WILLFUL DEFAULTERS UNDER IBC 2016
BRIEF INTRODUCTION
- It has been proposed that, as the promoters of defaulting companies have been vested with the right to bid for their own businesses, the same acts as a blockage in the insolvency proceedings. However, wilful defaulters or those borrowers who have diverted funds won't find any place within the bidding process, he said. These remarks come at a time when the insolvency process has come under criticism because it allows existing borrowers to bid for the businesses at steep discounts. For example, within the case of Innovative Industries — one in all the first cases within the National Company’s Law Tribunal under the new Insolvency and Bankruptcy Code — the most effective bids that the lenders have received requires them to require a haircut of 75% of their loan amount, leading to a stalemate.
- On the question that whether it is ethical to let a defaulter repurchase a corporation at a haircut, it is legally provided and the same is well within their rights to participate. Now, in order to bid in the insolvency proceedings, the preconditions which banks are required to have, are, they ought to not be classified as wilful defaulters. Second, the forensic audit should give them a clean chit and not hold them to blame for fund diversion and, finally, lenders must find the resolution plan viable.
- The RBI has instructed the banks for initiating insolvency proceedings against 41 companies and in the line of the same, banks have initiated proceedings against 11 companies, including Essar Steel, Bhushan Steel, Bhushan Power, ABG Shipyard and Alok Industries.
- Earlier, speaking at the summit, RBI deputy governor N S Vishwanathan said that digitisation can reduce the necessity for financial intermediation and one example of that's peer-to-peer lending. He added that banks and other traditional financial institutions will should examine alternative business models. “In India, the environment is so conducive to digital adoption that one could say the country is during a very sweet spot during this area,” said Vishwanathan.
