RBI Governor Shaktikanta Das.
| Photo Credit: PTI
Reserve Bank of India (RBI) governor Shaktikanta Das on Thursday envisaged a Group Insolvency Mechanism for higher restoration of dues of collectors under the Insolvency & Bankruptcy Code (IBC) course of.
“Globally, there are two diverse facets of Group Insolvency. Some jurisdictions have adopted either procedural coordination or substantive consolidation. Substantive consolidation pertains to the consolidation of assets, liabilities, and operations of multiple entities within a group, disregarding their separate legal entity status,” Mr. Das mentioned whereas talking on the CAFRAL Conference.
“On the other hand, under procedural coordination, the approach is limited to aligning procedural aspects like filing requirements, timelines, coordination and not mingling the entities per se,” he mentioned.
He mentioned within the Indian context, within the absence of a specified framework, the group insolvency mechanism had been to date evolving under the steering of the Courts.
“Perhaps the time has come for laying down appropriate principles in this regard through legislative changes. There has been quite a bit of brainstorming on this issue in the policy circles for some time now. The task now is to move forward through appropriate legal changes,” he emphasised.
“While a legal framework cannot envisage all plausible real world scenarios, given the complicated group structures at the ground level including cross border linkages, it may be in the fitness of things to formally conceive a framework to start with,” he added.
“There would be challenges in this journey like intermingling of assets, devising a definition of a ‘Group’, addressing cross-border aspects, etc. It would still be preferable to see the opportunity here and put in place a workable framework for group insolvency,” he added.
Mr. Das additionally instructed for creating a vibrant secondary market for burdened property.
“A robust secondary market in loans can be an important mechanism for management of credit exposures by the lending institutions,” he mentioned.
He mentioned although the pattern lately had been in the direction of balancing the rights of Operational Creditors (OCs) with these of Financial Creditors (FCs) under the IBC, there wanted to be some distinction in weightage attributed to completely different class of collectors, relying upon the diploma of danger absorbed ab initio.
“It has to be recognised that the financial creditors take the maximum risk and hence their risk needs to be commensurately compensated and with priority. Accordingly, any amendments to the Code and its evolution thereof may continue to lay emphasis on a financial creditor-led resolution framework, in an overarching manner,” Mr. Das mentioned.
Raising critical issues on the delay in resolutions under the IBC, Mr. Das mentioned as of September 2023, 67% of the continuing CIRP circumstances had already crossed the overall timeline of 270 days together with attainable extension interval of 90 days.
“More concerning is the fact that, the average time taken for admission of a case during FY 2020-21 and FY 2021-22 stood at 468 days and 650 days respectively. Such long degree of delays will substantially erode the value of the assets,” he warned
“There are a multitude of factors playing out here, namely, the evolving jurisprudence related to the Code; litigatory tactics adopted by some corporate debtors; lack of effective coordination among creditors; bottlenecks in the judicial infrastructure,” he added.
