Such companies may be blacklisted to prevent them from making future bids and blacklisted bidders can be barred at the request for proposal stage itself.
The government will soon come out with "effective steps" to deal with instances where entities back out after making frivolous bids under the insolvency law, Corporate Affairs Secretary Injeti Srinivas Tuesday. He was speaking at a conference organized by the CII on 'Insolvency and Bankruptcy Code Roadmap for Effective Resolutions’.
"In some cases after one year or more after settlement has taken place, the resolution applicant has failed to implement the plan. What do we do with such resolution applicants? So much of time and resources (are) used in bringing in a settlement and the insolvency costs (are) huge," media reports quoted Srinivas.
Insolvency and Bankruptcy code (IBC) will play a significant role in India realising its dream of evolving into a $10 trillion economy in foreseeable future, Srinivas, said.
The Insolvency and Bankruptcy Code (IBC) mainly seeks to address the issue of stressed assets in a time-bound manner. However, there have been instances where entities have failed to implement the approved resolution plans.
“This law (IBC) has come to stay and enable Indian economy to greater heights by promoting entrepreneurship and ensuring effective use of capital”, media reports quoted him as saying. What do we do with such resolution applicants? So much of time and resources (are) used in bringing in a settlement and the insolvency costs (are) huge," he said.
Srinivas wondered whether in such cases the resolution applicant will bear the entire resolution cost or if there should be some criminal proceedings or should such frivolous bidders be banned from becoming resolution applicants again.
"These are all questions and there have to be a definitive answer. This is one area I think the government is very much focused on and would soon bring some sort of effective steps to see how we discourage people from making frivolous sort of bids and then backing out," Srinivas said.
Srinivas said that though the Code has brought in massive shift in the relationship between creditors and debtors, it has also raised a lot of litigations.
Later, talking to reporters on the sidelines of the CII Conference, Srinivas said that he expects the first phase of resolutions to happen in the next few months. Already 50 per cent of the IL&FS Group assets have been put on the block, he added.
Asked if the latest NCLAT order (No NPA should be recognised by banks in the IL&FS matter) put the banks in a quandary as regards compliance with RBI norms, Srinivas said the NCLAT directive was one off and done in national interest.
The next round of insolvency regulations will be on ‘corporate guarantors’ and this will be followed up with regulations on individual insolvencies, he said.
CII has raised concerns that though insolvency law is a game changer, non-adherence to timelines and inordinate delay in admission of cases are major concerns, especially where debt is well established and one does not have to determine the quantum of debt, rather one has to determine whether there is a default.
“When say, 14 days time is given in the law, it should be done in 14 days. Whereas, it is seen that it is taking three months or more. This needs to be addressed”, media reports quoted Subodh Bhargava, Past President, CII.
The definition of Persons Acting in Concert (PAC) be specifically included in the Bankruptcy ordinance and a reasonable definition be introduced for the purposes of submission of resolution plans, Bhargava said.
Source: Media reports