The 29 member committee headed by former minster of state for finance Jayant Sinha, and also including former prime minister Manmohan Singh said that 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.
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). It has suggested that instead of having multiple insolvency professional agencies (IPAs) a single body may be formed to oversee and regulate RPs.
The parliamentarians have suggested 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 so as to ensure transperancy in the CoC.
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.
“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 hocbids are allowed during the resolution process,” the committee said.
IBC watchers said that the committee’s recommendations are forward looking. “The law of diminishing marginal returns has set in IBC resolutions. In that background, the standing committee recommendations are timely and forward looking. Overhaul of the resolution ecosystem will lead to more effective IBC 2.0 regime.” Hari Hara Mishra, director, UV ARC.
The committee expressed concerns that the NCLT is currently functioning without a regular president and is short of 34 members out of the sanctioned strength of 62. It has reccommended 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.
The report was based on multiple meetings the committee had with regulators like Reserve Bank of India (RBI), IBBI, finance ministry, the ministry of corporate affairs, banks, law firms and industry associations since August 2020.
