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NCLT: Rising Demand Of Penalising Bidders defaulting on proposed plans

PW Bureau

Various NCLT benches closed around 600 cases under the Insolvency and Bankruptcy Code (IBC), according to estimates with a little above 12 percent reaching resolution

New Delhi: Analysts have insisted that the government should put in place stringent deterrents ranging from monetary penalties to debarring the applicant, with cases resolved under the National Company Law Tribunal (NCLT) process ending up for liquidation. Various NCLT benches closed around 600 cases under the Insolvency and Bankruptcy Code (IBC), according to estimates. However, just 82 corporate insolvency resolution processes (CIRP) yielded a resolution plan.

At least three CIRPs that yielded a resolution plan in recent months were returned to the NCLT and then ordered into liquidation, resulting in high economic costs. If the application materialises, loan recoveries are also expected to be less than the amount creditors would have gained.

How the process goes back to zero

For example, Amtek Auto Ltd was believed to have completed its CIRP with the recovery of Rs 43,300 crore to creditors. Amtek was part of the Reserve Bank of India’s (RBI) list of large defaulting accounts announced in June 2017.

In July, 366 days after its admission into the NCLT, the resolution plan was approved. Unfortunately, the resolution applicant (Liberty Group) did not comply and the matter is back to where it all began.

Merits in strong deterrents

“There’s merit in the 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, ”rating firm ICRA noted.

Such deterrents would make applicants guarded and sincere while putting in their resolution plans, it added.