Delays in resolving cases under IBC are a major challenge for lenders

- There is also a risk of a decrease in the value of assets due to the length of the settlement process

Lenders are being forced to spend more and more money in settling cases under the Insolvency and Bankruptcy Code (IBC). Few investors seem to be eager to buy assets under stress amid the economic downturn caused by the Corona epidemic and investors who come in want to buy assets at huge discounts. The decline in private consumption caused by Corona has made recovery challenging for many companies. Corona has further depreciated the value of assets at a time when there is a lot of time spent in disposing of assets under stress due to issues such as loss in legal proceedings and unusual delays in resolving cases.

Due to various adversities, the recovery rate of financial lenders in the December 2011 quarter was 15.50 per cent lower than the number of cases filed. The overall recovery figure, which stood at 7.50 per cent in the September 2018 quarter, also declined to 8.10 per cent in the December quarter. However, it is unknown at this time what he will do after leaving the post. According to data compiled by the Insolvency and Bankruptcy Board of India, the recovery in the December quarter stood at Rs 206 crore, compared to Rs 4,50,8 crore after the implementation of IBC.

In addition to the slow recovery rate, the time it takes to resolve cases is a major challenge to the IBC process. The data also shows that in the cases of 8% of the companies taken under resolution under IBC, the 30-day limit has been exceeded. As a result, lenders are reluctant to sue companies under IBC. Lenders are urging that the issue of breach of time limit be resolved urgently. Lenders believe that the increase in haircuts (discounts) is also due to the earlier cases under the Board of Industrial and Financial Reconstruction (BIFR) being brought under IBC. As of December 2021, out of the eight companies rescued through the settlement, 12 companies were either taken under BIFR or were closed.

Under previous laws, lenders had to work hard to recover money from ailing companies, but cases were not resolved quickly and fairly, resulting in a steady increase in banks' non-performing assets (NPAs). In view of this fact, IBC has come up with a definite time frame for Corporate Insolvency Resolution Process (CIRP) under IBC 2018 and for all operations under this process i.e. from the beginning of the case to the closing of the process. The CIRP has two options, one is to revive the company through a solution plan and the other is to liquidate the company. Lenders are usually the first to try to get the company back on track and in case of failure to do so, it is headed for liquidation.

In view of the delays in resolving cases under IBC, the total period for completion of CIRP has been fixed at 90 days by amending the law in 2017. In which 180 days are kept to resolve the stress of the company. If no solution is found within this period, another period of 30 days has been given and if required, another 30 days have been given for litigation. Despite this deadline, the duration of cases resolved is not particularly commendable. The six CIRPs resolved during April-December 2021 took an average of 204 days. Due to the length of the settlement process, companies are wasting a lot of time sitting down or even working, not only because of the erosion of the value of the company's assets.

The resolution of cases under IBC is increasing over time. Although there is a provision to resolve cases filed under IBC within a limited time, due to various reasons, cases are not resolved within this period in time. One of the reasons for this is the lack of other structures, including a sufficient number of tribunals to handle cases. In view of this fact, it has become necessary to revise the judicial structure and appellate tribunals in the NCLT. So that the bad loans can be settled quickly and the creditors, including the bank who have to get the money from the defaulting company, will not only start losing their money soon, but also the decline in the value of assets will be prevented.