The Insolvency and Bankruptcy Code (IBC) was completed five years after it was passed by Parliament. It was a law envisaged giving a quicker, time-bound alternative for the recovery of bad loans for banks.
The IBC has been an effective tool to recover loans but has not been able to live up to the expectations of a time-bound recovery and adherence to timelines for completion of the Corporate Insolvency Resolution Process (CIRP) could be a concern.
The new legal framework, which included the National Company Law Tribunal (NCLT), appeared, in the beginning, to resuscitate the defunct companies and lenders who received a fair share of their sticky loans. In one insolvency resolution, for instance, a global steel major acquired a troubled Indian company in a deal that gave creditor banks more than 90 percent of their loans outstanding.
As per the IBC the CIRP must be completed within 180 days, extendable by up to a maximum of 90 days. The IBC was amended in 2019 to require that CIRP must be completed within 330 days including any extension and time taken in legal proceedings of the process.
As per the data, a total of 4,376 CIRP applications have been admitted as of March 2021. Of these, 1,723 applications (39%) are yet to be closed, 79% of these ongoing CIRPs have continued for more than 270 days.
The reasons for the delay is that banks are usually too late to notice the tell-tale signs, the proceedings drag on due to litigation and cause further value erosion, lack of clarity in their provisions, and the long time is taken in delivering judgments due to multiple reasons including lack of capacity of courts.
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