Supreme Court upholds bankruptcy code, setback for defaulters
Reuters | Updated: Jan 25, 2019, 17:35 ISTHighlights
- The government introduced the Insolvency and Bankruptcy Code (IBC) in May 2016
- The top court's ruling by a two-judge bench was seen as a setback for debt-laden companies like Essar Steel, which owes Rs 50,800 crore ($7.15 billion) to lenders
The Supreme Court of India (File photo)MUMBAI: The Supreme Court on Friday rejected petitions challenging the country's bankruptcy laws, including a rule that bans owners of insolvent firms from bidding to buy back assets auctioned as part of the bankruptcy proceedings.
The ruling upheld fledgling bankruptcy and insolvency rules and is expected to pave the way for banks to recover billions of dollars from bankrupt firms mired in litigation, lawyers said.
The government introduced the Insolvency and Bankruptcy Code (IBC) in May 2016, but there is a backlog of unresolved cases due to legal actions filed by the owners of bankrupt companies who are typically reluctant to give up control.
The "Supreme Court's upholding of IBC will add necessary certainty by way of long term clarity for all stakeholders," said Cyril Shroff, managing partner at the law firm Cyril Amarchand Mangaldas.
"It should significantly boost investor confidence and effectively enhance participation," he added.
Friday's ruling by a two-judge bench was seen as a setback for debt-laden companies like Essar Steel, which owes Rs 50,800 crore ($7.15 billion) to lenders. Essar Steel's bankruptcy has dragged on for more than 500 days, and beyond the maximum 270 days set by the IBC for a resolution.
The National Company Law Tribunal - the bankruptcy tribunal - is expected to give its decision by January 31 on Essar Steel's insolvency resolution plan, lawyers said.
The Essar Steel case sparked questions about the efficiency of the IBC, as well as the extent to which banks can reduce the dead weight of bad loans on their balance sheets, which currently stand at $150 billion.
For Prime Minister Narendra Modi, reviving the banking sector is crucial for stimulating the economy and creating more jobs ahead of an election due by May.
In its ruling, the Supreme Court said, "the experiment conducted in enacting the Code is proving to be largely successful."
The ruling upheld fledgling bankruptcy and insolvency rules and is expected to pave the way for banks to recover billions of dollars from bankrupt firms mired in litigation, lawyers said.
The government introduced the Insolvency and Bankruptcy Code (IBC) in May 2016, but there is a backlog of unresolved cases due to legal actions filed by the owners of bankrupt companies who are typically reluctant to give up control.
‘Insolvency and Bankruptcy Code helped address Rs 3 lakh crore stressed assets in 2 years’
Corporate affairs secretary Injeti Srinvas said the IBC has triggered a tectonic shift in the behaviour of lenders and borrowers which is reflected in the swift disposal of cases at National Company Law Tribunal. The Insolvency and Bankruptcy Code, touted as a game-changer in dealing with bankruptcy, has helped resolve stressed assets worth Rs 3 lakh crore in two years
The "Supreme Court's upholding of IBC will add necessary certainty by way of long term clarity for all stakeholders," said Cyril Shroff, managing partner at the law firm Cyril Amarchand Mangaldas.
"It should significantly boost investor confidence and effectively enhance participation," he added.
Friday's ruling by a two-judge bench was seen as a setback for debt-laden companies like Essar Steel, which owes Rs 50,800 crore ($7.15 billion) to lenders. Essar Steel's bankruptcy has dragged on for more than 500 days, and beyond the maximum 270 days set by the IBC for a resolution.
The National Company Law Tribunal - the bankruptcy tribunal - is expected to give its decision by January 31 on Essar Steel's insolvency resolution plan, lawyers said.
The Essar Steel case sparked questions about the efficiency of the IBC, as well as the extent to which banks can reduce the dead weight of bad loans on their balance sheets, which currently stand at $150 billion.
For Prime Minister Narendra Modi, reviving the banking sector is crucial for stimulating the economy and creating more jobs ahead of an election due by May.
In its ruling, the Supreme Court said, "the experiment conducted in enacting the Code is proving to be largely successful."
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