It is time for a full-scale overhaul of the Insolvency and Bankruptcy Code

 A recent settlement by the National Company Law Tribunal (NCLT) , Mumbai Branch on 19th December 2023 has approved a resolution plan in respect of Reliance Communications Infrastructure Limited (RCIL) wholly-owned subsidiary of Reliance Communications (RCom) owned by Anil Ambani. Against the claims made from the debtors totaling ₹49,668 crore, the NCLT admitted only ₹47,251 crore and the settlement was ₹455.92 crore, which is a mere 0.92% of the debt. Interestingly the settlement will be done by the Reliance Projects & Property Management Services Limited owned by Mukesh Ambani which takes over the assets. It has taken 4 years to complete the Resolution Plan (RP) as against the stipulated maximum of 330 days.

The Insolvency and Bankruptcy Code (IBC) came into effect in 2016 with the following objectives:

Maximise the value of debtor’s assets; promote  and encourage entrepreneurship; ensure timely and effective resolution of IBC cases; balance the interests of all stakeholders, including creditors, debtors, and staff; facilitate the promotion of a competitive market and economy; and provide for a framework to deal with cross-border insolvency cases.

A recent settlement by the National Company Law Tribunal (NCLT) , Mumbai Branch on December 19, 2023 had approved a resolution plan in respect of Reliance Communications Infrastructure Ltd. (RCIL), a wholly-owned subsidiary of Reliance Communications (RCom) owned by Anil Ambani. Against the claims made by the debtors totaling ₹49,668 crore, the NCLT admitted only ₹47,251 crore and the settlement was ₹455.92 crore,  a mere 0.92% of the debt. Interestingly the settlement will be done by Reliance Projects & Property Management Services Ltd. owned by Anil’s older brother Mukesh Ambani, set to take over its assets. It has taken four years to complete the Resolution Plan (RP) as against the stipulated maximum of 330 days.

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The Financial Creditors (FCs) should ideally get  principal and interest. In the case of Essar Power MP Ltd. that was taken over by Adani Power, the amount realised was 12.37%.

A new term has entered Indian bankers’ dictionary - haircuts - that is, writing off loans and accrued interest on the loan. The illustration below gives a glimpse of the so-called haircuts, which is actually a part of the loss to FCs.

These are only a few examples. In the case of Videocon, taken over by the Vedanta Group, only 5% of the loan outstanding on the date of declaration had been recovered by the banks. Reliance Infratel had huge assets, which were taken over by the elder Ambani for a pittance. In the Siva Industries case, C. Sivasankaran has 9 fraud cases against him, including the IDBI fraud, but his father was allowed to take over the company paying just 7% of the loan.