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How IBC Has Pushed the Big Corporates to Clean Their Debt Mess

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Ever since the Insolvency and Bankruptcy Code (IBC) has been put in place by the Modi Government, India’s big corporate houses are increasingly made to pay their dues back. There are many cases against the various big corporates that have reached the final settlement stage in which the recovery is happening. In some cases, the companies who have not paid their dues back are being acquired by other companies by settling their bad debt. In some other cases, companies who were refusing to pay back the banks earlier are now complying with the rules fearing a strong action against them.

As various instances suggest that the law is catching up with all the defaulters without fear or favor, which has become possible only because IBC was put in place by the Modi Government as we have explained in detail in our earlier article, Debt, Recovery and ‘Suit-Boot’ Rhetoric – The Facts Are Here.

The Recent Instances of IBC

Here are few recent instances reported widely in the media which indicate some kind of financial settlements involving many big corporates. Was it not for the IBC that enabled NCLT (National Company Law Tribunal) to decide on the issue, these possibilities of recovery would not have emerged.

  • Binani Cement

On November 14, 2018, National Company Law Appellate Tribunal (NCLAT) approved the revised bid of Aditya Birla Group firm UltraTech Cement for debt-ridden Binani Cement. UltraTech Cement’s revised offer was at Rs 7,900 crore, against its earlier bid of Rs 7,200 crore. UltraTech promised 100% payments to all the creditors. As per the media report, Binani’s total secured and unsecured debt amounts to about Rs 6,265 crore.

  • ArcelorMittal

On October 18, 2018, ArcelorMittal agreed to pay Rs 7,469 crore to the financial creditors of Uttam Galva Steels Ltd. and KSS Petron Pvt. Ltd. These companies where Lakshmi Nivas Mittal had his stint as a promoter had outstanding debt of ₹5,654 crore (Uttam Galva) and ₹904 crore (KSS Petron). IBC is the reason for this offering by ArcelorMittal as it wanted to take part in the bid of acquiring Essar Steel Limited.

  • Essar Steel

The ongoing insolvency process of Essar Steel is perhaps an interesting instance to look at. This firm promoted by the Ruia family owes Rs 49,394 crore to its financial creditors and about Rs 5,000 crore to operational creditors. ArcelorMittal has proposed a resolution plan of an upfront payment of Rs 42,000 crore to the lenders and Rs 8,000-crore capital injection in Essar Steel but was challenged by some operational creditors.

Numetal Mauritius was the second highest bidder with the offer of ₹37,000 crore and Anil Agarwal’s Vedanta offered ₹34,000 crore. Amidst all these, the Ruia family in October 2018 have offered to repay creditors of the steel firm with the amount of Rs 54,389 crore, in an attempt to withdraw it from the insolvency resolution process. Whoever wins the bid at the end, the fact to be noted here is that because of the IBC all this financial mess is clearing out.

  • Reliance

To illustrate how IBC empowered the lenders, an example pertaining to Anil Ambani’s firms can be cited. While Congress President Rahul Gandhi has been making an unsubstantiated allegation that Anil Ambani’s firm has been getting undue advantage from the Modi Government, the fact is that IBC have actually empowered the lenders to question these big corporates.

IDBI bank has already pulled Reliance Naval to the bankruptcy court. As reported on November 15, 2018, another party ‘Markss Infotech’ has also moved to NCLT on the same issue. As reported on October 26, 2018, as many as 24 creditors including Paytm have approached NCLT to recover the debt from RCom and Reliance Telecom.

The Lenders Empowered

While the above cases which are at various stages of settlement suggest that the money turned into bad debt is on the verge of recovery, and also in cases which are just at the admission stage (to NCLT), tell us that the lenders are getting empowered. Before IBC, lenders used to be outweighed by the big corporate borrowers who essentially had the clout to delay the debt resolution by using the complexity of the law. The IBC has laid out a debt resolution process that is time bound.

In August 2018, a FICCI survey revealed that the position of banks has improved because IBC has put the debt recovery process on the fast track. An increasing trend of promoters willing for a resolution at the early stage of default has also been observed.

Conclusion

The problem of Non-Performing Assets is essentially the creation of the previous UPA Government whose period witnessed unmindful lending to the big corporates. By putting a proper law and a solid recovery mechanism in place, the present government is ensuring that the money comes back and a financial discipline with increasing corporate responsibility persists in the country.

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