An Insolvent Code

Unless Issues Around Implementation Are Fixed, The Insolvency Code Will Remain An Insolvent Code.

- Ashish Gupta And Debabrata Das

DO NOT GO GENTLE into that good night, wrote Welsh poet Dylan Thomas some 70 years ago. That’s a message that many Indian promoters of companies seem to have taken to heart. Despite being smothered by distressed assets, promoters are not throwing in the towel just yet. Through fair means or foul, by which we mean litigation or random allegations, they seem determined to hold on to their crumbling empires.

The ones bearing the brunt of this inability to let go are, predictably, employees and lenders. Banks have reported a steady rise in the number of non-performing assets on their loan books. These are loans to companies that seem unable to pay back. In just the past two years, there has been a surfeit of such ‘assets’: Binani Cement with debts of Rs 3,976 crore; Essar Steel, now bankrupt with debts of Rs 37,284 crore; and Bhushan Steel with borrowings of over Rs 44,000 crore.

A succession of such insolvent companies meant that banks found their bad loans, or non-performing assets (NPA), steadily mounting. As on June 2017, NPAs stood at Rs 7,33,137 crore, according to finance ministry data.

This isn’t a new problem by any stretch. It’s been going on for decades, with successive governments trying piecemeal reforms and creating a patchwork of legislation. Enter the new government, led by the Bharatiya Janata Party (BJP). Within two years of sweeping to power, the government introduced the Insolvency and Bankruptcy Code (IBC) in 2016. The idea behind this code was to put an end to Sisyphean legal exercises by promoters. In effect, the new law gave stakeholders two options: put in place an approved resolution plan, or liquidate the company. Either way, lenders would get back at least a fraction of their money.