The words speak for itself. It shows anguish and anxiety about the manner the case has moved through various stages and how defaulters with all means at their disposal to clear dues of the Banks have tried to take the system and the law for a ride. In spite of a very clear and strong judgment by the Supreme Court[1], the case has proceeded at snail speed so much so that NCLAT had to intervene...

Where Are We Heading For In Implementation Of IBC ?

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The saga of Essar is well summarised by the following quotes from famous book of Jim Collins – How The Mighty Fall.
"When those in power begin to imperil the enterprise by taking outsize risks and acting in a way that denies the consequences of those risks, they are headed straight for Stage 4"
"When we find ourselves in trouble, when we find ourselves on the cusp of falling, our survival instinct and our fear can prompt lurching—reactive behaviour absolutely contrary to survival. The very moment when we need to take calm, deliberate action, we run the risk of doing the exact opposite and bringing about the very outcomes we most fear. By grasping about in fearful, frantic reaction, late Stage 4 companies accelerate their own demise.. "
True to the theory propounded by Jim Collins
[4], instead of stabilising their business operations after CDR, the promoters of the group went on spree of expansion and acquisitions. They acquired Algoma Steel, mine in Minnesota, with huge commitment for investment and went on for expansion of Hazira plant. The 2015 report of House of Debt Revisited, Credit Suisse[5] noted that three years since first 'House of Debt' report, they found that despite attempts at deleveraging, financial stress at these groups (which included Essar among others) had intensified further. All the groups saw further rises in debt in FY15, which was up 7x over past eight years to ~12% of system loans. Their interest cover dropped to 0.8x vs 0.9x in FY14 and debt/EBITDA rose to 7x.
NCLT Ahmedabad started well while admitting application of SBI and SCB and observing that technical barriers must not come in the way of speedy recovery under the Code, however, the momentum got lost in complexities of issues and cross litigations and matter going to Higher Courts on several occasions.
This breach of "Laxman Rekha" is resulting in more pressure on and confusion in the role of other authorities more specifically Committee of Creditors (CoC). Bankers, who initially were not very sure about functioning of the system, are now finding themselves in unique position of being pushed from all corners. On one hand, they have to face pressures of internal scrutiny which get triggered on an account becoming Non Performing (NPA) including scrutiny by internal teams and regulatory body and sometimes by outside investigating agencies, but also to maintain the strict timeline set up under IBC while guiding CIRP process and examining and evaluating the resolution plans and also to minimise losses to Banks while taking care of interest of all stakeholders. Expectations from CoC are too high but its discretion and authority is getting challenged and limited with each case.
"It is settled law that a statute is designed to be workable, and the interpretation thereof should be designed to make it so workable. Given the timeline and given the fact that RA has no vested right that his resolution plan be considered, it is clear that no challenge can be preferred to the AA at threshold. A writ petition under Article 226 filed before a High Court would also be turned down on the ground that no right, much less a fundamental right, is affected at this stage. Aggrieved RA can approach the NCLT for relief only after a resolution plan has been considered by the CoC via voting and not prior to that. [Justice R Fali Nariman in ArcelorMittal India Private Limited Vs. Satish Kumar Gupta & Ors.]
"The Insolvency Code is a legislation which deals with economic matters and, in the larger sense, deals with the economy of the country as a whole. Earlier experiments, as we have seen, in terms of legislations having failed, 'trial' having led to repeated errors, ultimately led to the enactment of the Code. The experiment contained in the Code, judged by the generality of its provisions and not by so-called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster." [Emphasis supplied]
This judgement gives enough authority to NCLTs to take command of the cases without getting bothered about the fancy arguments and civil law doctrines which travel beyond the scope and purpose of the Code. The Authorities needs to move with time and meet need of the hour.
[1]ArcelorMittal India Private Limited Vs. Satish Kumar Gupta & Ors. [Civil Appeal Nos. 9402-9405 of 2018]
[2] Nevin John in Business Today of July 02, 2017
[3] Nevin John in Business Today of July 02, 2017
[4] Book How the Mighty Fall by James
[5] https://plus.credit-suisse.com/rpc4/ravDocView?docid=V4pSWN1AF-WElY95
[6] https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=40743
[7] Shri Amitabh Kant -CEO NITI Ayog - The Economic Times- Jan 25, 2019
[8] ArcelorMittal India Private Limited Vs. Satish Kumar Gupta & Ors. [Civil Appeal Nos. 9402-9405 of 2018]
[9] Satyanarayan Malu in the matter of SBM Paper Mills Ltd. [M.A. 1396/2018, 827/2018, 1142/2018, & 828/ 2018 in C.P. (IB)- 1362(MB)/2017]
[10] Swiss Ribbons Private Limited & Anr. v. Union of India- WRIT PETITION (CIVIL) NO. 99 OF 2018
[11] Swiss Ribbons Private Limited & Anr. v. Union of India- WRIT PETITION (CIVIL) NO. 99 OF 2018
[12] ICICI Bank Limited Vs. Unimark Remedies Ltd. [MA No. 1529 of 2018 in CP No. 197/2018]
Mukesh Chand is an Ex General Manager (Legal) of SIDBI