“Therefore, none can proceed against the company showing as the company defaulted paying debts,” said an interim order on the tribunal’s website on Thursday.
ICICI Bank was asked to respond on whether its application complied with the bankruptcy law on Friday. However, the tribunal’s website had no details of that day’s hearing at the time of going to press on Sunday.
“We cannot comment on this case as it is sub judice,” said a spokesperson for ICICI Bank. Chandu L. Chavan, chairman and managing director of Innoventive Industries, declined to comment. An email sent to the company’s official address remained unanswered.
Innoventive, like many other metal firms, suffered from the price downturn of recent years. It entered the corporate debt restructuring cell in 2013, and a year later, it signed a master restructuring agreement with banks which was junked later. There were discussions on some options like bringing in fresh equity, but these didn’t materialize, said a former public sector banker who is familiar with the case, requesting anonymity.
Whatever the result, the case is now important to determining the applicability of the bankruptcy code, which came into effect this year.
On 1 December, the government made the Insolvency and Bankruptcy Board of India operational and notified rules for insolvency professionals, agencies, and model by-laws under the bankruptcy code. It also issued rules for corporate insolvency resolution.
The code is expected to empower the judicial system to handle corporate defaults and winding-up petitions. The NCLT would be the adjudicating authority on these matters and function under strict deadlines prescribed by the code.
“For the NCLT to be successful, it would be essential for the tribunals to have adequate administrative and judicial staff available, given the number of bankruptcy cases expected. There is also a need for good quality infrastructure to be in place for these cases to be heard across India. The NCLT would need to have these resources in place so that the cases can be completed successfully within 180 days to drive better recoveries for creditors,” said Nikhil Shah, managing director of consulting firm Alvarez and Marsal India.
The success of the insolvency and bankruptcy code is essential for a banking system that is currently reeling under large bad loans. The strategic debt restructuring (SDR) option the Reserve Bank of India (RBI) announced in June 2015 hasn’t yielded encouraging results. SDR allowed creditors to convert debt into equity and take over the management of defaulting firms.
Other forms of restructuring such as the scheme for sustainable structuring of stressed assets (S4A) haven’t been implemented in a large number of cases owing to the difficult qualifying conditions. Under S4A, banks can convert up to 50% of a company’s loans into equity or equity-like instruments.
Bankers have met at least twice in the past month to discuss various large stressed asset cases and figure out how to resolve them. The talks have not led to any decisive action.
“We have been asking the RBI to consider some tweaks in S4A, which would allow for more cases to be restructured under the norm; however, not much has moved. We can still do financial restructuring but that would come after a significant cost, which is not agreeable to a lot of bankers,” said the head of a large public sector bank, declining to be named.
SOURCE: ALM VANGUARD: TRANSACTIONS - ACQUISITIONS CONSULTING JUNE 2019 REPORT
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