The law of insolvency and bankruptcy is critical to the functioning of any economy. These laws aid in the restructuring of a company’s various assets as well as the dissolution of these assets. The law’s primary goal is to reorganise and remedy the insolvency of corporate persons.

The Insolvency and Bankruptcy Code, 2016, is comprehensive legislation that incorporates both the subsequent elements of a debtor’s economic collapse – rehabilitation and liquidation – within its multiplicity.

The primary goal of the legislation is to restructure and resolve the insolvency of corporate people, partnership companies, and individuals as soon as possible in order to leverage the maximum value of such persons’ assets. While doing so, it is also important to boost entrepreneurship and credit availability.

What precisely do we understand by insolvency?

Insolvency refers to a situation in which a corporation is unable to obtain sufficient cash to pay off its obligations and payments in a timely manner.

Bankruptcy occurs when the court identifies and recognises insolvency while ignoring instructions for its resolution. When the court is confident that the business is insolvent, it issues an order dividing the proceeds among the creditors for the payment of the company’s debts.

One of the main barriers to bankruptcy is that the average time taken to resolve bankruptcy cases in India is 4.3 years, which is significantly longer than the time taken in nations such as the United States and the United Kingdom.

Insolvency and Bankruptcy Code, 2016

The IBC was proposed by the Bankruptcy Legislative Reforms Committee, led by TK Viswanathan. The IBC’s goal was to consolidate and reform laws governing the reorganisation and economic resolution of businesses and persons in a timely way in order to maximise the value of assets.

In the year 2016, the insolvency legislation was passed and announced in the official gazette of India with the goal of resolving insolvency matters in a timely manner, which is done by insolvency experts. Its major goal was to correct the faults made by previous legislation by separating commercial and judicial issues

The adjudicating bodies, according to the IBC, are the NCLT. Given that the IBC is the umbrella legislation that encompasses other insolvency laws, it has diminished the need for prior legislation by addressing insolvency, bankruptcy, and sick company reorganisation.

The Insolvency and Bankruptcy Code was enacted in 2016 as a major legislative change in the Indian economy. It was enacted because India lacked legislation that aided in the resolution of distressed assets and debt-laden companies. As a result, the court consolidated all insolvency rules into a single legislation, the IBC 2016.

This legislation intended to increase the flexibility of India’s insolvency rules. One aspect of this code is that it allows creditors to evaluate the feasibility of a business, decide the inspiration of the firm, and then request the liquidation or winding down of the business. The code’s goal was to create a new institutional framework that included a regulator, financial condition experts, data utilities, and assessment mechanisms to improve the formal financial condition resolution procedure and liquidation.

Institutional Framework of Insolvency and Bankruptcy Code, 2016

The Institutional Framework of IBC, 2016, has 4 pillars.

• Insolvency and Bankruptcy Board of Republic of India
• National Company Law Appellate Tribunal
• Insolvency Professional
• Information Utilities

The board’s deployment and functioning are overseen by the Insolvency and Bankruptcy Board of the Republic of India. The IBC creates it as a restricted yet superior body. This board is in charge of IBC concerns and controls not just the profession but also the processes. The board is critical in implementing the code that modifies the regulations governing the conversion of bankrupt enterprises.

The NCLT, which is the adjudicating authority, hears cases involving this code under insolvency law. This authority serves as a venue for the settlement of insolvency proceedings. An appeal under the NCLT can be dismissed, or a stay of execution can be requested against the order. NCLAT is the site where NCLT appeals may be filed. The ruling of the NCLAT can be appealed to the Supreme Court, which is the highest court of authority.

The IBC establishes a body of experts known as insolvency professionals, who are responsible for overseeing different parts of bankruptcy resolution. To govern the activity of the Insolvency Professionals, an extra corporate organisation called the Insolvency Professional Agencies is formed. Individual practitioners must be enrolled with the IPAs’ sceptre in order to control and enhance the function of insolvency professionals.

The information utilities under the IBC, 2016, make it feasible to acquire and transfer information from creditors to corporations. Currently, creditors’ financial information may only be acquired through the income tax department.

The purpose of the information utilities under the IBC, 2016, is to bridge the gap in obtaining and transmitting information from creditors to corporations. Only the Republic of India’s Insolvency and Bankruptcy Board has the ability to license Information Utilities, as well as the capacity to regulate them and give access to information.

Evolution of IBC Law Over the years…….

There have been several modifications to the code since the IBC 2016 was enacted. The code has been modified five times in five years, and several important cases, such as the Insolvency and Bankruptcy Code (Second Amendment) Act 2020, have deciphered it.

The code’s regulations have been modified from time to time. The Indian courts have witnessed historic cases deciphering this code, raising the question of its legality in light of its murky regions. The implementation of the IBC has been difficult due to several revisions made to the IBC’s regulatory structure. The changes were done to make the code more user-friendly.

SIGNIFICANT TRANSITIONS TO BE NOTED

The IBC provides a time-bound resolution mechanism with the goal of increasing the value of a troubled firm. This will help not just the creditor and debtor firms, but also the economy as a whole because money and productive resources will be redeployed rather rapidly.

1. To hear the cases, a strong and effective adjudicating authority is required.
2. Insolvency professionals (IPs) are regulated specialists that manage insolvency and bankruptcy proceedings.
3. A regulated competitive information utilities (IUs) sector to eliminate information asymmetries in the insolvency resolution process.
4. A regulator – the Insolvency and Bankruptcy Board of India (IBBI) – to exercise legislative, executive, and quasi-judicial duties with regard to IPs and IUs, as well as create laws for IBC resolution procedures.

The establishment of this institutional framework is now in the works. The National Company Law Tribunal (NCLT) has been designated as the adjudicating body in corporate insolvency and bankruptcy proceedings. The IBBI has been established and is working to increase capacity.

Challenges in implementation

The NCLT will encounter the most difficult challenges in transferring current cases to the IBC. The NCLT now comprises 11 benches, each with 16 judicial and seven technical members. Its scope includes considering matters formerly handled by the Company Law Board (CLB) under the Companies Act 2013, as well as cases handled under the IBC. 

First Challenge

• There were around 4,200 pending CLB cases as of March 2015. These will all be moved to the NCLT. Furthermore, the CLB gets around 4,000 new cases each year. The NCLT will now have to deal with these.
• With IBC rules on CIRP already in effect and the regulations on dissolution due to be notified soon, all 4,500 curving cases pending in the high courts as of March 2015 are likely to be moved to the NCLT. 
• According to our findings, corporate recovery cases at debt recovery tribunals (DRTs) and rehabilitation cases at the Board for Industrial and Financial Reconstruction (BIFR) are both eligible to be launched as new IBC cases.
• With this low permeability capacity, how will the NCLT deal with new IBC cases, as well as matters from the CLB, high courts, the BIFR, and perhaps the DRT? The NCLT will fail to hear and dispose of matters in a timely way from the outset unless its adjudication capacity is increased. 
• For the IBC cases, this might imply that the NCLT will be unable to comply with the CIRP’s 180-day deadline.

The second challenge

• Concerns about the NCLT revolve around the case law that emerges under the IBC. Given that it is new legislation, the processes and common practices governing it must evolve independently of the case rules governing the pre-IBC system. 
• Because the first cases to come before the IBC are likely to be existing ones, the initial case law that emerges under the IBC will reflect the circumstances of previous cases.
• Creditors, debtors, auditors, lawyers, valuers, and liquidators all act in accordance with the old case laws enshrined in the Companies Act 1956, the Sick Industrial Companies Act 1985 (SICA), the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and similar legislation.
• This will change only when the IBC is finalised as legislation and its institutional architecture achieves its potential, allowing the NCLT to focus on enforcing the IBC’s overarching priors. To do this, the IPs, IUs, NCLT, and IBBI must all be correctly established and functioning in accordance with the IBC.
• To guarantee that IPs fulfil their duties honestly, well-defined entrance barriers to the profession must be created, and IPs must be strictly controlled by the IBBI. 
• To get registered as IPs, a qualifying examination has been recommended. This is modelled after the best practices of other nations with a well-functioning IP industry, such as Canada and the United Kingdom.

Third Challenge

• The absence of IU infrastructure. A CIRP can only be triggered under the IBC if the debtor firm has gone into default. 
• The IU in the IBC architecture allows for faster case start by providing access to incontrovertible and visible proof of the default. Currently, winding up petitions under the Companies Act of 1956 and SICA proceedings take one to two years to be heard.
• The position is slightly better at the DRTs, at which Bankers Books Evidence Act permits bank books to be used as primary evidence in court. Even so, there are delays in proving the scope of debt and default.
• In the absence of IUs, the IBBI must define the default evidence that can be used to initiate an IBC case. This can result in lengthy delays, especially if the NCLT is engaged in determining whether a default has occurred. 
• As a result, in the absence of IUs, commencing a lawsuit and creating the creditors’ committee is likely to take considerably longer than anticipated in the IBC design. This will make meeting the 180-day deadline for completing the CIRP problematic, giving rise to two probable outcomes:

1. the delays in creating the creditors’ committee will shorten the time available to reach an agreement on a resolution plan. If the committee is unable to reach an agreement on a resolution plan within the time frame given, the NCLT will order the company’s liquidation.
2. the NCLT may use its judicial discretion to prolong the CIRP beyond the time limit set by statute. Both of these results are undesirable. The former induces a liquidation bias in CIRP, whereas the latter jeopardises the IBC’s core architecture of time-bound resolution.

The current implementation of the IBC appears to be more concerned with rapidly operationalizing the law than with properly executing it. If these concerns are not handled appropriately, the goal of implementing new insolvency legislation to enhance the recovery rate in order to encourage the growth of credit markets and entrepreneurship would be defeated.

Will it become a successful approach?

• The IBC is a significant reform for India, and its successful implementation is contingent on careful transition planning. The existing corporate insolvency cases are expected to be the first to be heard by the IBC. 
• Four measures are required to guarantee that they do not have a negative influence on the design and effectiveness of the IBC.
• The NCLT’s capabilities must be built with careful project planning.
• This might imply establishing a separate bench dedicated just to IBC cases, scaled to the projected IBC caseload, and educated in dealing with commercial concerns, including the intricacies of current cases.

The NCLT must guarantee that the IBC requirements be enforced without exception in each matter that comes before it, regardless of its priors. If the NCLT is structured like a traditional Indian tribunal, it will quickly create a multi-year backlog.

Conclusion

The Insolvency and Bankruptcy Code was the driving force behind the creation of insolvency and bankruptcy law in India. There are certain complications associated with this legislation; thus, you should review modifications and court declarations to better understand the law.

Adequate institutional capacity is required to guarantee that the IBC does not meet the same fate as previous reform initiatives such as the DRTs. Doing all of these things takes time and careful planning.

Rush thru the introduction of the proposed legislation may enhance India’s position in the World Bank’s “Doing Business” report, but it may not result in a de facto improvement of the bankruptcy resolution system, undermining the IBC’s fundamental objective.

The post Insolvency and Bankruptcy Laws in India: Evolution and Challenges appeared first on MUDS.

Govt changes insolvency legislation; introduces pre-packaged MSMEs settlement. The change permits the Center to inform the prepackaged insolvency resolution process of the minimal amount of default, not more than the 1 crore rupees.

Many MSMEs suffered from the coronavirus epidemic, and experts considered the new change, which is less than two weeks following the end of the suspension of some IBC rules, to be a positive gesture.

The suspension – in which a year has not been permitted for further insolvency procedures beginning on 25 March 2020 – was carried out in the context of an economically disruptive coronavirus pandemic.

The Government has established a pre-packaged resolution process for such companies in order to deliver a speedier and more value-maximization result for stressed MSME by modifying the Insolvency Law.

In the pre-packaged insolvency and bankruptcy Code procedure, Micro, Small, and Medium Enterprises can now seek resolution to their stress (IBC). Last year, after six months of a national lockdown, the government stopped further insolvency procedures amidst the spread of coronaviral diseases. The suspension had been extended twice to 24 December 2020 and then 24 March 2021.

In accordance with the law — which created the pre-packaged resolution procedure — special MSMEs’ insolvency requirements in view of the distinctive nature of their companies and simpler corporate structures are deemed urgently to be addressed.

In general, key players including creditors and shareholders meet to identify a possible purchaser in a pre-packaged process and negotiate a resolution plan before presenting the plan to NCLT for formal approval.

The national company law court must approve all IBC resolution plans (NCLT). In line with the regulation, the provision of an alternative effective insolvency resolution process is considered expedient for microenterprises to ensure faster, more cost-effective and more cost-effective results for all stakeholders, in a way that less damages the continuity of their business and preserves jobs. “…the implementation of a pre-packed insolvency procedure for companies categorised as micro-, small- and medium-sized firms is considered expedient in order to achieve these aims,” he added.

Revised Insolvency Laws in India: A Brief Account

The following are the main changes including some new insolvency and insolvency legislation in India (hence referred to as the Code for Insolvency and Bankruptcy). In the following:

• The threshold increase under Section 4

The financial lender or a Corporate Debtor’s Operational Creditor may now begin the Corporate Insolvency Resolution Process when the minimum of Rupees One Crore defaults occur. The change was made because of the pandemic COVID-19. What remains unknown is the status of the outstanding cases that have still not reached the admission stage before the Adjudicating Authority. Given the current practice of the code, cases admitted might remain unimpacted while cases still not admitted could be refused on the grounds of the aforesaid notification.

• Interpretation of Section 43 and Section 44 of the Code

A judgement dated 1 August 2019 by the Calling Authority in relation to the avoidance of transactions under Sects 43, 45 and 66 of the Code by which the corporate indebtedness (JIL) mortgaged its properties for financial assistance from the holding company is taken by the Supreme Court of Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Limited etc (JAL). The Supreme Court of Anuj Jain has for the first time set forth some criteria for preventing transactions in accordance with the Code.

• Whether the offer should match the liquidation value by a resolution applicant?

The resolution appellant (Maharashtra Seamless Ltd.) inter alia claimed that the appellate Authority has executed its jurisdiction with instructions that the value of the resolution plan should correspond to the winding-up value in Maharasthra Seamless Limited v. Padmanabhan Venkatesh & Ors.2,2 appeal. In this connection, the Supreme Court, amongst others, highlighted that there are no provisions in the Code requiring the applicant for a resolution to offer equal liquidation. The assessment procedure according to the Code rules and regulations only helps the Creditor Committee pick an appropriate and effective resolution plan. The Code rules and regulations apply.

• Code applicability to a public company (more specifically the NHAI)

A constitutional challenge to the code was raised in Hindustan Construction Company Limited & Anr. v. Union of India & Ors.3. The Code’s provisions were contended to be applicable to the petitioner arbitrated as, on the one hand, an automatic stay in favour of arbitral awards would be granted under the 1996 Law of Arbitration and Conciliation, which prevented the money from being used to repay the debts of the creditors of the petitioner.

Any debt of INR One Lakh owing to a yet unpaid financial or operational crediting party would, on the other hand, attract arbitrary, discriminatory and violative provisions of Articles 14 and 19(1)(g) of the Indian Constitution by the Code against the Petitioner. The Code against the Petitioner. It was argued, therefore, that the definition of “corporate person” in Section 3(7) of the Code should be read, either without “limited liability” in Section 3(23)(g) or that Section 3(23)(g) of the Code in the foregoing provision should also be read in order to allow the petitioner to recover money from GOI Company and NHAI.

• Process of Corporate Reverse Insolvency

The ‘Winter Hills Flat Buyers Association -77, Gurgaon’ and the original applicants (i.e. allottees) desired a resolution of the Corporate Insolvency Process but did not wish the endorsement of a third-party scheme (Resolution Applicant). The purpose of the project was to collaborate with Uppal Housing Pvt. Ltd. (one of the proponents) and make payments from the outside as the loan (the financial creditor) to guarantee that the project will conclude on a schedule set in such circumstances.

The paying by Uppal Housing Pvt. Ltd and the payable in the course of the CIRP was ordered to be placed in the account of the firm (corporate debtor) so that the company remains a concern. The payment is made by Uppal Housing Pvt. Ltd.

• Interpretation of Section 32A

The resolution plan presented by JSW Steel Limited (‘Resolution Applicant’) was accepted by the Adjudicating Authority video order on September 5th, 2019 under specific restrictions in the interpretation of Section 32A of Bhushan Power & Steel Limited’s CIRP. The Division for Enforcement of Core Government annexed the assets of the corporate debtor to Section 5 of the Prevention of Money Laundering Act of 2002 following the adoption of the plan while the monitoring committee monitored the change in management.

• The NCLT has the competence to investigate claims of fraud but does not have jurisdiction over administrative action to examine them.

• Under Section 7 or 9 of the Code, may Sole Proprietors Company file an application?

The NCLT, ND, previously decided that a sole company would not be subject to the “person” concept as defined in the Insolvency and Bankruptcy Code, in the context of R.G. Steels vs. Berry Auto Ancillaries (P) Ltd. Nevertheless the NCLAT overruled this judgement recently on the subject of Neeta Saha v. Ram Niwas Gupta,7 and concluded that Section 2 of the Code would also apply to single proprietorship companies. The Appellate Authority further remarked that the definition of “person” is not exclusive, but rather inclusive, under Section three(23) of the Code.

• The Financial Creditor is prevented from initiating procedures under Section 7 of the Code if SARFaESI Act is initiating proceedings, and is the insolvency petition attractive for section 65 of the Code in such a case?

The NCLAT found that both the SARFAESI Act, 2002 and the Insolvency and Bankruptcy Code allow the financial lender to continue concurrently. The Council noted that, in the absence of any contradiction contained in any other legislation for the time being in force or any instrument which has effect according to that law, the provisions of the Code shall have an effect. Therefore, for the moment the I&B Code’s non-obstante clause will prevail above any other legislation.

In addition, NCLAT noted that both the SARFAESI Act and the Code had begun simultaneous action against the corporate debtor. It can only be concluded on that account that procedures have been flawed or malicious against the Corporate Debtor.

Consequently, Section 65 of the Code does not draw simply filing of the parallel procedure.

Let’s Explore Experts Opinion 

The Ordinance stated that microfinance companies have critical implications for the economy of India as they significantly contribute to its gross domestic product and provide employment for a large population and that the specific requirements of microfinance companies concerning their insolvency resolution are urgently required, because of the unique nature of their companies and simple corporate structures.

• Soumitra Majumdar, J Sagar Associates Partner, informs PTI news agency that the IBC amendment Ordinance of 2021 provides the prepared road to real and viable cases to guarantee the least economic dislocation. “Although modelled on the debtor-in-possession strategy, the financial creditors have substantial consent rights, which prevent irresponsible promoters from misusing the process. Further, after the Swiss Challenge-like plan review procedure, the competitive tension remains that developers offer plans that have the least impact on creditors’ rights and claims, Majumdar added.
• The Insolvency and Bankruptcy Code (IBC) ensures that stressed assets are solved in time and in a tied way in the market.
• Cyril Amarchand Mangaldas Partner, L. Viswanathan, remarked that the government at the present juncture, which is commendable, carefully implemented the pre-pack system for MSMEs exclusively. “The pre-pack scheme includes procedural checks and balances, including application for the commencement and approval of the basic resolution plan under Section 29A and two thirds of creditors’ assent.
• The board continues its control and the debtor proposes the basic resolution plan, adding “the involvement of qualified current promoters is welcomed.” In general, IBC Section 29 attempts to prohibit defaulting developers from putting their businesses into the process of resolution. The creditor board may, at all times or by the intervention of NCLT, stop controlling fraud or maladministration by the existing management by converting the pre-pack procedure into the ordinary insolvency process of 66 percent, told L. Vishwanathan. 
• The government seems to be trying to offer for an alternate and expedient resolution process, specifically for MSMEs, by introducing a new chapter into the Statute, stated Misha, partner of Shardul Amarchand Mangaldas & Co. This is undoubtedly a good move, however, it was anticipated that non-MSMEs would also have access to this framework, added Misha.
• The implementation of the pre-pack structure intended to coincide with lifting the moratorium on filing additional cases of bankruptcy, according to Rajiv Chandak, a partner at Deloitte India.
• “Pre-packs will enable corporate debtors to agree on a restructuring process with lenders and handle the whole aspect of corporate responsibility. In order for pre-packages to be deployed on time, the government has to continue to increase the infrastructure of NCLT, Rajiv Chandak told. 

It is considered useful for companies classified as micro, small and medium enterprises under the Insolvency and Bankruptcy Code 2016 to provide an effective, alternative insolvency process to ensure faster, cheaper, and more value-driven outcomes for all players, so that their continuity is less disruptive and that jobs are preserved.

The post Revised Insolvency legislation: Created Pre-packaged MSMEs Resolutions appeared first on MUDS.

Do you think buying only 100 shares of a company can give you more than ₹ 1 crore in dividends? Yes, you read it right! ITC Limited has made it impossible for its long-term investors. If your father or grandpa had bought 100 shares of ITC during its IPO, then today, getting a refund of shares from IEPF for that investment would have made you a multimillionaire.

Curious to know about it? In this blog, we will discuss the progression of share prices of ITC over the years and how availing IEPF services for a refund of shares could lead to an investor making a fortune out of it.

About the Company

Over a century of operation, the ITC’s journey has indeed been one of extraordinary transformation – from a small outpost of an overseas-owned company with a single product to one of India’s most admired and valuable multi-business enterprises.

Only a handful of enterprises in the world have traversed a 100-year journey and managed to remain relevant and competitive.

According to an article published in 2014, in the last four decades, ITC’s top-line growth from 1970 to 2014 increased from Rs. 145 crore to over Rs. 48,000 crore (Rs. 480 billion) in 2014. Its profit after tax soared from Rs. 4 crore (Rs. 40 million) to cross Rs. 8,700 crore (Rs. 87 billion) and market capitalization expanded from around Rs. 35 crore (Rs. 350 million) to more than Rs. 2,75,000 crore (Rs. 2,750 billion).

Source: https://www.rediff.com/money/report/pix-column-100-years-of-itc–corporate-indias-big-success-story-/20141208.htm

The data indicates the growth of the company over the years and how it has translated into making huge profits for its investors.

Calculation

Yearly bonus issues by ITC since its IPO:

Source: https://www.itcportal.com/about-itc/shareholder-value/investor-relations/general-information.aspx#sectionb5

Now if you calculate the valuation of ITC shares from 1995 only, then according to the data available on its website,

• You may notice that the price of 1 share of ITC in 1995 grew from nearly Rs. 5 per share to nearly Rs. 290 per share in 2020.
• Now, this roughly translates to roughly 57 times increase in the value of the share. with the company offering bonus shares for its shareholder from time to time, the shareholding also increased for investors thus leading to huge gains in their income.
• For example, 100 ITC shares bought in the 1974-75 IPO grew to 8,820 shares by 2009. Other than the dividends and bonus shares received over the years, an investor would have got Rs. 88,200 in 2010, when ITC declared a dividend of Rs. 10 per share during its centenary celebrations. Later, the company declared a 1:1 bonus, increasing an investor’s holding to 17,640 shares. At a stock price of Rs. 155, his ITC holding translated to roughly Rs. 27.3 lakh.

Source: https://www.businesstoday.in/moneytoday/cover-story/patience-brings-rich-rewards/story/8840.html

• Now, these were the estimates of only 100 shares bought in 1974-75. Now imagine if your grandfather or father had bought a thousand shares at a meagre price and forgot about it over the years. But if you find out about these shares today then you can calculate that the value of these shares would be in more than a crore rupee when calculated up to the modern process.
• Therefore, finding an old investment in ITC could work as a lost treasure finding for people as it could result in making huge sums of money instantly.

Now, let us understand how you can claim unclaimed dividends of long-lost investments made by your elders.

About Investor Education and Protection Fund (IEPF)

The Government of India introduced the IEPF services to address the ever-increasing problem of people forgetting their shareholdings in a company. The IEPF was launched to promote the protection of interest of investors and spread awareness among them. The unclaimed dividend and refund of lost shares transferred to this account are taken care of by the Government on behalf of the rightful shareholders. The dividends on the shares remain unclaimed for years because people tend to forget that they own the shares in the first place. There are multiple reasons why people forget about their ownership in a company:

• No Nominee: Usually investors do not appoint a nominee/ heir to take care of the shares after their death. Therefore, the shares remain deserted because the heirs are clueless about their ownership of such shares.
• Small Investments: Generally, the investment is of small amounts due to which an investor forgets about the shares.
• Property Dispute: Shares get attached to the court because proceedings are pending in the courts regarding the property dispute. Thus, the shares remain ownerless till the court’s verdict.

There are many other reasons why an investor forgets about his/ her shareholding in a company. This is the reason why many companies have abundant shares with them with no sign of ownership.

Before the introduction of the IEPF, the companies were required to transfer the unclaimed dividends and unclaimed shares to the government funds. The Government could then use such funds for various public welfare schemes and various developmental works.  Since the problem of people forgetting their shareholdings in a company was increasing, the Government realized that it was causing huge losses for the investors. Therefore, the Government decided to set up the IEPF.  It is a one-stop solution that the government provides to the members of a company. Here, the members can approach the government and claim their dividends. Along with that, they can ask them to refund their long-forgotten shares. The IEPF was initiated while keeping in mind the interests of the shareholders. IEPF protected the investors’ funds while spreading awareness regarding the same.

The Government takes care of the unclaimed dividend and lost shares transferred to this account on behalf of the rightful shareholders. Thus, even after 7 years, investors can claim their dividends and shares from the fund manager by applying to the managing authority. People can claim their dividends and shares of different companies through one platform instead of going to each company individually, that is why IEPF is known as a one-stop solution.

Provisions Governing IEPF

The functioning of IEPF is governed by the Companies Act, 2013 read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016. Once a company declares a dividend on the shares, the shareholders get 30 days to claim the said dividend. After 30 days, if the dividends remain unclaimed by the shareholders, then the company, according to the above-stated laws, is obliged to transfer such dividends to a special account. This special account is opened in the name of the company, known as ‘Unpaid Dividend Account’.

After that, the company gets 90 days to publish a list of all the shareholders along with their unclaimed dividends on its website. In addition to this, the company can use any other mode of communication to tell its members about their unclaimed dividends kept with the company. If a shareholder wants to retrieve his unclaimed dividend from the ‘Unpaid Dividend Account’, then he must apply to the transfer agent of the company. Despite all these, if a shareholder, for any reason stated above, fails to claim the amount from the company for 7 years, then the company shall transfer such unclaimed dividend to the IEPF Account. The shares on which such dividend was declared will also get transferred to the IEPF for they are considered as forgotten shares. Thus, if the dividends remain unclaimed for 7 years, then the dividend and shares, both get transferred to the IEPF Account.

Provisions of Investor Education and Protection Fund:

Transfer of Dividend: As MCA has issued Investor Education and Protection Fund Authority Rules, 2017. As per these rules, Any money transferred to the Unpaid Dividend Account of a company in pursuance of this section which remains unpaid or unclaimed for seven years (7 years and 37 days from the date of declaration of dividend) from the date of such transfer shall be transferred by the company along with interest accrued, if any, to Investor education and protection fund. MCA has amended The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) though Second Amendment Rules, Dated 14th August 2019 Effective from 20th September 2019.

Even all shares in respect of which dividend has not been paid or claimed for seven consecutive years or more shall be transferred by the company in the name of Investor Education and Protection Fund. In previous years, unclaimed shares transfer to IEPF has taken place for many forgotten investments. As a normal person, the main issue is how to get a refund of shares from the IEPF in their name. In this article, we will discuss “Process for a general person to claim their shares from IEPF to their names from Reliance Industries limited”.

Now, let’s understand how a common person can apply for a refund of shares from IEPF.

The Process of Refund of Lost Shares using IEPF Services:

Any person, whose unclaimed dividend, shares, matured debentures, matured deposits, application money, or interest thereon, redemption proceeds of preference shares, sale proceeds of fractional shares, etc. have been transferred to the IEPF, can raise claim and apply for a refund from IEPF.

Step- I | Application by Claimant to Authority

The claimant must apply to MCA in e-form IEPF-5 by mentioning their details like:

• Details of applicant and company
• Details of shares and amount claimed
• Year by year details of deposits/securities
• Identity card or Aadhaar Number/Passport/OCI/PIO Card No.
• Details of Bank account linked to Aadhar

NOTE:

Claimant can download the form from the website of IEPF Services http://www.iepf.gov.in/

Step- II | Sending Docs to Company

After filing the refund of shares form online, investor should send all the documents with necessary attachments to the prescribed Nodal Officer for (IEPF services) of the company at its registered office initiating the verification process of the claim:

Step- III | Appointment of Nodal Officer | Company Compliance

Every company that has transferred the shares to the IEPF must nominate a Nodal Officer to address the claims verification process. The officer must be a Director or Company Secretary or Chief Financial Officer of the company. The nodal officer will verify claims and coordinate with IEPF Authority. A company can appoint multiple nodal officers to handle the various claim applications.

Step- IV | Verification Details Sent by Company to Authority

The company’s nodal officer shall send a verification report to the Authority within 30 days of receipt of claim form, in the forma specified by the Authority along with all other documents submitted by the claimant.

Step- V | Authority Approval or Disapproval

After verification of the entitlement of the claimant-

The authority after verification of all the documents send by the nodal 0fficers will decide to approve to discard the claim. If the claim is approved, then the authority could issue an order to sanction the claimed amount to the mentioned bank account or Demat account of the claimant.

The authority is liable to process any application within 60 days of receiving from the nodal officer.

Why do You Need Legal Help?

As stated above, the application procedure to claim the refund of unclaimed dividends and lost shares is a difficult process. Your legal expert will take care of all the work and formalities required to file the refund application. It requires a certain degree of expertise to apply to the fund manager. Hiring a legal professional can help you to save yourself from this tedious task. If there are mistakes in an application, the IEPF authority straight away rejects it, and the claimant must repeat the whole procedure. Hiring a lawyer will ensure that there are no mistakes in your application so that the procedure goes on smoothly. From contacting the nodal officer to collecting the information for applying, the lawyer will take care of everything.

Hiring a lawyer will be extremely helpful if your shares are stuck in a family dispute. As mentioned, sometimes, the shareholder dies without any nominee, and he also forgets to put shares in his will. In such a case, all the family members of the deceased come to claim their right to the deceased’s property, i.e., ITC Shares. Not hiring a legal expert can cost you a fortune that you are entitled to. Why will people leave shares worth crores? If you are without a lawyer, then the other party will easily take your advantage and you will end up with nothing. A lawyer with the command of the law can protect you from all the loopholes which might go against you and thus, can provide you with the best deal possible.

The post How Recovery of Lost Shares of ITC from IEPF Can Make an Investor Crorepati Overnight! appeared first on MUDS.

How would you feel if you find ₹ 1,000 in your jeans that you forgot about? Happy, right?

Now imagine if you find 1,000 shares of TCS bought during its IPO. Congratulations! You have hit a jackpot of 1 Crore Rupees.

How Did This Happen?

Tata Consultancy Service Ltd. (“TCS”) is India’s No. 1 multinational company specializing in Information Technology (“IT”) and Consultancy Services. It has expanded manifolds since its establishment. In April 2018, it became the first IT company to cross the milestone of $100 Billion in terms of market capitalization. TCS became the second Indian company to reach this milestone after Reliance Industries Ltd. (“RIL”). TCS has been consistent in its over-arching performance. Even in the times of Covid-19, it did not fail to impress with its numbers. In March 2020, TCS, again became the most valued Indian firm with the market capitalization of ₹ 6,82,408.68 crores, beating RIL by ₹ 6,959.73 crores. In September this year, it became the first IT company and the second Indian company after Reliance Industries Limited to reach the milestone of ₹ 9 trillion in terms of market capitalization. In October, it became the world’s most valuable IT company surpassing Accenture.

When everyone was recovering from the setback of COVID-19 pandemic, it continued to generate profit and dividends for its investors. For the first two quarters of the year 2020-21, the shares of TCS provided an aggregated dividend of ₹17 per share to its shareholders. So, if you or your deceased relative had bought 1,000 shares in 2004, i.e., during its IPO, then you could have received a dividend of ₹ 68,000 in the first two quarters of this year alone.

Now, you must be wondering, that how come a dividend of ₹ 17 per share for 1,000 shares yielded an income of ₹ 68,000. It should have yielded an income of only ₹ 17,000. The following calculation will clear your confusion and help you to understand how the 1,000 shares bought in 2004 are worth more than ₹ 1Crore today.

Calculation

• Suppose you bought 1,000 shares of TCS in 2004.
• On 28^th July 2006, the company issued bonus shares in the ratio of 1:1.

[Bonus Shares are the shares issued by the company to its shareholders as fully paid up shares without any cost. In simpler words, these shares are a gift from the company to its shareholders].

Issuing bonus shares at a 1:1 ratio means, that for every share owned by a shareholder, the company will issue another share in his name. This means that if you had 1,000 shares, it has now become 2,000 shares.

• On 16^th June 2009, the company again issued the bonus shares in the ratio of 1:1. This means that your 2,000 shares have become 4,000 shares.
• Since,

Dividend Received x No. of Shares = Total Dividend

Therefore,

₹ 17 x 4,000 shares = ₹ 68,000

• Now, the price of 1 TCS share, as of 17^th November 2020, is ₹ 2,673. Thus, the value of your shares as of date is,

₹ 2,673 x 4,000 shares = ₹ 1,06,92,000 (One Crore Six Lakhs Ninety-Two Thousand)

• The above amount is only the price of the shares. We have not calculated the dividends that you have received so far.
• TCS is known for paying its investors handsomely. Till date, the company has paid an aggregate dividend of ₹ 518.5 per share.

Now you can calculate your dividends accordingly.

So, if you had invested in 1,000 shares of TCS in 2004, then you would have become a Crorepati today. Now the real issue is, you know that you are the rightful owner of the TCS shares, but you are not in the possession of the same because they are held by the Government of India. This happens because of the Government’s rule that if a dividend remains unclaimed for seven years or more, then it has to be transferred to the Investor Education and Protection Fund (“IEPF”). The government introduced the concept of IEPF in 2016 to address the issue of such ‘forgotten shares’.

Investor Education and Protection Fund

You might find it hard to believe but it is very common for people to forget about their shareholdings in companies. There could be many reasons for the same, such as:

• Sometimes, an individual invests a very small amount in a company and forgets about it.
• Sometimes, people buy shares in a company without assigning a nominee. When they die, the shares remain unclaimed as the heirs of the deceased do not even know about the existence of such shares.
• Sometimes, the heirs of the deceased person do know about the shares. But due to a family dispute regarding the share in the property, the company’s shares become part of the dispute, and hence, remain unclaimed.

There could also be some other reasons that could lead to investors forgetting about them. Due to this, in almost every company they have these dormant shares without anyone showing ownership.

Earlier, the companies were obligated to transfer such unclaimed dividends to the government funds. The government would use such funds under various public policies for welfare schemes and developmental works. However, when the government saw that later, people are coming to claim their dividends, it decided to set up IEPF. It acts as a platform, where people can approach and claim their shares in various companies by filing an application. It acts as a one-stop solution, as people do not have to go to different companies one by one to claim their shares and dividends earned on the said shares. In order to claim the recovery of shares and to claim the refund of the unclaimed dividends from the IEPF, an individual has to apply for the same to the managing authority of the fund manager.

Provisions Governing IEPF

IEPF is governed by the Companies Act, 2013 and Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016. Under these laws, once a company declares the dividend, then it has to be claimed by the shareholder within 30 days of such declaration. If the dividend remains unclaimed, then the company shall transfer such unclaimed dividend to a special account, opened by the company, called ‘Unpaid Dividend Account’.

After transferring the amount to the ‘Unpaid Dividend Account’, the company, within 90 days, has to publish a list of all the shareholders along with their unclaimed dividend on their website. After that, if a person wants to claim the dividend, then he has to apply to the company for the payment of the unclaimed dividend.

If a person fails to claim the dividend for a consecutive period of 7 years, then the company is obliged to transfer the unclaimed dividend to the IEPF. Along with the amount, the company is also obliged to transfer such shares in the name of the IEPF.

Note: The shares transferred in the name of the IEPF are the shares on which the dividend has been declared by the company, but the shareholder has failed to claim the same for a consecutive period of 7 years.

Unclaimed Dividend & Unclaimed Shares of TCS

From the Annual Reports of a company, we can see the transfer status of the unclaimed dividend and unclaimed shares to the IEPF.

Funds & Shares transferred to the IEPF

According to the Annual Report 2019-2020 of the company, TCS has transferred the following unpaid dividend and unclaimed shares to the IEPF during the Financial Year of 2020:

Source: https://www.tcs.com/content/dam/tcs/investor-relations/financial-statements/2019-20/ar/annual-report-2019-2020.pdf

The company in the previous financial year has transferred Two Crores Forty-Six Lakhs Seventy Thousand Rupees (₹ 2,46,70,000/-) of the unclaimed dividend, along with Fifty-Four Thousand Seven Hundred Eighty-Six (54,786) shares in the IEPF. From the above table, it can be deduced that the company has a huge chunk of unclaimed dividends and unclaimed shares in the IEPF. The shareholders must look into their investment history to look for such unclaimed shares and claim their dividends from IEPF.

Funds & Shares to be transferred to the IEPF

The Annual Report 2019-2020 also provides the outstanding unclaimed dividend and the dates by which an investor can approach the Company’s Registrar or the Transfer Agent to claim the funds. After the expiry of the stated dates, TCS will be forced to transfer such dividends, along with the shares, to the IEPF.

The following tables provide the information regarding the date of declaration of dividends and the last date by which the shareholders can claim the dividends.

1. For shareholders of Tata Consultancy Service Limited (TCS):

The above table provides the deadlines for the shareholders of the TCS, to claim their dividends by applying to the Company’s Registrar or the Transfer Agent. After the due dates, provided in the 3^rd column, TCS will be forced to transfer the funds to the IEPF, along with the respective shares.

• For shareholders of erstwhile TCS e-Service Ltd. which has merged with the company:

TCS e-Service Ltd. was merged with TCS Ltd. The shares of such shareholders are treated differently. Therefore, the above table provides the deadlines for the shareholders of the erstwhile TCS e-Service Ltd., to claim their dividends by applying to the Company’s Registrar or the Transfer Agent. After the due date, provided in the 3^rd column, TCS will be forced to transfer the funds to the IEPF, along with the respective shares.

• For shareholders of erstwhile CMC Ltd. which has merged with the company:

CMC Ltd. was merged with TCS Ltd. The shares of such shareholders are treated differently. Therefore, the above table provides the deadlines for the shareholders of the erstwhile CMC Ltd., to claim their dividends by applying to the Company’s Registrar or the Transfer Agent. After the due dates, provided in the 3^rd column, TCS will be forced to transfer the funds to the IEPF, along with the respective shares.

An investor can check the status of their unclaimed dividend, declared by TCS, from https://www.tcs.com/unclaimed-dividend-details-from-february-10-2014-to-january-31-2020

For more information, visit https://www.tcs.com/content/dam/tcs/investor-relations/financial-statements/2019-20/ar/annual-report-2019-2020.pdf

Unclaimed Shares & Lost Dividend under IEPF

If the shares are not claimed within the 7 years, does it mean you will lose all your dividend income along with your shares?

As stated above, earlier, it used to happen that the government would utilize such funds for the public welfare, and the investor loses the rights over such income as well as shares. Therefore, the companies used to advise the investors to claim their dividend to prevent the loss of the dividend income and the shares. But now, with the introduction of IEPF, an investor does not lose his/ her right over the dividend and the shares. Then what is the reason for the companies advising you to claim dividends before the shares go into IEPF?

The reason why the companies still advise the investors to claim their dividend from the company by applying to the Company’s Registrar or the Transfer Agent, rather than claiming the refund of shares and the dividend amount from the IEPF, is that the process of claiming the refund of dividend and the shares from IEPF is tedious and cumbersome. IEPF takes time to refund the money and the shares to the rightful owner. The reason this is that the authority wants to ensure that the shares are transferred to the rightful owner. Thus, the claim applications go through heavy scrutiny before approval from IEPF authority.

Procedure to Claim Dividend and TCS Shares from IEPF Authority

TCS shareholders, whose shares and the unclaimed dividend has been transferred to the IEPF for they did not claim their dividend for the consecutive period of 7 years, as provided under Section 124 of the Companies Act, 2013 read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, can claim their shares or unclaimed dividend amount from IEPF Authority.

Step 1: Contact TSR Darashaw Ltd.

The shareholder has to contact TSR Darashaw Ltd., which is the Company Registrar/ Transfer Agent of TCS. The shareholder has to obtain all the information like the year wise dividend entitlement, and all the shares transferred to the IEPF Authority.

Step 2: Download IEPF 5

The shareholder then has to visit the website of the IEPF Authority, http://www.iepf.gov.in/IEPF/refund.html, and download the Form IEPF 5. Then he has to fill in the form and upload it back on the website. This will be the online application filed by the shareholder.

Note: An individual can file one form in one financial year. However, he can make multiple claims in a single form. Thus, remember to put all the claims in one form.

Step 3: Physical Application

The shareholder then has to take a printout of the online form and send it to the Nodal Officer at the Registered Office of TCS, Mumbai. The application should be sent along with the required documents, which are self-attested (including the witnesses).

The required documents need to be attached are:

• Original Indemnity Bond: Duly signed by the claimant, joint holder, and two witnesses:
  • Amount less than 10,000: On a plain paper
  • Amount more than 10,000: On a non-judicial stamp paper of the value prescribed under the Stamp Act.
• Original Advance Stamp Receipt: Duly signed by the claimant, joint holder, and two witnesses.
• Proof of Entitlement
• Copy of Client Master List
• Copy of Aadhar Card
• Copy of PAN Card
• Copy of Passport, in case of NRIs
• Original Cancelled Cheque Leaf
• In case any joint holder is deceased, a notarized copy of the death certificate to be attached
• Other optional documents, (if any)

Note: All the above documents are required to be self-attested by the claimant and the joint holder (if any).

Step 4: Verification by TCS

TCS will then verify the details of the application, along with the claim and the various documents attached. It will then make a Verification Report and file it, along with the original documents and physical application filed by the claimant, with the IEPF Authority.

Step 5: Comment by the IEPF Authority

The IEPF Authority, based on the application, documents attached, and the report submitted, will give its decision. It can do either of the three things:

• Approve the claim and initiate the refund.
• Ask the shareholder to resubmit the required documents, in case of any discrepancy or any document not being legible
• Reject the claim

Step 6: What to do next?

• If the IEPF Authority asks the shareholder to resubmit the documents, then the shareholder has to send the said documents to the Nodal Officer at the Registered Office of TCS, Mumbai. The Nodal Officer will then forward the documents to the IEPF Authority.
• If the IEPF Authority rejects the claim, then the shareholder will have to repeat all the steps from starting and keep in mind the mistakes he had made while filing the first application.

For more information, visit https://www.tcs.com/content/dam/tcs/pdf/discover-tcs/investor-relations/faq/steps-to-claim-dividend-shares-iepf.pdf

Why do You Need Legal Help?

As seen above, filing an application for the refund of unclaimed dividends and lost shares to the IEPF Authority could be a tricky and tedious task. To ease out the process and ensure that there is no mistake in the application, one requires the help of a legal professional. Filing the application requires a certain degree of technical knowledge. Hiring a legal professional will suit you the best as he will do all the tasks; from collecting the information from the company about the dividend and shares to filing the said application.

If the shares are involved in the family dispute, then you definitely require legal help. Shares get involved in the family dispute when a shareholder, as stated above, dies without assigning a nominee or does not include the shares in his will. Now, every one of his kin would want a right over such shares, especially when the value of those shares is huge. No family member of a deceased person will want to let go of the shares of TCS that were bought by him in 2004. Therefore, a claimant needs to hire a legal professional or approach a legal firm to manage all the disputes related to ownership of the shares. A lawyer knows all the laws regarding the partition of the family assets, and he can provide you with the best deal.

To Conclude….

So, we have seen how the shares of TCS have increased in value over the period. If you just came to know that some TCS shares exist in your name, then it is the best time to redeem them, along with the dividend accumulated over time. Who knows, maybe you will become the next millionaire. It is also advised that you go through the tables provided above and find the expiry date by which you can claim the dividend. After identifying the date, apply for the dividend claim as soon as possible with the Company Registrar/ Transfer Agent, i.e., TSR Darashaw Ltd. Thus, avoiding the shares to be transferred to the IEPF. However, if your shares are already transferred to the IEPF, find a legal expert as soon as possible, and apply to the IEPF Authority for the refund of the unclaimed dividend and the recovery of the transferred shares.

The post Recovery of Lost Shares of TCS from IEPF Can Make You a Multimillionaire! appeared first on MUDS.

IBC 2016

The Insolvency and Bankruptcy Code, 2016 (IBC) is one of the most well-intentioned and ambitious pieces of economic legislation passed by the government.

The objective of the Code can be said to be:

“An Act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.”

Diverse industries are it cement, infrastructure financing, steel, housing, or jewelry are facing hardships, and about Rs 10 lakh crore stuck in debt in them created a lot of financial stress to their creditors.

“IBC has been framed keeping in mind two stated objectives; one is faster resolutions and the second is value maximization, and all this in a time-bound way. It bestows the creditors the much-needed right to initiate an insolvency process against any defaulting entity.”

– Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.)

Background of the Case

In 2018, ICICI Bank initiated insolvency proceedings with the Ahmedabad bench of the National Company Law Tribunal (NCLT) against Jaiprakash Power Ventures as the company’s total debt stood at Rs 20,143 crore at the end of March 2018.

The bank filed an application under Section 7 of the Insolvency and Bankruptcy Code (IBC) which bestows on the financial creditor the right to start a corporate insolvency resolution against a defaulting corporate.

Section 7 of the IBC states, “A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, (as may be notified by the Central Government) may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.”

Jaiprakash Power in a notice to the Exchanges stated, “This is to inform you that as per the notice received by the Company, ICICI Bank has filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, for initiating Corporate Insolvency Resolution Process (CIRP) for the company with the National Company Law Tribunal (NCLT), Ahmedabad.”

Withdrawal of the Case

Recently, ICICI Bank has moved an application before the Ahmedabad bench of National Company Law Tribunal (NCLT) for the withdrawal of their application that had been given for the starting of bankruptcy proceedings against Jaiprakash Power Ventures.

Initiated by the ICICI Bank, the Jaiprakash Power Ventures lenders consortium took this step of restructuring the debt of the company by converting much of it into equity or convertible instruments.

There were no legal hurdles attached to this withdrawal as the earlier petition against Jaiprakash Power Ventures was yet to be admitted, and in such cases, IBC has provision for such withdrawal.

Source: The Economic Times

IBC 2016 & Withdrawal of Insolvency Application

Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 provided that the Adjudicating Authority may permit withdrawal of the Application on a request made by the Applicant before its admission.

Thereafter, vide The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, Section 12A was inserted to the Code, and Regulation 30A was added to the Insolvency Resolution Process for Corporate Persons Regulations, 2016.

Section 12A of the Code provides that the Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety percent voting share of the committee of creditors. This however has to be read with Regulation 30A which provides for an additional stipulation that an application for withdrawal under section 12A shall be submitted to the interim resolution professional or the insolvency resolution professional, as the case may be, in Form FA of the Schedule before the issue of invitation for expression of interest under Regulation 36A.

Details of Restructuring

Initially a Jaiprakash Power Ventures spokesperson confirmed that the debt restructuring had been approved by the lenders yet, he refused to divulge the details. In the same manner, the ICICI Bank representative didn’t disclose much about the deal.

A senior banker who was involved in the process revealed, “The consortium of lenders has agreed to a restructuring whereby they reduced outstanding loan of Rs 11,282 crore to Rs 5,800 crore; the balance was converted into equity or compulsorily convertible preference shares.”

The finer points of the restructuring trickled in later.

After the debt recast, the outstanding debt of the company which is part of Jaiprakash Associates group, has come down to less than Rs 6,000 crore, from what was more than Rs 11,000 crore.

One of the terms worked out was an interest write back of about Rs 2,000 crore which would come to the aid of the company in a way that it would enhance its net worth and the entity is likely to report a net profit this fiscal itself.

A senior company official, speaking on the condition of anonymity, disclosed, “After the restructuring, the company’s annual interest cost burden will decline from nearly Rs 1,500 crore to less than Rs 600 crore, leading to a gain of nearly Rs 1,000 crore annually in interest cost alone.”

According to the statement, the company’s annual interest burden which was about 1,580 crore will reduce substantially, amounting to? 570 crore only.

A senior banker, who was part of the entire process divulged in the details of restructuring and stated that as many as 22 banks and financial institutions have agreed to convert Rs 3,840 crore of the debt into compulsorily convertible preference shares, with a maturity period of 29 years and coupon rate of 0.01%, The banker added that an understanding has been reached and the leftover debt of Rs 5,800 crore on the company’s book will carry an interest rate of 9.50%.

Furthering this, under the scheme of the arrangement, the defaulting company, Jaiprakash Power Ventures has gone ahead and converted $110 million of foreign currency convertible bonds (FCCBs) into equity at Rs 12 a share, much higher than the current market price of less than Rs 2 per share. This conversion of $110 million FCCBs, based on the exchange rate when the restructuring process started, was equivalent to Rs 663 crore.

JSW Energy Agreement

The Sajjan Jindal-led company, JSW Energy has entered into an agreement with Jaiprakash Power Ventures Limited to restructure the debt of 752 crore.

As part of this agreement, of the financially-troubled Jaiprakash Power Ventures has converted? 351.77 crore of corporate loan from JSW Group into equity shares at par value of? 10 each. This was disclosed by JSW Energy in a filing to the exchanges.

The filing elaborated that it has been worked out between the two entities that of the balance outstanding debt of? 400 crore,? 280 crore will be written off, whereas, the remaining? 120 crores will be the debt that Jaiprakash Power Ventures will have to repay to JSW Energy. This repayment will be done on a quarterly and priority basis after Jaiprakash Power Ventures has paid 10 percent of the restructured debt to its secured lenders.

In the March 2018 quarter JSW Energy had already made a provision of 574.19 crore to Jaiprakash Power Ventures for restructuring its debt. Giving details of the agreement between the two companies, the filing said, “Further, Jaiprakash Power Ventures and JSW Energy have agreed to waive their respective rights to receive any payments from each other and unconditionally release each other from all liabilities in relation to the Securities Purchase Agreement dated November 16, 2014, for transfer of Karcham and Baspa hydro assets from JPVL to the company.”

This move has resulted in the reversal of liabilities of 177.48 crore payable to Jaiprakash Power Ventures in the books of JSW Energy.

Impact of Restructuring

After this restructuring, Jaiprakash Power Ventures has become a professionally run power company. The breakup of its shareholding stands as:

• Original promoter JP group’s shareholding has declined to 24%.
• Banks and financial institutions have supremacy now as they hold 42.643% shares of the company.
• FCCB holders have got 8.36% shares.
• JSW Group has a little over 5.1% of shares in Jaiprakash Power Ventures now.
• Whereas about 19% shares are held by public shareholders.

Conclusion

In so much as the key aim of formulating and enacting this Code was to empower the creditors who can get back their dues from defaulting companies through CIRP or by liquidating the defaulting entity, the Jaiprakash Power Ventures insolvency case has come to a positive end. The financial creditors along with all other stakeholders have got a fair deal by restructuring the defaulting company.

“The withdrawal of Jaiprakash Power Ventures insolvency application is a positive outcome which should be applauded as standing up to the established purpose of IBC. Even more, it shall be beneficial for all stakeholders in the long run.”

-Shweta Gupta, Founder, and CEO, MUDS

The post Jaiprakash Power Ventures to exit Insolvency Process appeared first on MUDS.

In the previous article we had discussed about the legal framework of tackling the group insolvency. You may gain insight via Click Here.

In this article our point of discussion would be the recommendation of the working committee in context to tackling the group insolvency.

On this note the recommendation laid down by the working group are as follows:

Applicability of procedural coordination mechanisms: It is noted by the working group that international practice suggests that procedural coordination mechanisms includes:

• Cooperation, communication and information sharing,
• Group coordination for the preparation of a common expression of interests, resolution plan,
• A joint application process,
• The designation of single adjudicating authority, the appointment of single insolvency professional, and formation of a group creditor committee.

It is noted by the working group that procedural coordination mechanisms are aimed at facilitating procedural synchronization between different insolvency proceedings, to lower costs of insolvency proceedings and maximize the value of assets of group companies by enabling a synchronized resolution of companies.

For all types of group companies each mechanism may not be suitable. Just for instance where group companies have few inter linkages, opening group coordination proceedings may not result in de-duplication of work , or identification of value maximizing inter- linkages.  Moreover procedural coordination mechanisms may come with costs of their own, which may become unduly high in such case. Most stake holders consulted by the working group were of the view that most procedural coordination mechanisms may come with costs of their own, which may become unduly high in such cases. Most of the stakeholders who were consulted by the working group were of the view that most procedural coordination mechanisms may be enabled by law but should not be applicable in those cases where the costs of procedural coordination mechanisms are unduly burdensome. However in some cases stakeholders were of the view that procedural coordination can be mandated by law.

The Procedural coordination could only be beneficial for the creditors of two or more group entities when it generates a greater value than those cases where the insolvency proceedings of such entities are completed independently by increasing recoveries or lowering costs. Thus mandating procedural coordination in all cases is unlikely to lower costs of insolvency proceedings or maximum value. Thus working group recommended that procedural coordination mechanisms ( other than cooperation, coordination and information sharing ) should in principle be enabled by law, however  flexibility should be granted to not opt for or apply these mechanisms in those cases where they don’t help maximize value of assets or lower costs of proceedings.

The Working group further recommended that insolvency professionals, CoCs and Adjudicating Authorities should be mandated to cooperate, communicate and share information with each other.

Therefore, on analyzing the international practices and consultations with stakeholders , the Working Group is of the opinion that procedural coordination mechanisms  promotes efficiency and reduce costs, and are largely facilitative in nature .

To conclude, the working group has recommended that following procedural coordination mechanisms should be provided for in the manner discussed below:

1. Joint application process be allowed for the insolvency resolution of multiple insolvent companies in a group: The Working Group has recommended that a single application to commence the CIRP for multiple group companies that have commited a default (“Joint Application”) can be made by financial creditors , operational creditors or the group companies themselves. And by doing this there will be reduction in the costs of making multiple applications and promote coordination of insolvency proceedings of different companies in a group , through the establishment of a single commencement date and may include a proposal for the appointment of a single insolvency professional.  To ensure that framework for group insolvency is not invoked without adequate justification, all the companies listed in the joint application for the initiation of insolvency of the companies should have committed default as required under section 7, 9 and 10, as the case may be. Such a joint application process should be in addition to mechanism to initiate the CIRP process against each group company separately.

When the adjudicating authority accepts the application to commence the insolvency resolution process for multiple companies, then that adjudication authority can order that a single public announcement should be made for all companies.

1. All insolvency proceedings should be administered by a single Adjudicating Authority: A single Adjudicating Authority to administer all insolvency proceedings of companies in a corporate group will reduce judicial effort in piecing together the same information, thereby turning down the time and costs of insolvency resolution proceedings and reduce the procedural gaps between proceedings of multiple group companies. Then the Working Group has recommended that a single Adjudicating Authority should administer insolvency proceedings of companies in a group. The working group was suggested by the some stakeholders that the single adjudicating authority should be the adjudicating authority which has jurisdiction over the areas in which the corporate groups centre of main interest lies. In the opinion of the of the working group providing an objective trigger based on the place where an application is first admitted  is likely to lower  the litigation costs save judicial resources and reduce the time taken for admission of proceedings.

Hope that this article was informative in providing an insight about the recommendations as laid down by the working group.

Stay connected with MUDS for more updates.

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In the previous article, we had discussed in detail the group insolvency.  You may have a glance at what group insolvency framework is via Click Here.

In this article we will dive into the details of the framework aligned for tackling group insolvency.

The Working Group has considered the following elements to address all issues arising in the insolvency of companies in a group:

• Procedural Coordination Mechanisms: Coordinating the procedures of insolvency while keeping the assets of each group company detached and unrelated.
• Substantive Consolidation Mechanisms: Consolidating the assets and liabilities of different groups are targeted so that they are treated as part of a single insolvency estate with the motive of reorganization or distribution in liquidation.
• Rules dealing with perverse behavior of companies in corporate groups: The creation of Mechanisms will be enabled to recapture assets subject to prejudicial transactions between group members and impose liability in group companies for each other’s debt. 

IMPLEMENTATION OF COMPREHENSIVE FRAMEWORK

The recommendations have been made by the working group that the framework for the group insolvency should be introduced in a phased manner and their phasing should be done in two bases:

• Jurisdictional scope: It was noted by the working group that the insolvency law committee formed by the ministry of corporate affairs recommended changes to the provisions of the code dealing with the cross-border insolvency of debtors with assets in different jurisdictions. The implementation of the provisions pertaining to cross-border insolvency of debtors with assets in different jurisdictions is not complete.  The framework for insolvency of cross-border corporate groups that aligns perfectly with the regime for insolvency of cross-border companies may not be possible in these circumstances.
• The Working Group recommended that the framework for the group insolvency may cover only domestic entities in its first phase.
• Elements of the Framework: It was noted by the Working Group that comprehensiveness framework for group insolvency could include procedural coordination, substantive consolidation, rules against perverse behavior, and other rules.
• The recommendation was made by the working Group that the framework may not include substantive consolidation in its first phase.  The further recommendations were made by the Working group in which they recommended that to implement the elements of the framework on group insolvency in the first phase, extensive capacity-building of insolvency professionals, creditors and other stakeholders under the code should be undertaken by IBBBI and the Central Government, and necessary infrastructure, especially to facilitate communication and coordination amongst Adjudication Authorities, should be put in place to ensure that the recommendations of the Working group can be implemented seamlessly.

Here we also need to understand what group means.

DEFINITIONS OF THE CORPORATE GROUP

• The Working group is of the view that the framework should define ‘Corporate group’ which is not defined under insolvency and bankruptcy code. It is also noted by the working group that the term Corporate Group, Group Company, Subsidiary, etc is defined under the other acts, regulations in India, and different accounting standards
•  In The foreign Direct Investment policy Article 2.1.12 defines Group Company as “two or more enterprises which, directly or indirectly, are in a position to (i) exercise twenty- six percent or more of voting rights in the other enterprise; or (ii) appoint more than fifty percent of the members of the board of directors in the other enterprise or (iii) control the management or affairs of the other enterprise”.
• In paragraph 2 of the systemically important non-banking financial (NON – Deposit Accepting or Holding) Companies Prudential norms (Reserve Bank) directions, 2015 issued by the Reserve Bank of India (RBI), defines companies in the group to mean two or more entities which are related to each other as subsidiaries, joint ventures, associate companies, promoter-promoters or have a common brand name and investment in equity shares of more than 20%. Similar definition has been included in the RBI Act, 1934 by Finance (no.2) Act, 2019.
• In the Regulation 2(1)(t) of the SEBI(Issue of Capital and Disclosure Requirements) Regulations, 2018 defines Group Company in the context of the related party transactions and states that group companies include “such companies(other than promoters and subsidiary/subsidiaries)with which there were related party transactions, during the period for which financial information is disclosed as covered under the applicable accounting standards, and also other companies as considered material by the board of the issuer.”
• Group Company is not defined in the Companies act 2013, but it defines holding and subsidiary companies based on a relationship of control. A subsidiary company under section 2(87) of the Act defines as the one in which “the holding company”
• controls the composition of the board of directors or
• exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies”
• Section 2 (6) of the Act also defines an Associate Company in relation to another, as n associate company in relation to another, as a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence but which is not a subsidiary company of the company having such influence and includes a joint venture company.”

The accounting standards also define the term ‘group of companies’. The Indian Accounting Standard –Ind AS 110, regarding consolidated Financial Statements issued by the Ministry of Corporate Affairs defines Group to mean “a parent and its subsidiaries” wherein the parent is “an entity that controls one of more entities” and a subsidiary is “an entity that is controlled by another entity.” It also defines control of an investment as a situation “when the investor is exposed, or has rights to variable returns from its involvement with the invested and has the ability to affect those returns through its power over the invested.

It was noted by the working group that these legislation and accounting standards define the group in reference to ownership and control. However, it also noted by the working group that corporate group is defined in this legislation and standards in a specific context, which may not always be applicable in the context of insolvency of group companies.

International frame dealing with the insolvency of companies in a corporate group also define ‘Corporate Group’

• In the Art 2(13) of the regulation (EU) 2015/848 on insolvency proceedings (recast) (“EU Regulations”) that came into force in 2017 defines a group of companies to mean “a parent undertaking and all its subsidiary undertaking”.
• A Group is defined in the Insolvenzodnung in Germany (“German Legislation”) as legally independent enterprises that have the center of their main interests on domestic territory and are directly or indirectly affiliated with one another due to (i) the ability to exercise a controlling influence or (ii) consolidation under common management. This is applicable to partnership as well as companies. Whereas, the United States Federal Rules of Bankruptcy Procedure make these framework applicable to “affiliated companies”.
• Part (III) of the UNCITRAL Legislative Guide on Insolvency Law on Treatment of enterprise groups in insolvency’ (“UNCITRAL Guide”) defines an enterprise group as “two or more enterprises that are interconnected by control or significant ownership”, with control being “the capacity to determine, directly or indirectly, the operating and financial policies of an enterprise”. It is relevant to note that this definition takes into account horizontal integration between companies (which occurs when there is cross-ownership) as well as vertical integration (which occurs when there are layers of parents and subsidiaries).

While defining the Corporate Group for the purpose of this framework including extent of control, operational and financial dependency, ownership, common-brand or co-owning of intellectual property rights the Working Group has discussed various factors.

In the view of the Working Group, the corporate Group should be defined so that stakeholders can assess ex ante if any elements of this framework could be applicable to them, without attracting litigation to determine the applicability of the frame in the first place. This will have ex-ante benefits and avoid litigation which would add time and costs to the insolvency resolution of companies to whom the applicability of this framework is being assessed. It is recommended by the Working Group that a definition of the group should be provided, so that a case-by-case analysis need not be made to assess the applicability of the framework. And for the purpose of defining ‘Corporate Group’ for this framework, the Working Group noted that the definition should cover those companies that have interlinkages that raise the special issues in the insolvency of companies in a corporate group. These interlinkages can occur in horizontally as well as vertically integrated groups.

On analyzing the domestic and international definitions of the Corporate Groups, it seems that factors of control and ownership are common across definitions and these factors are likely to account for the horizontal and vertical interlinkages. The working Group is of the view that these factors are best reflected in the definitions of Holding, subsidiary, and associate Companies in the companies Act, 2013. Together these take into account both horizontal and vertical integrations between group companies. The Working group further believed that relying on the definitions in the companies Act 2013 which is the statue governing companies in the country will provide certainty and clarity to all the stakeholders. The working Group recommended that this framework should be made applicable to a ‘Corporate Group’ that is defined to include holding, subsidiary, and associate companies.

The working Group further recommended that an application can be made to the Adjudicating Authority to include companies that are so intrinsically linked as to form part of a ‘Group’ in commercial understanding but are not covered by the definitions mentioned above as long as it can be demonstrated that this will result in maximization of value of the insolvent company without destroying the value of the company being included so that there is overall value maximization.

Hope that this article provided crux about the framework for tackling group insolvency.

Stay connected with MUDS for more updates.

The post ELEMENTS OF COMPREHENSIVE FRAME WORK FOR TACKLING GROUP INSOLVENCY appeared first on MUDS.

COVID-19: World Economy At High Risk

The past few days have been a nightmare for the world as COVID-19 has spread its tentacles in most of the Asian and European countries.

A pandemic that originated from Wuhan, China, is now more rampant in other parts of the world and the toll of fatalities has risen to alarming 7,513 worldwide.

With as many as 189,839 confirmed cases of Coronavirus, the real concern is that the number is multiplying by the hours. The towns, cities, and countries are forced to slow down and in grave situations, lockdown completely.

So where does all this leave the economy?

Completely shattered, as trillions of dollars have already been wiped away! All markets have tumbled as uncertainty looms large.

Indian Economy: Bearing The Corona Brunt

The first case of COVID-19 was confirmed on January 30 in India and since then the numbers have gradually gone up and the latest figures are 3 dead and 137 positive cases.

The media is full of pessimistic headlines about the health of our economy and its future; the reason for this is understandable. A country that was already undergoing economic stagnation and high inflation, this pandemic attack was the last thing needed.

Hardest hit are sectors like aviation, hospitality, poultry & seafood, export, travel, etc. as severe travel, assembly and activity curbs have been imposed by the government. As a chain reaction, a wider impact will be later on seen on the other sectors as most of the economic activity stalls.

The panic and scare combined with uncertainties of the future, due to the spread of this pandemic, it is difficult to assess the economic loss right now.

The Devastating China Factor

Novel Coronavirus devastates China’s economy and the ‘nightmare’ is not over! – CNN Business

China plays a pivotal role in the global economy but as the COVID-19 outbreak has paralyzed it, all economic activities have come to almost a standstill.  All markets will be left in the lurch as China may trigger a major supply and demand shock.

The aftermath of this carnage will leave India’s economy gasping for breath as we will face a negative effect on exports and production as well, as we are highly dependent on Chinese parts and components.

Taking note of the impact, Nomura, the Japanese financial firm, said in a recent note, “The rest of Asia will not be immune to the spillover effects from China, as it’s economically more deeply integrated with China today than during SARs 17 years ago.” 

Road Ahead: A Gloomy Picture

With almost all sectors being adversely impacted by the COVID-19 outbreak, the government, the economists, the businesses- all are concerned about the future.

Recently to a query from Mint, about the government making an assessment of the impact the Covid-19 outbreak may have on the economy, the finance minister Nirmala Sitharaman said, “We are trying to make an assessment by talking to the industry including the services sector and sections of society. I don’t think we have arrived at (a conclusion) as yet.”

One of the officials who is well aware of the early estimates by the government about the economy in the future says, “There will be a hit of 0.3-0.5% on the GDP in the next fiscal year.” Another official added, “Growth in the first two quarters of the next fiscal could be as low as 4-4.5%.”

But the independent economists and businesses are rather skeptical of this number too and therefore, some independent experts have already called for fiscal and monetary stimuli from the government.

Madan Sabnavis, chief economist at CARE Ratings, while sharing his views on projected growth for FY21 in wake of the deadly outbreak, has to say this, “By first quarter in the next fiscal, we can definitely see a shaving off of at least half a percent of GDP, which could go up to 1% depending on how much it permeates through the economy.”

Source: Economic Times, India

Sabnavis further points out that India will witness rise in non-performing assets (NPAs) additionally, a zero-revenue situation will undoubtedly impact the ability to service loans.  

DK Pant, chief economist at India Ratings and Research says that in the current situation, “On top of the likely consumption slowdown, production is also going to be hit, (as) no one is going to pile up inventories”.

A Silver Lining For IRPs

“Every adversity contains within it the seeds of opportunity and growth.”

Difficult as the situation may seem, the ongoing challenge is going to open doors of new opportunities for Insolvency Resolution Professionals.  

Taking a look at the economic situation one thing is for sure that as the crisis deepens, the companies will struggle to meet their commitments, leading to more and more defaults by them.

IBC is the most preferred tool for recovery of bad loans among small businesses because the trigger amount is just one lakh and anyone, whose full or part payment is stuck, can take the company to NCLT.

Thus, thousands of people who will be bogged down by non-payment for the work done or goods supplied or services rendered, will initiate an insolvency process under the Insolvency and Bankruptcy Code.

IRPs- Tighten Your Belts

The trends, forecast and the future of Indian economy owing to this brutal carnage, caused by Novel Coronavirus, is certainly gloomy and in such a situation a lot of cases will flood the NCLTs in near future.

Insolvency and Bankruptcy Code (IBC) is a paradigm shift from other previous solutions because it has moved away from ‘debtor in charge’ to being ‘creditor centric’. The most striking feature of IBC is that it has been framed keeping in mind all creditors: big and small, financial and operational. Thus, the popularity of IBC lies in the empowerment of creditors.

Insolvency Resolution Professionals are people who play the key and most crucial role in all such insolvency cases, and the time has come when they should tighten their belts as they are about to witness busy months ahead.

The IRP is the Captain of the ship and the success or failure of the insolvency resolution depends on his/her understanding and commitment.

The post Coronavirus Outbreak: An Adversity Turned Opportunity for Insolvency Resolution Professionals? appeared first on MUDS.

Small and Medium Enterprises in India has always been a pillar of economic growth. Keeping the beneficiary role of SMEs in mind the government and the authorities time and again work towards factors that will strengthen them and broaden their base.

In one such move in 1989 Over-The-Counter Exchange of India (OTCEI), the first exchange exclusively for small companies was formed. The concept of floorless exchange, which came to be known as an electronic exchange, did not pick up the pace and witnessed a premature death.

The main reason for its failure could be that it was a technological concept that was innovative but was introduced far ahead of time. It was also not able to garner the support and infrastructure for a smooth going.

After almost a decade, in January 2010 the Prime Minister’s Task Force recommended setting up of an exclusively dedicated exchange to cater to the SMEs. SEBI framed the rules and regulations for the smooth governance of these exchanges.

Gauging the prospects of an SME exchange, Bombay Stock Exchange (BSE) was the first one to respond and hence, BSE SME Exchange was born in 2012. National Stock Exchange (NSE) was not to be left behind and soon established NSE Emerge.

“SME Exchanges have given a marvelous platform to SMEs to not only dream big but also to achieve and attain their full potential.”

– Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.)

Now ‘Small’ can Dream ‘Big’

The biggest advantage of SME IPO new listing at these exchanges was that the companies could dare to think ‘Big’. Before these exchanges came into being, the biggest hurdle in the growth of SMEs was lack of finance as even institutions were skeptical in offering them big loans.

By SME IPO Listing and going public, these small companies and even startups can:

1. Raise funds from Capital Market
2. Enhance visibility as well as credibility
3. Unlock the fair market value
4. Grow and expand
5. Acquire other businesses
6. Improve governance, bring transparency
7. Can migrate to main exchange with time

“Small businesses can avail big benefits by going public; it opens the doors for expansion and acquisition.”

– Isha Malik (Company Secretary, MUDS Management Pvt. Ltd.)

Exponential Growth of SMEs

SMEs had witnessed a gradual yet slow growth in the last 5 decades in India but this trend reversed after the SME Exchanges were set up and as a result, in the last 5 years SMEs have grown in leaps and bounds.

Today, with almost 50 million Small and Medium Enterprises in India, there is no denying of the important role that they play in the economic growth of the country.

 The SMEs have benefitted India by:

1. Providing huge employment opportunities
2. Ushering in healthy competition and growth
3. Promoting innovation and new ideas
4. Extending support to large companies
5. Helps in the development of rural and backward areas

“Today the SME sector is the most dynamic and vibrant sector in India, contributing greatly towards the economic progress of the country.”

-Shweta Gupta, Founder and CEO, MUDS

SME IPO India: Things to Know

There are certain norms laid down by the Exchanges and SEBU that needs to be taken care of and fulfilled while applying for SME IPO new listing.

5 Main Eligibility Criteria

1. The issuer company should be incorporated under the Companies Act, 1956/2013 in India.
2.   It should have a corporate website.
3. Its net worth must be positive.
4. The track record of at least 3 years should be available along with a positive net worth.

Apart from these, there are other conditions that should be met by the issuer company when going for SME IPO new listing.

1. a) There should not be any reference to the company before BIFR (Board for Industrial and Financial Reconstruction).

b)There should not be any winding up petition against the company that has been accepted by any court.

1. c) There should not be any change in the promoters of the company in the preceding one year from the date of filing the application for SME IPO listing.

“There are so many dos and don’ts to be taken care of when you are going for SME IPO listing; the best step would be to take the assistance of a reputed SME IPO listing consultant.”

– Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.)

The procedure of SME IPO Listing

Step #1. Appointment of Merchant Banker

Step #2. Due Diligence and Document Verification

Step #3. Submission of Draft Red Herring Prospectus

Step #4. Verification & Site Visit

Step #5. In-Principle Approval

Step #6. Filings of RHP/Prospectus

Step #7. Opening & Closure of Issue

Step #8. Listing and Trading of Securities

“From pre-listing to post-listing there is numerous documentation required; seeking guidance from SME IPO consultants will help in ensuring successful listing of your company.”

– Isha Malik (Company Secretary, MUDS Management Pvt. Ltd.)

SME IPO: Best Bet for Small Businesses

After the initial hiccups and teething problems, the SME IPO has now gathered momentum. The latest statistics are very encouraging and more and more companies and startups are gearing up for it.

“Spurred by investor interest, 145 small and medium enterprises (SMEs) raised a record Rs 2,455 crore through initial public offerings (IPOs) in 2018, a surge of 37 per cent from the funds raised in the preceding year.” Economic Times, 2 Jan 2019.

Mahavir Lunawat, group managing director, Pantomath Advisory Services Group throws more light on this, “A total of 145 SMEs got listed with IPOs worth Rs 2,455 crore last year as compared with 133 firms garnering Rs 1,785 crore in 2017 through the route, according to data compiled by Pantomath Research.

“Overall, a total of 474 firms have garnered Rs 5,825 crore since 2012, when leading stock exchanges- the BSE and the National Stock Exchange (NSE)- launched the SME platforms.”

Conclusion

SME IPO India is giving wings to the dreams of capital-starved SMEs, helping them grow and expand by getting access to capital through equity infusion. Enhanced credibility, improved liquidity, better governance and complete transparency: all these work towards benefitting all stakeholders.

“In the long run, SME IPO listing is a win-win situation for all involved, be it employer, employee or investor, and most importantly, the country!”

-Shweta Gupta, Founder and CEO, MUDS

The post SME Platform or SME IPO in India- Explained appeared first on MUDS.

Finding bankruptcy lawyers in Gurugram or Delhi? MUDS is here to help you with the entire process with super qualified professionals. High-end services and best bankruptcy or Insolvency lawyers in Delhi.

ELIGIBILITY OF RESOLUTION PROFESSIONAL

1. Any insolvency professional shall only be eligible to be nominated as a resolution professional for a typical corporate insolvency resolution process of a corporate debtor in case he, along with all partners as well as directors of the insolvency professional entity of which he is a partner or director, is independent of the corporate debtor.
   Elaboration— An individual shall be treated independent of the corporate debtor, in case he:
   a. is an appropriate choice to be nominated as an independent director on the board of the corporate debtor under section 149 of the Companies Act, 2013 (18 of 2013), where the corporate debtor is a company;
   b. is notn’t a connected party of the corporate debtor; or
   c. is not a proprietor or an employee or a partner:
   (i) of a firm of auditors or CS (i.e. company secretaries) in exercise or cost auditors of the corporate debtor; or
   (ii) of a firm (legal or consulting), that has or had any transaction with the corporate debtor equivalent to ten percent or more of the gross turnover of such firm, during the last three financial years.
2. A resolution professional ought to make a revelation once he is appointed only in accordance with the Code of Conduct.
3. Any resolution professional, that is a partner or a director of an insolvency resolution professional entity, shall not continue as a resolution professional in a corporate insolvency resolution process in case the insolvency professional entity or any other partner or director of such insolvency professional entity presents any of the other stakeholders in the same corporate insolvency resolution process.

ACCESS TO BOOKS

Without any bias to section 17(2)(d), the interim resolution professional may evaluate the records, books of account, and other relevant documents as well as information, to the extent appropriate for discharging his duties under the Code, of the corporate debtor held with‑

• information utilities;
• professional advisors of the corporate debtor;
• depositories of securities;
• other registries that record the ownership of assets;
• contractual counterparties of the corporate debtor; and
• members, promoters, partners, the board of directors, and joint venture partners of the corporate debtor.

EXTORTIONATE CREDIT TRANSACTION

Any transaction shall be treated as extortionate under section 50(2) where:

• the terms are unconscionable as per the principles of law relating to contracts, or
• the terms need the corporate debtor to make extravagant payments in respect of the credit provided.

PUBLIC ANNOUNCEMENT

1. An insolvency professional is needed to make a public announcement instantly on his nomination as an interim resolution professional.
   Elaboration: ‘Instantly’ means not more than three days from the date of his appointment.
2. The public announcement referred to in sub-regulation (1) shall:
   a. be in Form A as per the Schedule;
   b. be published‑
   (i) in minimum one English and one regional language newspaper which is widely circulated both at the location of the registered office and principal office, in case any, of the corporate debtor and any other location wherein the opinion of the corporate debtor or the interim resolution professional conducts material business operations;
   (ii) on the official website, in case any, of the corporate debtor; and
   (iii) on the official website, in case any, entitled by the Board for the purpose,
   c. providing the last date for submission of proofs of claim, which shall be 14 days from the date of appointment of the interim resolution professional.
3. The applicant ought to bear the expenditure of the public announcement which may be repaid by the committee to the extent it ratified them.

Clarification- The expenditure on the public announcement shall not form part of insolvency resolution process costs.

CLAIMS BY OPERATIONAL CREDITORS

1. Any person who is claiming to be an operational creditor, other than a workman or employee of the corporate debtor, shall have to submit evidence of claim to the interim resolution professional by post, in person, or by electronic means in Form B of the Schedule:
2. Even such a person may deposit supplementary documents or clarifications in support of the claim before the constitution of the committee.

• The debt due (in case any) of the operational creditor under this Regulation may be demonstrated on the basis of‑
• the shreds of evidence handy with an information utility, if any; or
• other relevant documents, including –
  (i) a contract for the supply of goods as well as services with the corporate debtor;
  (ii) any invoice demanding payment for the goods/services provided to the corporate debtor;
  (iii) any court or tribunal order that has adjudicated upon the non-payment of a debt, in case any; or
  (iv) financial accounts

CLAIMS BY FINANCIAL CREDITORS

Any person who is claiming to be a financial creditor of the corporate debtor ought to submit evidence of claim to the interim resolution professional in electronic form in Form C of the Schedule:

Although, such a person can deposit supplementary documents or clarifications in support of the claim before the constitution of the committee.

The existence of debt due to the financial creditor can be proved on the basis of ‑
(a) the availability of records with an information utility, in case any; or
(b) other relevant documents, inclusive of –
(i) any financial contract backed by financial statements as evidence of the debt;
(ii) a record proving that the amounts bound by the financial creditor to the corporate debtor under a facility have been utilized by the corporate debtor;
(iii) financial statements depicting that the debt has not been reimbursed; or
(iv) an order of a court or tribunal that has arbitrated upon the non-payment of a debt, in case any.

SUBSTANTIATION OF CLAIMS

The resolution professional or the interim resolution professional, as the case may be, may call for such other confirmation or clarification as he considers fit from a creditor for validating the entire or part of its claim.

COST OF PROOF

A creditor ought to bear the cost of proving any debt that is due to such creditor.

SUBMISSION OF PROOF OF CLAIMS

• As per sub-regulation (2), a creditor ought to submit evidence of claim on or before the last date mentioned in the public announcement.
• A creditor, who was unsuccessful in submitting evidence of claim within the stipulated time after the public announcement, may submit such evidence to the interim resolution professional or the resolution professional, as the case may be until the resolution plan is approved by the committee.
• Where the creditor is a financial creditor under sub-regulation (2), it shall be contained in the committee from the date of admission of such claim provided that such inclusion shall not affect the validity of any decision that is taken by the committee prior to such inclusion.

VERIFICATION OF CLAIMS

• The resolution professional or the interim resolution professional, as the case may be, shall verify each and every claim, as on the insolvency commencement date, within 7 days from the last date of the receipt of the claims, and thereon retain a list of creditors including names of creditors along with the amount claimed by them, the amount of their allegation confessed and the security interest, in case any, in respect of such claims, and update it.
• The list of creditors shall be –
  (a) available for inspection by the persons who have submitted evidence of claim;
  (b) available for inspection by partners, members, directors, and even the guarantors of the corporate debtor;
  (c) displayed on the website of the corporate debtor, in case any;
  (d) filed with the Adjudicating Authority; and
  (e) conferred at the initial meeting of the committee

DETERMINATION OF AMOUNT OF CLAIM

1. Where the amount demanded by a creditor is not accurate due to any contingency or other reason, the resolution professional or the interim resolution professional, as the case may be, shall make the best estimate of the amount of the claim on the basis of the information available with them.
2. The resolution professional or the interim resolution professional, as the case may be, shall amend the amounts of claims accepted, inclusive of the estimates of claims made under sub-regulation (1), as soon as may be achievable, when he comes across additional information warranting such revision.

DEBT IN FOREIGN CURRENCY

The claims designated in foreign currency ought to be valued in Indian currency at the official exchange rate as on the date of insolvency commencement.

Explanation – “official exchange rate” is referred to the reference rate as published by the Reserve Bank of India or derived from such reference rates.

COMMITTEE WITH ONLY OPERATIONAL CREDITORS

1. In a case where the corporate debtor has no financial debt or where all financial creditors are related parties of the corporate debtor, the committee shall be set up as per this Regulation.
2. The committee that is formed under this Regulation shall consist of members as under ‑
   (a) 18 largest operational creditors in terms of their value:
   Provided that if the number of operational creditors is less than 18, the committee needs to include all such operational creditors;
   (b) one representative that is elected by all workmen other than those workmen included under sub-clause (a); and
   (c) a single representative who is elected by all employees other than those employees included under sub-clause (a).
3. A member of the committee formulated under this Regulation shall have voting rights in the ratio of the debt due to such creditor or debt represented by such person, as the case may be, to the total debt.
   Explanation – For the intent of this sub-regulation, ‘total debt’ is the sum total of‑
   (a) the amount of debt due to the creditors listed in sub-regulation 2(a);
   (b) the amount of the aggregate debt due to workmen under sub-regulation 2(b); and
   (c) the amount of the aggregate debt due to employees under sub-regulation 2(c).

A committee formed under this Regulation and its members shall have the same rights, powers, duties and obligations as a committee comprising financial creditors and its members, as the case may be.

INITIAL MEETING OF THE COMMITTEE

The interim resolution professional shall file a report declaring the constitution of the committee to the Adjudicating Authority on or before 30 days from the date of his appointment.

The interim resolution professional shall summon the first meeting of the committee within 7 days of filing the report under this Regulation.

FAQ’S

Q. How can a creditor file a claim?
The evidence of claim is to be deposited by way of particularized forms along with an affidavit (on a non-judicial stamp paper of INR 100) (witnessed by a notary or oath commissioner) and relevant documentary evidence in support of the claim, as guided under IBBI (Insolvency and Bankruptcy Board of India) (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”)

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