointed out that regulatory action has been taken in 123 out of the 203 cases examined by the Insolvency and Bankruptcy Board of India (IBBI).

The panel’s suggestions

Only high court judges be appointed to the National Company Law Tribunal (NCLT) to ensure quicker disposal of cases.

Instead of having multiple insolvency professional agencies (IPAs) a single body may be formed to oversee and regulate RPs.

Bring a professional code of conduct for the committee of credtors (CoC) the main decision making body approving a resolution plan and also a set of guidelines for the appointment of RPs to ensure transparency in the CoC.

NCLT should accept defaulters within 30 days and transfer control to a resolution process within this time period.

IBC needs to be amended so that no post hoc bids are allowed during the resolution process.

Involving national law schools so that conduct research, training and also provide support in the form of law clerks.

It has suggested dedicated benches of the IBC within the NCLT and also special benches for micro and small enterprises for quicker disposal of cases.

RPs should also be allowed to sell company assets depending on the demand, in parts to multiple bidders rather than in a block to get maximum value.



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Financial creditors’ insolvency plea valid even after three years, rules SC, BFSI News, ET BFSI

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The Supreme Court has ruled that plea by a financial creditor for initiation of insolvency resolution process against a corporate debtor before the adjudicating authority will not get time barred on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account as NPA.

A two-judge bench set aside an order of National Company Law Appellate Tribunal (NCLAT) by which it had said that application under section 7 of Insolvency and Bankruptcy Code (IBC) of Dena Bank (now Bank of Baroda) for initiation of insolvency process was time barred.

The bench said, “To sum up, in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years”.

It said that the impugned judgement and order of NCLAT is unsustainable in law and facts and allowed the appeal of Dena Bank.

The case

Dena Bank has moved the top court in appeal against December 18, 2019 order of NCLAT setting aside an order of March 21, 2019 passed by NCLT, Bengaluru admitting the application of the bank for initiation of insolvency proceedings against company Kaveri Telecom Infrastructure Limited and its director C Shivakumar Reddy.

By a letter dated December 23, 2011 the Bank had sanctioned term loan and Letter of Credit Cum Buyers’ Credit in favour of the company, with an upper limit of Rs 45 Crores.

The said term loan was to be repaid in 24 quarterly instalments of Rs 187.50 lakhs, which were to commence two years after the date of disbursement, and the entire term loan was to be repaid in eight years, inclusive of the implementation period of one year and the moratorium period.

On September 20, 2013 the corporate debtor defaulted in repayment of its dues to the bank and the loan account of the company was therefore declared Non Performing Asset (NPA) on December 31, 2013

The rationale

The bench said that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under the provision of the IBC in Form-1.

“In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the adjudicating authority committed any illegality or error in permitting the appellant bank to file additional documents,” it said.

The top court, however, said that depending on the facts and circumstances of the case, when there is inordinate delay, the adjudicating authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order.

“In our considered view, the decision of the adjudicating authority to entertain and/or to allow the request of the appellant bank for the filing of additional documents with supporting pleadings, and to consider such documents and pleadings did not call for interference in appeal,” it said.

Fresh cause of action

The top court said that a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the financial creditor, would give rise to a fresh cause of action, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, if the dues remain unpaid.

It said that in the instant case the balance sheets and financial statements of the Corporate Debtor for 2016-2017, constitute acknowledgement of liability which extended the limitation by three years, apart from the fact that a Certificate of Recovery was issued in favour of the appellant bank in May 2017.

It said that the National Company Law Tribunal (NCLT), Bengaluru had rightly admitted the application of the bank by its order dated March 21, 2019.

Limitation Act

It said that there is no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC, before the NCLT but an application for which no period of limitation is provided anywhere else in the Schedule to the Limitation Act, is governed by Article 137 of the schedule of the said Act.

“There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default,” it said.



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Parliamentary panel that includes former PM Manmohan Singh wants IBC overhaul, BFSI News, ET BFSI

Banking & Finance

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A parliamentary standing committee led by former Union minister Jayant Sinha set up to examine the workings of the Insolvency and Bankruptcy Code (IBC) has recommended an overhaul of the present system including a threshold rate of haircut for creditors.

The 29 member committee includes former prime minister Manmohan Singh.

Low recovery rates with haircuts as much as 95% and 71% of the cases pending beyond the 180 days timeframe envisaged by the law point towards a deviation from the original objective of the Code.

“As the insolvency process has fairly matured now, there may be an imperative to have a benchmark for the quantum of “hair-cut”, comparable to global standards,” the committee said without specifying what this benchmark could be.

It noted that though the new code has helped in substantially improving credit culture, there are long delays in cases due to the time taken to admit cases, allowing bidders even after the deadline and various challenges to the NCLT judgements.

The committee also expressed apprehension about fresh graduates being appointed as resolution professionals (RPs) expressing doubts over their handling of large cases. It pointed out that regulatory action has been taken in 123 out of the 203 cases examined by the Insolvency and Bankruptcy Board of India (IBBI).

The panel’s suggestions

Only high court judges be appointed to the National Company Law Tribunal (NCLT) to ensure quicker disposal of cases.

Instead of having multiple insolvency professional agencies (IPAs) a single body may be formed to oversee and regulate RPs.

Bring a professional code of conduct for the committee of credtors (CoC) the main decision making body approving a resolution plan and also a set of guidelines for the appointment of RPs to ensure transparency in the CoC.

NCLT should accept defaulters within 30 days and transfer control to a resolution process within this time period.

IBC needs to be amended so that no post hoc bids are allowed during the resolution process.

Involving national law schools so that conduct research, training and also provide support in the form of law clerks.

It has suggested dedicated benches of the IBC within the NCLT and also special benches for micro and small enterprises for quicker disposal of cases.

RPs should also be allowed to sell company assets depending on the demand, in parts to multiple bidders rather than in a block to get maximum value.



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Financial creditors’ insolvency plea valid even after three years, rules SC, BFSI News, ET BFSI

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The Supreme Court has ruled that plea by a financial creditor for initiation of insolvency resolution process against a corporate debtor before the adjudicating authority will not get time barred on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account as NPA.

A two-judge bench set aside an order of National Company Law Appellate Tribunal (NCLAT) by which it had said that application under section 7 of Insolvency and Bankruptcy Code (IBC) of Dena Bank (now Bank of Baroda) for initiation of insolvency process was time barred.

The bench said, “To sum up, in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years”.

It said that the impugned judgement and order of NCLAT is unsustainable in law and facts and allowed the appeal of Dena Bank.

The case

Dena Bank has moved the top court in appeal against December 18, 2019 order of NCLAT setting aside an order of March 21, 2019 passed by NCLT, Bengaluru admitting the application of the bank for initiation of insolvency proceedings against company Kaveri Telecom Infrastructure Limited and its director C Shivakumar Reddy.

By a letter dated December 23, 2011 the Bank had sanctioned term loan and Letter of Credit Cum Buyers’ Credit in favour of the company, with an upper limit of Rs 45 Crores.

The said term loan was to be repaid in 24 quarterly instalments of Rs 187.50 lakhs, which were to commence two years after the date of disbursement, and the entire term loan was to be repaid in eight years, inclusive of the implementation period of one year and the moratorium period.

On September 20, 2013 the corporate debtor defaulted in repayment of its dues to the bank and the loan account of the company was therefore declared Non Performing Asset (NPA) on December 31, 2013

The rationale

The bench said that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under the provision of the IBC in Form-1.

“In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the adjudicating authority committed any illegality or error in permitting the appellant bank to file additional documents,” it said.

The top court, however, said that depending on the facts and circumstances of the case, when there is inordinate delay, the adjudicating authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order.

“In our considered view, the decision of the adjudicating authority to entertain and/or to allow the request of the appellant bank for the filing of additional documents with supporting pleadings, and to consider such documents and pleadings did not call for interference in appeal,” it said.

Fresh cause of action

The top court said that a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the financial creditor, would give rise to a fresh cause of action, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, if the dues remain unpaid.

It said that in the instant case the balance sheets and financial statements of the Corporate Debtor for 2016-2017, constitute acknowledgement of liability which extended the limitation by three years, apart from the fact that a Certificate of Recovery was issued in favour of the appellant bank in May 2017.

It said that the National Company Law Tribunal (NCLT), Bengaluru had rightly admitted the application of the bank by its order dated March 21, 2019.

Limitation Act

It said that there is no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC, before the NCLT but an application for which no period of limitation is provided anywhere else in the Schedule to the Limitation Act, is governed by Article 137 of the schedule of the said Act.

“There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default,” it said.



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Venugopal Dhoot moves NCLAT to set aside NCLT order on Videocon, BFSI News, ET BFSI

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Venugopal Dhoot, has moved the National Company Law Appellate Tribunal (NCLAT) against the June 8, 2021 order of the National Company Law Tribunal (NCLT) Mumbai approving the bid of Vedanta Group company Twinstar Technologies Limited to acquire the bankrupt Videocon Industries Limited for ₹2,962 crores.

Dhoot has petitioned NCLAT to set aside the ‘Resolution Plan’ approved by the NCLT and allow seeking of fresh resolution plans for all assets of the group, including all foreign oil and gas assets.

In his petition, he listed three respondents filed at the National Company Law Appellate Tribunal (NCLAT) on Saturday—Videocon Group resolution professional Abhijit Guhathakurta, the committee of creditors (CoC), and Twin Star Technologies

The petition also requested NCLAT to direct the Committee of Creditors to consider the ‘Resolution Plan’ submitted by him under Section 12A of the Insolvency and Bankruptcy Code (IBC) that entails a “zero haircut” (involving no loss to the banks/ creditors).

Dhoot stated in his petition that the resolution professional had violated Sections 30(2) and 61(3)(ii) of the IBC. He accused the resolution professional of withholding information in the tender form and eroding the value of the company by closing it down.

Commercial wisdom exercised by lenders is “arbitrary and irrational and does not reflect any applicability of mind by rejecting a proposal which was 10 times higher and submitted at an early stage of the process”, he said.

Dhoot further added, “The liquidation value of these oil assets is not less than ₹15,000 crore. As such RP (resolution professional)/ COC (committee of creditors) has no authority to sell oil assets and consumer durables separately. If the RP had sold oil and consumer durables together, he would have got minimum of ₹25,000 crores against a loan of ₹49,000 crores (₹29,000 crores of consumer durables business and ₹20,000 crores of oil assets)”

“Thus recovery would have been around 50% and not 5% as seen today,” he added.

There are 35 financial creditors of Videocon, of which 19 major creditors include SBI, Union Bank, IDBI, Central Bank, BOB, and ICICI Bank who approved the resolution at a December vote. This implied a 95.85% haircut. But three minority shareholders, Bank of Maharashtra, SIDBI, and IFCI rejected the resolution on the ground of low resolution and filed an appeal in NCLAT.



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MSME bankruptcies involving less than Rs 1 crore put on fast-track with pre-pack law, BFSI News, ET BFSI

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The government has introduced a bill in the Lok Sabha to amend the insolvency law and provide for a pre-packaged resolution process for stressed MSMEs.

The proposed amendments would enable the government to notify the threshold of a default not exceeding Rs 1 crore for initiation of pre-packaged resolution process. The government has already prescribed the threshold of Rs 10 lakh for this purpose.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2021 will replace the ordinance that was promulgated on April 4 as part of efforts to provide relief for MSMEs adversely impacted by the pandemic.

The bill seeks to have a new chapter in the Code to facilitate pre-packaged insolvency resolution process for corporate persons that are Micro, Small and Medium Enterprises (MSMEs).

The process

Generally, under a pre-packaged process, main stakeholders such as creditors and shareholders come together to identify a prospective buyer and negotiate a resolution plan before approaching the National Company Law Tribunal (NCLT). All resolution plans under IBC need to be approved by NCLT.

The bill seeks to specify a minimum threshold of not more than Rs 1 crore for initiating pre-packaged insolvency resolution process as well as provisions for disposal of simultaneous applications for initiation of insolvency resolution process and pre-packaged insolvency resolution process, pending against the same corporate debtor.

There would be a penalty for fraudulent or malicious initiation of pre-packaged insolvency resolution process or with intent to defraud persons, and for fraudulent management of the corporate debtor during the process.

Further, punishment would be meted out for offences related to pre-packaged insolvency resolution process.

“Unlike the CIR Process where the control is transferred to the Interim Resolution Professional, in this process, the control remains with the existing management and only in case of fraud, the NCLT may shift control to Resolution Professional. The process is intended to be swift and efficient.

The timeline for completion of the pre-packaged insolvency resolution process is shorter than the normal Corporate Insolvency Resolution (CIR) period.

What experts say

Rajiv Chandak, Partner at Deloitte India, said the bill covers provisions pertaining to pre-packaged insolvency process for MSME units.

“Lenders are awaiting similar provisions for larger corporates. Pre-packaged insolvency can help in resolving stress early and cut resolution time for corporates staring at default,” he added.

Anoop Rawat, Partner, Insolvency & Bankruptcy at Shardul Amarchand Mangaldas & Co said the amendments are in line with the IBC ordinance that was promulgated on April 4, 2021.

“It gives better visibility of resolution as compared to a normal CIR process since a base resolution process need to be in place prior to initiation of the process at NCLT,” Rawat noted.

Government measures

In the wake of the pandemic, the government has taken various steps including increasing the minimum amount of default to Rs 1 crore for initiating a corporate insolvency resolution process.

Besides, the government had suspended fresh filing of corporate insolvency resolution applications in respect of defaults arising during the period between March 25, 2020, and March 24, 2021.

To deal with emerging market realities, the Code has been amended on earlier occasions also.

The Code, which came into force in 2016, was enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals.



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Banks explore the option of invoking personal guarantee of promoters, BFSI News, ET BFSI

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New Delhi: Armed with Supreme Court order, banks may invoke personal guarantees of tycoons ranging from Venugopal Dhoot to Kapil Wadhawan to recover unpaid loans from their delinquent firms, sources said Monday.

According to an estimate, the top 10 personal guarantors have guaranteed debt of over Rs 1.6 lakh crore. Among the big names, former promoters of Bhushan Steel and Power Sanjay Singhal and his wife Aarti Singhal had furnished personal guarantees worth up to Rs 24,550 crore to take loans from a consortium of bank-led by State Bank of India (SBI).

The former promoter of Reliance Communications, Anil Ambani, has also given a personal guarantee against the loan taken. Erstwhile promoter Wadhawan stands guarantee to loans taken by DHFL, which is sitting on a debt of about Rs 90,000 crore, while Dhoot has also given a personal guarantee to a portion of Rs 22,000 crore loan to Videocon.

The Supreme Court in May had held that the November 15, 2019 government notification allowing creditors, usually financial institutions and banks, to move against personal guarantors under the Insolvency and Bankruptcy Code (IBC) was ‘legal and valid’.

Post the judgement, a senior official of a public sector bank said banks are assessing the level of involvement of those directors who pledged their personal guarantee against the loan.

After the assessment, another banker said, banks would move National Company Law Tribunal (NCLT) for invoking personal guarantee as part of the recovery process.

The official said that banks have started receiving calls from some of the promoters for exclusion of their personal guarantee from the non-performing assets. Some of them are coming forward to resolve bad loans to save their personal wealth.

Most of the promoters thought that once their case is admitted under IBC, their past sins and obligations cease, the official said.

However, the order has generated fear among the promoters and directors who pledged their personal guarantee of losing their personal wealth as part of the resolution process, the official said, adding, the personal guarantee angle would expedite the resolution process as the guarantor stands at risk of losing personal property.

The creditor-debtor relationship has got a leg up and this will minimise chances of default in the future.

The concept of ‘guarantee’ is derived from Section 126 of the Indian Contracts Act, 1872. A contract of guarantee is made among the debtor, creditor and guarantor. If the debtor fails to repay the debt to the creditor, the burden falls on the guarantor to pay the amount.

The creditor reserves the right to begin insolvency proceedings against the personal guarantor if the latter does not pay. Usually, promoters of big businesses submit personal guarantees to creditors to secure loans and assure repayment.

During the hearings, the government had justified the November 2019 notification extending bankruptcy proceedings to personal guarantors. Attorney General KK Venugopal argued that by roping in guarantors, there was a greater likelihood that they would “arrange” for the payment of the debt to the creditor bank in order to obtain a quick discharge.



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Less than 4% of bankrupt realty firms see resolution at IBC, homebuyers hit hard, BFSI News, ET BFSI

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Five years after the Insolvency & Bankruptcy Code (IBC) was notified, only eight resolution plans have been approved although some 205 cases had been admitted until March 2021.

That translates into a success rate of under 4%, making it the worst-performing sector, barring computer and related activity.

The highest resolution is 10% for manufacturing where 178 of the 1784 admitted cases were resolved, followed by 7% for construction where 32 of 458 cases were resolved.

The hiccups

Unlike other sectors, there are more complexities in real estate. The rules keep evolving, which makes it difficult to comply with newer guidelines when a developer looks to take over a project.

For banks, the primary focus of the resolution exercise is to minimise the hit that they have to take on their loans and maximise the gains. In contrast, homebuyers want a more stable company to take over the company even if it means that lenders have to take a haircut.

A fall in real estate prices has complicated matters, making the project unviable for resolution applicants. In many cases, funds have been diverted and the debtor company doesn’t have sufficient money to construct the units. There are other complications when land is owned by more than one entity and needs to be combined, but in IBC there are no project or group insolvency provisions.

Less than 4% of bankrupt realty firms see resolution at IBC, homebuyers hit hard

Financial creditor status

The Supreme Court has upheld amendments to the Insolvency and Bankruptcy Code (IBC) that introduced a minimum threshold of 100 home buyers or 10% of the total allottees of a project, whichever was lower, for initiating the insolvency process against a defaulting developer. The homebuyers had not taken kindly to these amendments on the ground that in every other category even a single creditor could by itself move the insolvency court.

They had argued that this was discriminatory and placed homebuyers at a disadvantage as they would have to herd a minimum number before they could act against any errant builder. It was also time-consuming, they had claimed in court.

Before these amendments were made, even a single buyer with claims of at least ₹1 lakh could move the National Company Law Tribunal (NCLT) seeking insolvency proceedings against any builder. The amendments had been brought in after a top court ruling, which placed homebuyers on par with other financial creditors.

Some of the petitioners were money lenders, who had to also fulfil the same requirements to recover their monies lent to the builders for their real estate projects.

Defending the law, the government had said that it reduces multiplicity of cases in the NCLT and ensures quick disposal.



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