Only 32.8% of claims recovered under Insolvency and Bankruptcy Code

The Standing Committee on Finance examined the working of the Insolvency and Bankruptcy Code (IBC) and emerging issues to identify procedural delays, recovery shortfalls, and gaps in rights for stakeholders like homebuyers and MSMEs.

This concerns the Ministry of Corporate Affairs, the National Company Law Tribunal (NCLT), banks and financial institutions, distressed companies, homebuyers, and MSMEs involved in insolvency proceedings.

• Post-resolution challenges: The Committee identified delays in regulatory clearances and difficulty securing fresh financing due to defaulter status; it recommended an online mechanism for issuing 'no dues' certificates and statutory clearances.
• Delays and judicial capacity: The Committee cited NCLT bench shortages, vacancies, and frivolous litigation as causes for delays; it recommended expediting additional NCLT benches, operationalizing a centralized case management platform, raising penalties for frivolous applications, and mandating upfront deposits for unsuccessful applicants.
• Valuation of distressed assets: The Committee noted that only 32.8% of admitted claims are recovered despite creditors realizing 170% of liquidation value, attributed to late entry into the process and lack of valuation transparency; it recommended enterprise value-based valuation, global outreach for competitive bidding, and SOPs for post-resolution valuation reviews.
• Homebuyer rights: The Committee observed that homebuyers lack an independent right to relief and rely on the Committee of Creditors' discretion; it recommended reconsidering eligibility criteria and inter-ministerial coordination.
• Cross-border insolvency: The Committee recommended selective adoption of the UNCITRAL framework with modifications to address losses in high-value cases.
• Pre-institutional mediation: The Committee recommended introducing an early-stage mediation process as an alternative dispute resolution mechanism.
• Avoidance Transactions: The Committee highlighted fund diversion as a critical concern causing value erosion; it recommended empowering Resolution Professionals to conduct deeper, time-bound investigations.
• Pre-packaged Insolvency Resolution Process (PPIRP): The Committee noted low uptake by MSMEs due to infrastructural and procedural gaps, pushing banks to use SARFAESI; it recommended simplifying PPIRP procedures, issuing clear guidelines, increasing awareness, and providing incentives for banks.

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