“Lost shares” is a term that is difficult to understand for investors to the very contradiction in its name. Is it a loss of physical share certificate which can be recovered? Or is it something else? Well recovery of lost shares from IEPF does not mean lost physical share certificate recovery. The procedure for recovery of the lost physical share certificate is different. From IEPF one can recover dormant or forgotten shares.

The obvious question is how do the ACC shares become dormant? Why do people leave the ACC shares and do not claim dividends on them? In the following sections, we will be answering all such questions. We will also be learning about the way to claim dividends from IEPF with the help of legal consultancy firms in the latter half of the blog. Let us start with the history of ACC to understand how its value has grown over the years and how even its old shares are able to fetch loads of profit for the investors.

Growth History of ACC Ltd.

ACC Limited has been one of the market leaders in the cement and concrete manufacturing sector of the Indian market. The company has been engaged in manufacturing cement and ready mixed concrete since its inception. The Company manufactures a variety of cement including Ordinary Portland Cement (OPC), Portland Slag Cement (PSC), Portland Pozzolana Cement (PPC), and Ready Mixed Concrete (RMX). Its products also include premium cement and bulk cement. The Company’s products are sold in the market with brand names such as ACC-Supercrete, ACC-Speedcrete, ACC-Jet-setcrete, ACC-Feathercrete, ACC-Coolcrete, ACC-Imprintcrete, ACC-Flowcrete, and ACC-Fibrecrete. The Company boasts almost 20 cement manufacturing facilities across the country and has more than 50 plants for producing ready mixed concrete. It has a distribution network that consists of over 9,000 dealers with a wide range of sales offices. The company’s special product named ACC-Speedcrete comes in two variants to assist with quick road solutions. The variants are named UTWT 24 and UTWT 8. The variant UTWT 24 is used to build roads and can easily dry within 24 hours to open it for traffic. The variant UTWT 8 is mostly used for road repair works where the roads are needed to be opened in less time and it only takes up to 8 hours for drying and making the road open for traffic.  

Over the years, with its assortment of products, the company has made huge profits in the market and has made a name for itself. It was founded in 1936 by merging 10 cement companies of that time as Associated Cement Companies Limited. Currently, the company works under the Swiss cement giant Holcim and has been called ACC Ltd. since 2004. The estimated revenue showed a growth trend with a value of 2.2 billion US dollars even in the slowdown induced by the COVID. However, the operating income was affected a little in 2020 standing at Rs. 2124 crore. The company’s total assets are worth US dollar 2.4 billion in 2020.

In the following section, we will show the growth of ACC shares bought in the 90s as per today’s standard. The calculations will show you how even a small amount invested in ACC from the 90s could have grown manifolds to make fortune for the investors.

Calculation

• Suppose you bought 100 shares of ACC in April 1994 which were worth Rs. 204.23 per share at that time.

That makes your total investment to be 204.23 x 100 = Rs. 20423.

• Now, this amount is not a huge amount to invest for a regular investor who keeps multiple companies in their portfolio.
• Over the years the share prices of the company grew, and it announced bonus shares in 1996in the ratio of 3:5.

[Bonus shares are like a gift from the company to its investors for trusting the company with their money. These are fully paid-up shares issued by the company in the name of the client. Issuing bonus shares in the ratio 3:5 simply meant that for every 3 shares owned by the investor, ACC issued 5 shares].

The bonus history of ACC is given in the following table:

Sources: https://economictimes.indiatimes.com/acc-ltd/infocompanybonus/companyid-6.cms

• The issue of bonus shares meant that 100 shares owned by the investor have now become 167 shares due to the ratio of 3:5.
• Now, due to the steep increase in the price of the ACC shares, the company announced a stock split in the ratio 1:10 to accommodate the small retail investors.

A stock split is done to reduce the shares’ face value by dividing the existing shares in equal numbers and same price and reducing the cost of shares in proportion. So, the net value of overall shares remains the same but the number of shares goes up and the corresponding price of the share goes down.

Source: https://www.capitalmarket.com/Company-Information/Corporate-Actions/Splits/ACC-Ltd/6

• The stock split in the ratio 1:10 meant that the number of shares bought by the client in 1994 has now become 1670.
• However, the price per share of ACC has continued its share growth immensely since then and now the prices in March 2021 stand at a whopping Rs. 1903.25.
•  So, the value of investment of shareholder as per today’s value would be 1670 shares x Rs. 1903.25 = Rs. 31,78, 427.50.

Source: https://economictimes.indiatimes.com/acc-ltd/infocompanybonus/companyid-6.cms

https://in.investing.com/equities/acc-historical-data?end_date=1617265225&interval_sec=monthly&st_date=638908200

So, you have seen how the prices of ACC shares bought in 1994 at around Rs. 20k grew up to be almost Rs. 32 Lakhs. This huge share growth could have been even more if the shares were bought from the 80s as the companies have issued bonus shares twice in the 80s and 90s before 1996.  This shows that the value of small investments by grandpa or the physical share certificates from years ago could be tremendous in modern times.

Mind that we have not added the dividend parts of the shares for the said time duration to the income. If we add those heavy dividends too, then the income from the shares will be even bigger. Even after deducting all the cost for claiming shares and other expenses, the final amount which the investor will get from claiming the old investment of ACC from IEPF will be huge. So if you find any old share certificate from your elders or parents then do not just keep them thinking they have been dormant. Research about them and if the associated dividends are with IEPF then start the process of claiming those dividends.

In the following section, we have given a list of dividends released year by year by CC in the last two and a half decades. One can study this table and calculate how much dividend ACC has given to its investors in this period.

DIVIDEND Released by ACC

The following table gives the list of dividends issued by ACC in the last two decades of its operations.

What is Investor Education and Protection Fund [IEPF]?

It could be a little hard to believe but it is quite common for senior citizens to forget about their old shareholdings in different companies. There are many reasons for the said behaviour, such as:

• Investment of a relatively small amount which people tend to forget after a certain time thinking that it would not have grown significantly. 
• Health issues of senior citizens lead them to forgetting about their investments in old age .
• People buy shares in a firm without assigning any nominee. If they die due to any reason, the shares might remain unclaimed as the possible heirs of the deceased have no knowledge of the existence of  such shares.
• Sometimes, there are many possible heirs of the deceased person and the shares in question get stuck in legal battle between the parties claiming them and thus remain dormant for years till a resolution is reached between the parties involved. 

There could also be many other plethora of reasons that could lead a simple investor to forget about his investments. Because of this, in almost every corporate or firm, there are dormant shares lying in the dormant share account of the company without anyone to claim them. 

Earlier, the companies were asked by the government to transfer such dormant capital to the public welfare account where this money could be used in government’s infrastructure projects and public welfare schemes. However, there was no law to guide the companies and the government officials about the standard procedure to resolve the issue of unclaimed dividends. Also, there was no procedure available for people coming after years to claim their money. Either the government has let the companies keep these huge amounts to themselves waiting for the rightful shareholder to come and ask for the dividend or can simply reject the claim request of investors. 

Both the options seemed unviable as companies could use these dormant funds for their own benefits and neither the company nor the government had any right to not give the rightful owner their value of shares for their investment. So, to address this issue, the government set up IEPF authority which was responsible for handling the dormant shares and dividends of investors. The government also released rules for IEPF and the procedure to claim dividends from IEPF for the investors. Let us understand in brief about the provisions of IEPF for claim of dividends before moving on to the procedure of claiming the shares. 

Provisions Governing IEPF

The released provisions of the IEPF by the government stated that an investor must claim his dividend from the company within one month of its release. if the investor doesn’t claim the money within one month then the company is obliged to transfer this unclaimed dividend to a special unclaimed dividend account created by the company. The creation of this special account is a must for every company. The unclaimed dividends will lie in this account for seven years during which an investor can simply contact the company’s nodal officer or transfer agent to claim the dividend from this account. After seven years, the dividends must be transferred to the IEPF account and it will lie in that account until a claimant makes a valid claim request to IEPF with relevant documents. So all the companies must transfer all the dormant shares from their unclaimed dividend account to the IEPF if they are older than seven years. 

The investors whose shares older than seven years have been transferred to the IEPF can apply to IEPF for recovery of these shares and dividends. The procedure for the same is illustrated in brief in the following section. 

Procedure to Claim Dividend and ACC Shares from IEPF Authority

ACC shareholders, whose shares and the associated unclaimed dividend has been transferred to the IEPF can raise the claim for their dividend online on the IEPF’s website. 

Step 1: Contact Nodal Officer

The investor must contact the following person to get all details about his shares and the corresponding process to claim them.

• Name of Nodal Officer : Mr Rajiv Choubey

Email Id: rajiv.choubey@acclimited.com 

• Name of Deputy Nodal Officer: Mr Faisal Qureshi

Email Id: faisal.qureshi@acclimited.com  

The above mentioned details are of the ACC’s Company Registrar/ Nodal officers. The shareholder can obtain all the information from them like the year wise dividend entitlement, and detail of all the shares transferred to the IEPF’s fund.

Step 2: Download IEPF 5

The shareholder now has to go to the website of the IEPF on the following link, http://www.iepf.gov.in/IEPF/refund.html, and download the claim Form IEPF 5. Then he needs to fill the form and upload it on the website. This will become the online application for claim by the shareholder.

Step 3: Physical Application

The shareholder must take a printout of the online claim form and send it with the essential documents to the Nodal Officer of the ACC at his Registered Office. The application must be sent with the self attested copies of the documents and signatures of witnesses wherever required.

The required documents that need to be attached with the application are:

• Indemnity Bond: Duly signed by the claimant, two witnesses, and joint holder (if any):
  • For Claim Amount lower than 10,000: On a plain paper
  • For Claim Amount lower than 10,000: On a non-judicial stamp paper as per the Stamp Act.
• Original Copy of Advance Stamp Receipt: It must be Duly signed by the claimant, any available joint holder, and two witnesses.
• Copy of Client Master List
• Proof of Entitlement
• Copy of Aadhar Card and PAN Card
• In case of NRIs, Copy of Passport
• An Original Cancelled Cheque 
• If there is any joint holder who is deceased, a notarized copy his death certificate must be attached.
• Any other optional documents asked by the Nodal officer or authority. 

Step 4: Verification by ACC

ACC’s nodal officer will then verify the details of the application form, along with the claim details and the documents attached. He will have to create a Verification Report as per IEPF norms and file it to the authority with the original documents within 15 days of receipt of claim application.

Step 5: Comment by the IEPF Authority

The IEPF Authority’s fund manager will verify the received documents, forms and verification report from the company’s nodal officer and based on his/her observation can take the following steps:

• Approve the claim and release the refund into the claimant’s account.
• Ask the claimant to resubmit the any other document, in case of any discrepancy or issue.
• Reject the claim.

Step 6: What to do next?

• If the authority rejects the claim then the princess has to be repeated. the claimants are advised that they must take legal help for filing applications to avoid any rejection. 
• If the authority asks for any other document then the claimant must submit it within 15 days via nodal officer to the IEPF authority. 

For more information, visit: https://www.acclimited.com/investor-relations/corporate-governance 

Why do You Need Legal Help?

As mentioned, the process to file the claim for lost or unclaimed shares from IEPF is complex and an application has to go through intense scrutiny to be eligible for approval. hence any small errors or non filing of any relevant document to the authority must be avoided, to do so, a claimant can simply hire a financial consultant firm who will complete the whole process on their behalf with responsibility of not committing any error. This will also save the investor from all the hassle of liaising with the authority and the nodal officer of the company till the claim is approved.

The claimant can simply hire the financial and legal consultancy firm to file all the relevant ownership documents for claim.  They can also help in handling any dispute related to ownership in case the original owner of the shares is deceased. Therefore, the ideal procedure for claiming the shares from IEPF is by collaborating with the specialist of the procedure.

The post Recover Unclaimed Dividends of ACC from IEPF and Become a Multimillionaire appeared first on MUDS.

The Insolvency and Bankruptcy Code in its early stage repealed the already existing legislations which had become outdated with the passage of time. The Code is not an easy legislation as the drafters of the legislation burned the mid night oil to create a masterpiece legislation that would cater to the solve the issues of the society. The Code is detailed and elongated covering numerous time bound processes designed for the persons covered under the applicability of the code.

On this note the Section 3 and Section 5 of the Code defines numerous terms which are of high importance and relevant for interpretation of the code. Without having a glance at the section 3& 5 of the code it would be cumbersome to analyse and interpret the provisions of the code. Under the section 3 &5 of the code numerous terms have been crisply defined with reference and inline to the Insolvency and Bankruptcy Code.

As per the Code the term debt means an obligation or a liability in relation to a claim which is due from any person. A special contribution and value addition made by the Code is that under the code for the first time the bifurcation of the term debt has been made very priestly. 

On this note under the Code the debt has been bifurcated into financial debt and operational debt.     

The term financial debt as enshrined in the code meant a debt along with interest (if any) which is to be disbursed against the consideration for the time value of money. The definition of financial debt included within its ambit an inclusive list of items which fell within the purview of financial debt. In line to this definition the financial creditor meant to be a person to whom a financial debt as above defined was owed and also included a person to whom such debt had been legally transferred or assigned.

Operational debt means a claim in relation to provision or supply of goods or services thereby covering within its scope employment dues and statutory dues that are payable to the Central or State Government or any local authority under any law for the time being in force. Thereafter keeping the definition of operational debt into purview the operation creditors were defined to be persons to whom financial debt was owed and also included within its ambit persons to whom such debt had been legally assigned or transferred.

A remarkable fact to highlight is that the Insolvency and Bankruptcy Code in a very lucrative and lucid manner bifurcated the term debt into financial and operational debt. Another outstanding and praiseworthy fact incorporated under the Code was that the code introduced a new class of creditors by classifying the creditors on the basis of debt into financial and operational creditors. This was the first time that the creditors had officially been classified on the basis of debt apart from the classification on the basis of security into secured and unsecured creditors.

In this article we will mainly direct our focus towards recovery of bad debts by financial creditors.

Financial creditors as already discussed are persons to whom a financial debt is owed. Also the term financial creditor covers within its purview persons to whom such debt has been legally transferred or aligned. Therefore all lenders who have extended any kind of loans, guarantees or financial credits are covered within the scope and ambit of financial creditors. 

On 6th June 2018 a major amendment came in the favor of the financial creditors in the form of Insolvency and Bankruptcy Code (Amendment) Ordinance 2018. Through the amendment the home buyers and allottees under the Real estate (Regulation and Development) Act 2016 got the status of financial creditors under the Insolvency and Bankruptcy Code. The positive effect of the amendment was that the home buyers and other allottees were able to invoke section 7 against the defaulting promoters. Prior to the amendment the home buyers were treated as unsecured creditors. The amendment is a big relief for the homebuyers. 

After having discussed and interpreted as to who financial creditors are, we will now head toward discussing the recovery modes and mechanism available with these financial creditors. 

The financial creditors occupy the supreme position and ranking under the code. They have priority and say on all matters that are covered and elaborated under the code. They have been bestowed with voting rights and majority stake during the course of constitution of the committee of creditors. Also the financial creditors enjoy privilege of being repaid on priority basis once the proceeds are realized after the insolvency order is passed by NCLT. The biggest power that financial creditors hold with them is that in the scenario of default they can directly approach the NCLT for seeking the insolvency of the debtor concerned.

The data as Published by the IBBI states that out of 1858 cases that have been filed till date around 738 cases have been filed by the financial creditors. Out of the 738 cases filed 172 were filed during quarter ended 31 March 2019. The names of a few cases that were filed by the financial creditors are as follows: 

1. Venky Hi-Tech Ispat Ltd.,
2. BSR Diagnostics Ltd.
3. Sunil Ispat & Power Limited
4. Alok Industries
5. Essar Steel India Ltd. 
6. Dhanalaxmi Paper Mills Pvt. Ltd. 
7. Jyoti Structures Limited

Prerequisites for Debt Recovery via IBC 

1. The minimum amount of default to be recovered should be atleast one lakh rupees. 
2. The debt to be recovered should a debt that was due for recovery after December 2016.
3. There should be evidences of written communications made in relation to the debt due to be recovered.
4. There should be proper copy of agreements and deeds that were entered as evidence in support to highlight the pending debt.

In light of the above the financial creditors may inorder to recover their debts initiate the below mentioned process via which they can recover their pending debts. The processes with the aid of which the financial creditors can recover their debts are as follows:

1. By initiating the Corporate Insolvency Irresolution Process (CIRP)
2. By taking shelter of Liquidation Process
3. By taking recourse of Fast Track Corporate Insolvency resolution Process (FTCIRP)

Corporate Insolvency Resolution Process (CIRP)

On the occurrence or commitment of default by the corporate debtor, the financial creditors can either individually or jointly with other financial creditors file an application to commence the insolvency proceedings against the defaulting corporate debtor.

The financial creditors have the sole privilege of directly approaching the NCLT for filing the application in relation to initiation of corporate insolvency resolution process. They are not required to prove their debts forth the NCLT prior to submission of application for insolvency resolution process. They are granted the express authority to directly knock the doors of the NCLT for recovery of their debts from the defaulting corporate debtors.

On this note the financial creditors are required to make an application in Form 1 along with a fee of Rs. 25,000. The financial creditors while filling the application for initiating the corporate insolvency resolution process as per section 7 of the code shall annex the following documents along the application that is to be submitted: 

1. The evidences of default as highlighted from the records as maintained by the information utility.
2. The proposed name of the insolvency professional who would act as the interim resolution professional.
3. Any other documents or evidences as highlighted by the IBBI.

Once the application is submitted by the financial creditors the same is reviewed by NCLT. The NCLT during the course of reviewing the submitted application ascertains on its own level the existence and nature of default that is highlighted by the financial creditor in the submitted application. It is significant to highlight that the NCLT reviews the submitted application within a time span of fourteen days from the receipt of application. After reviewing the received application the NCLT has the option of accepting or rejecting the received application. In the scenario where the NCLT opts to reject the received application then in such a situation it shall issue a notice to the financial creditor thereby giving opportunity to rectify the highlighted defects.

Once the application is admitted by the NCLT then the corporate insolvency resolution process is deemed to have commenced from the very date on which the application for corporate insolvency resolution process was accepted by the NCLT.

After having arrived at the decision of accepting or rejecting the received application the NCLT shall convey its decision via an order to the financial creditor and corporate debtor if it accepts the received application and to the financial creditor only if it rejects the submitted application.

A crucial fact to be kept in purview is that the Code has prescribed the time line of one hundred and eighty days within which the entire process of corporate insolvency resolution process needs to be completed. The appointed resolution professional shall make his best endeavors to complete the entire process within the prescribed time line of one hundred and eighty days. Even after making the best efforts to complete the process within due time if the process remains uncompleted the in such state the resolution professional may approach the NCLT for seeking extension in time frame to complete the ongoing process. The maximum extension that may be granted by the NCLT for completing the ongoing process is ninety days. It is important to note that the extension in time frame shall be granted only once by the NCLT.

Thus the first step in the direction of debt recovery by the financial creditors is to initiate the corporate insolvency resolution process against the defaulting corporate debtor. If due to any reasons the process of corporate insolvency resolution process does not yield the desired results then the financial creditors may take the next recourse of initiating the liquidation process against the defaulting corporate debtor.

Liquidation Process

In the scenarios where the NCLT does not receive a proper resolution plan or it rejects the received resolution plan on account of non-compliance with the specified requirements then in such cases the NCLT concerned may pass orders for liquidation of the concerned corporate debtor along with issuing a public announcement for the same and forwarding the copy of aforesaid order to the concerned ROC with which the corporate debtor is registered.

The resolution professional as appointed during the course of the corporate insolvency resolution process may with the approval of the committee of creditors request the NCLT to liquidate the defaulting corporate debtor. On receipt of the aforesaid request from the resolution professional the NCLT shall after requisite review pass the order for liquidation of the defaulting corporate debtor.

It is important to note that once liquidation order has been passed by the NCLT then in such a scenario no fresh suit or legal proceeding shall be initiated or filed by or against the concerned defaulting corporate debtor. If required the appointed resolution professional may initiate any suit or legal proceeding with the express approval of the NCLT.

Once the liquidation order is passed by the NCLT against the defaulting corporate debtor the order passed will act as a discharge notice after which the officers, employees and workmen of the corporate debtor will have to relinquish their job. The officers, employees and workmen of the corporate debtor shall continue to work in the scenario where the business of the defaulting corporate debtor is kept running and in operation by the liquidator during the course of the ongoing liquidation process.

It is evident to note that the resolution professional as initially appointed at the time of the corporate insolvency resolution process shall act as liquidator to carry forward the liquidation process. After the appointment of liquidator the board of directors, key managerial persons and partners of the defaulting corporate debtor shall have no role in the business and their respective powers shall move towards the liquidator. Therefore the liquidator will be the main controller of the business of the defaulting corporate debtor   during the course of the liquidation process.

The liquidator apart from managing and looking after the business of the defaulting corporate debtor shall form a liquidation estate comprising of the assets of the corporate debtor. The liquidator during the course of forming the liquidation estate shall stand in the position of fiduciary in relation to the liquidation estate thereby keeping the interest of the creditors in safe and secure.

Fast Track Corporate Insolvency Resolution Process

An application for initiating the fast track corporate insolvency resolution process may be made by the financial creditors against the defaulting corporate debtor. The application for fast track corporate insolvency resolution process may be made by the financial creditors against the following: 

1. Small company- As defined under the Companies Act 2013
2. Startups – As defined in the Government of India notification dated 23rd May 2017 as issued by the Ministry of Commerce & Industry.
3. Unlisted Company – Companies having total assets not exceeding one crore as reported in the financial statements of the immediately preceding financial year.

The Code has prescribed a time span of ninety days within which the entire process of fast track corporate insolvency resolution process needs be completed .Even if after the best endeavors the process of fast track corporate insolvency resolution process remains incomplete then in such a scenario the appointed resolution professional may file an application to NCLT for extension of timeline to complete the ongoing process. On receiving the application for extension of time line for completing the ongoing fast track corporate insolvency resolution process if the NCLT is satisfied that the ongoing fast track corporate insolvency resolution process is such that it cannot be completed in the prescribed time line then in such case the NCLT may extend the prescribed time line by a further duration not exceeding forty five days. E aforesaid extension in time frame shall be granted only once by the NCLT.

The financial creditors for initiating the fast track corporate insolvency resolution process shall file an application to the NCLT thereby attaching the requisite documents along with the application. The set of documents that need to be attached with the application are as follows: 

1. Records as maintained by the information utility highlighting the default committed by the corporate debtor 
2. Any other document as required by the IBBI to suffice that the defaulting corporate debtor against whom application is filed is eligible for fast track corporate insolvency resolution process.

The fast track corporate insolvency resolution process is a shorter version of the corporate insolvency resolution process. The process flow is same but the difference is in the timelines as in case of fast track corporate insolvency the prescribed timeline is just half as compared to the corporate insolvency resolution process.

Therefore the debt recovery under the Insolvency and Bankruptcy may be time consuming but the processes are result oriented in terms of providing the desired outcome. The financial creditors need to be patient and trust the process flow via which they would be successful in recovering their debts. The code is on the track of getting the pending debts recovered, it’s just that right recourse needs to be adopted to do the needful. The banks and financial institutors have successfully recovered their NPAs and stressful assets via the processes as enshrined in the Code.

Hope this article was informative in providing the debt recovery alternatives available with the financial creditors.

Stay connected with MUDS for updates

The post Recovery of Debts by Financial Creditors appeared first on MUDS.

The Insolvency and Bankruptcy Code in its early stage repealed the already existing legislation which had become outdated with the passage of time. The Code is not easy legislation as the drafters of the legislation burned the midnight oil to create masterpiece legislation that would cater to the solve the issues of the society. The Code is detailed and elongated covering numerous time-bound processes designed for the persons covered under the applicability of the code.

A remarkable fact to highlight is that the Insolvency and Bankruptcy Code in a very lucrative and lucid manner bifurcated the term debt into financial and operational debt. Another outstanding and praiseworthy fact incorporated under the Code was that the code introduced a new class of creditors by classifying the creditors on the basis of debt into financial and operational creditors. This was the first time that the creditors had officially been classified on the basis of debt apart from the classification on the basis of security into secured and unsecured creditors.

Operational debt means a claim in relation to provision or supply of goods or services thereby covering within its scope employment dues and statutory dues that are payable to the Central or State Government or any local authority under any law for the time being in force. Thereafter keeping the definition of operational debt into purview the operation creditors were defined to be persons to whom financial debt was owed and also included within its ambit persons to whom such debt had been legally assigned or transferred.

In this article, we will mainly direct our focus towards the recovery of debts by operational creditors.

Operational creditors as already discussed are persons to whom an operational debt is owed. Also the term operational creditor covers within its purview persons to whom such debt has been legally transferred or aligned. Therefore all persons who have provided any kind of goods or services are covered within the scope and ambit of operational creditors. 

After having discussed and interpreted who operational creditors are, we will now head toward discussing the recovery modes and mechanism available with these operational creditors. 

The operational creditors occupy a significant position and ranking under the code. They have a say on major matters that are covered and elaborated under the code. They have been bestowed with voting rights and equivalent stakes during the course of the constitution of the committee of creditors. Also, the operational creditors enjoy the privilege of being repaid on a priority basis once the proceeds are realized after the insolvency order is passed by NCLT.  

The data as Published by the IBBI states that out of 1858 cases that have been filed to date around 920 cases have been filed by the operational creditors. Out of the 920 cases filed 168 were filed during the quarter ended 31 march 2019. The names of a few cases that were filed by the operational creditors are as follows:

1. Merchem  Ltd.,
2. Naachair Paper Boards Pvt. Ltd.
3. Swadisht Oil Pvt.  Pvt. Ltd.
4. Bafna Pharmaceuticals Pvt. Ltd.
5. Darjeeling Rolling Mills Pvt. Ltd. 
6. Subburaj Spinning Mills Pvt. Ltd. 

Prerequisites for debt recovery via IBC 

1. The minimum amount of default to be recovered should be at least one lakh rupees. 
2. The debt to be recovered should a debt that was due for recovery after December 2016.
3. There should be evidence of written communications made in relation to the debt due to be recovered.
4. There should be a proper copy of agreements and deeds that were entered as evidence in support to highlight the pending debt.
5. There must be proper invoices for the goods supplied.

The operation cannot directly file an application for initiating the corporate insolvency resolution process. Firstly in order to recover the pending debt the operational creditors need to serve demand notice to the defaulting corporate debtor highlighting the amount to be recovered from him. If after serving the demand notice the operational creditor does not receive his pending dues nor do the operational creditors receive any favorable reply from the defaulting corporate debtor then in such a scenario the operational creditors may go ahead with initiating the corporate insolvency resolution process. at the time of filing an application for initiating the corporate insolvency resolution process, the operation creditor is required to furnish forth the copy of the demand notice as initially served to the defaulting corporate debtor.

A remarkable fact in relation to debt recovery by operational creditors is that in the majority of the cases the debts get recovered once demand notice is served and there arises no requirement for initiating the corporate insolvency resolution process. The demand notice as crafted under the Code is a powerful tool in the hands of the operational creditors for recovering their debts. To prevent the running business and unnecessary hindrances the defaulting corporate debtors often pay off their debts after receipt of a demand notice from operational creditors. 

In light of the above, the operational creditors may in order to recover their debts initiate the below-mentioned process via which they can recover their pending debts. The processes with the aid of which the operational creditors can recover their debts are as follows: 

1. By serving demand notice to the defaulting corporate debtor
2. By initiating the Corporate Insolvency Irresolution Process (CIRP)
3. By taking shelter of Liquidation Process
4. By taking recourse of Fast Track Corporate Insolvency Resolution Process (FTCIRP)

Demand Notice 

The first step in the direction of debt recovery by the operation creditors is to serve the demand notice to the concerned defaulting corporate debtor. In light of this on the occurrence of default by the corporate debtor, the operational creditor shall serve a demand notice/copy of the invoice thereby demanding the unpaid dues for the supplied goods or services to the corporate debtor. The demand notice to be served to the defaulting corporate debtor shall be in the format as prescribed in the code in Form 3. While serving demand notice to the corporate debtor in Form 3 it is important to attach the relevant invoices that highlight the balance payment due from the corporate debtors end.

After serving the demand notice a time of ten days shall be granted to the corporate debtor to highlight:

1. any ongoing dispute in relation to the aforesaid supplied goods or services ;
2. details of payment made (if any) after receipt of demand notice 

If after the end of ten days the operational creditor still does not receive the pending payment or any notice highlighting the existence of dispute then in such a scenario the operational creditor can without any further delay file an application for initiating the corporate insolvency resolution process.

Corporate Insolvency Resolution Process (CIRP)

Even after serving the demand notice if there are no favorable outcomes then the operational creditors can either individually or jointly with other operational creditors file an application to commence the insolvency proceedings against the defaulting corporate debtor.  

The operational creditors have the privilege of approaching the NCLT for filing the application in relation to the initiation of the corporate insolvency resolution process. They are required to prove their debts forth the NCLT prior to submission of application for the insolvency resolution process. They are granted the authority to knock on the doors of the NCLT for recovery of their debts from the defaulting corporate debtors.

On this note, the operational creditors are required to make an application in Form 5 along with a fee of Rs. 2,000. The operational creditors while filling the application for initiating the corporate insolvency resolution process as per section 9 of the code shall annex the following documents along the application that is to be submitted: 

1. The copy of demand notice as originally served to the defaulting corporate debtor;
2. The evidence of default as highlighted from the records is maintained by the information utility.
3. The proposed name of the insolvency professional would act as the interim resolution professional.
4. Any other documents or evidence as highlighted by the IBBI.

Once the application is submitted by the operational creditors the same is reviewed by NCLT. The NCLT during the course of reviewing the submitted application ascertains on its own level the existence and nature of default that is highlighted by the operational creditor in the submitted application. It is significant to highlight that the NCLT reviews the submitted application within a time span of fourteen days from the receipt of the application. After reviewing the received application the NCLT has the option of accepting or rejecting the received application. In the scenario where the NCLT opts to reject the received application then in such a situation, it shall issue a notice to the operational creditor thereby giving an opportunity to rectify the highlighted defects.

Once the application is admitted by the NCLT then the corporate insolvency resolution process is deemed to have commenced from the very date on which the application for corporate insolvency resolution process was accepted by the NCLT.

After having arrived at the decision of accepting or rejecting the received application the NCLT shall convey its decision via an order to the operational creditor and corporate debtor if it accepts the received application and to the operational creditor only if it rejects the submitted application.

A crucial fact to be kept in purview is that the Code has prescribed the timeline of one hundred and eighty days within which the entire process of corporate insolvency resolution process needs to be completed. The appointed resolution professional shall make his best endeavors to complete the entire process within the prescribed timeline of one hundred and eighty days. Even after making the best efforts to complete the process within due time if the process remains uncompleted in such a state the resolution professional may approach the NCLT for seeking an extension in a time frame to complete the ongoing process. The maximum extension that may be granted by the NCLT for completing the ongoing process is ninety days. It is important to note that the extension in the time frame shall be granted only once by the NCLT.

Thus the major step in the direction of debt recovery by the operational creditors is to initiate the corporate insolvency resolution process against the defaulting corporate debtor. If due to any reasons the process of corporate insolvency resolution process does not yield the desired results then the operational creditors may take the next recourse of initiating the liquidation process against the defaulting corporate debtor.

Liquidation Process

In the scenarios where the NCLT does not receive a proper resolution plan or it rejects the received resolution plan on account of non-compliance with the specified requirements then in such cases, the NCLT concerned may pass orders for liquidation of the concerned corporate debtor along with issuing a public announcement for the same and forwarding the copy of aforesaid order to the concerned ROC with which the corporate debtor is registered.

The resolution professional as appointed during the course of the corporate insolvency resolution process may with the approval of the committee of creditors request the NCLT to liquidate the defaulting corporate debtor. On receipt of the aforesaid request from the resolution professional, the NCLT shall after requisite review passes the order for liquidation of the defaulting corporate debtor.

It is important to note that once the liquidation order has been passed by the NCLT then in such a scenario no fresh suit or legal proceeding shall be initiated or filed by or against the concerned defaulting corporate debtor. If required the appointed resolution professional may initiate any suit or legal proceeding with the express approval of the NCLT.

Once the liquidation order is passed by the NCLT against the defaulting corporate debtor the order passed will act as a discharge notice after which the officers, employees, and workmen of the corporate debtor will have to relinquish their job. The officers, employees, and workmen of the corporate debtor shall continue to work in the scenario where the business of the defaulting corporate debtor is kept running and in operation by the liquidator during the course of the ongoing liquidation process.

It is evident to note that the resolution professional as initially appointed at the time of the corporate insolvency resolution process shall act as liquidator to carry forward the liquidation process. After the appointment of the liquidator the board of directors, key managerial persons, and partners of the defaulting corporate debtor shall have no role in the business and their respective powers shall move towards the liquidator. Therefore the liquidator will be the main controller of the business of the defaulting corporate debtor during the course of the liquidation process.

The liquidator apart from managing and looking after the business of the defaulting corporate debtor shall form a liquidation estate comprising of the assets of the corporate debtor. The liquidator during the course of forming the liquidation estate shall stand in the position of fiduciary in relation to the liquidation estate thereby keeping the interest of the creditors in safe and secure.

Fast Track Corporate Insolvency Resolution Process

An application for initiating the fast track corporate insolvency resolution process may be made by the operational creditors against the defaulting corporate debtor. The application for fast track corporate insolvency resolution process may be made by the operational creditors against the following: 

1. Small company- As defined under the Companies Act 2013
2. Startups – As defined in the Government of India notification dated 23rd May 2017 as issued by the Ministry of Commerce & Industry.
3. Unlisted Company – Companies having total assets not exceeding one crore as reported in the financial statements of the immediately preceding financial year.

The Code has prescribed a time span of ninety days within which the entire process of fast track corporate insolvency resolution process needs to be completed. Even if after the best endeavors the process of fast track corporate insolvency resolution process remains incomplete then in such a scenario the appointed resolution professional may file an application to NCLT for extension of the timeline to complete the ongoing process. On receiving the application for extension of timeline for completing the ongoing fast track corporate insolvency resolution process if the NCLT is satisfied that the ongoing fast track corporate insolvency resolution process is such that it cannot be completed in the prescribed timeline then in such case the NCLT may extend the prescribed timeline by a further duration not exceeding forty-five days. E aforesaid extension in time frame shall be granted only once by the NCLT.

The operational creditors for initiating the fast track corporate insolvency resolution process shall file an application to the NCLT thereby attaching the required documents along with the application. The set of documents that need to be attached with the application are as follows: 

1. Records as maintained by the information utility highlighting the default committed by the corporate debtor 
2. Any other document as required by the IBBI to suffice that the defaulting corporate debtor against whom the application is filed is eligible for a fast track corporate insolvency resolution process.

The fast-track corporate insolvency resolution process is a shorter version of the corporate insolvency resolution process. The process flow is the same but the difference is in the timelines as in the case of fast-track corporate insolvency the prescribed timeline is just half as compared to the corporate insolvency resolution process.

Therefore the debt recovery under the Insolvency and Bankruptcy may be time-consuming but the processes are result oriented in terms of providing the desired outcome. The operational creditors need to be patient and trust the process flow via which they would be successful in recovering their debts. The code is on the track of getting the pending debts recovered, it’s just that the right recourse needs to be adopted to do the needful. The operational creditors have been quite active ever since the inception of the code to recover their debts. The number of cases as filed by the operational creditors itself highlights the sound awareness of the provisions among the operational creditors.

Hope this article was informative in providing the debt recovery alternatives available with the operational creditors.

Stay connected with MUDS.

The post Recovery of Debts by Operational Creditors appeared first on MUDS.

Ever since the inception of business the recovery of the pending payments has been a haunting process. The business owners have to go through numerous sleepless nights in tension of the mounting debts that need to be recovered. The pilling debts become an obstacle in smooth running of the main business as the business owners have to divert their attention from the running business towards the recovery of these pilling dues. Over a span of time when business starts to yield results then it no longer remains a challenge rather debt monitoring and timely recovery of outstanding debts become the challenge that needs to be resolved with due time.

The phase of debt recovery is a cumbersome process but if structured in planned manner then it becomes an easy process to get rid of the same in a time bound and efficient manner. In order to efficiently recover the pending debts and to become debt free one needs to sit and plan out the debt recovery strategy using which he may target the further process. Properly planned and laid out debt recovery strategy ultimately lead to successful recovery of debt in an easy and lucid manner.

The individuals in the daily course of business provide goods and services to numerous categories of consumers on both cash and credit terms. The goods or services are provided on fixed duration credit period like for some credit period is 30 days and for some it ranges between 60 to 90 days depending on the nature of goods or services supplied. The consumers are required to make the requisite payment after the expiry of agreed credit period. If after the expiry of credit period the payment is not received then this is the starting point of debt pilling which needs to addressed and taken off within due time.

Even after providing the appropriate goods and services as requested the individuals do not receive payment for the supply then as a part of debt recovery mechanism the concern individual must send a gentle written reminder to the concerned person to whom they had made the supply requesting for the payment in relation to the supply made along with a copy of proper invoice.

After sending a gentle reminder the individual need to be patient and wait for a reply from the other end. It is well known that the reply will not come instantly but would take time of 3 to 5 days. The reply may be: positive wherein the person would make the payment or provide a further date by which he would surely make the payment or the reply may be negative wherein the person on the other end would either highlight in defects in quality of supply provided or refuse to make the payment for the received supply. The positive reply is not much matter of concern but the negative reply build in pressure and creates uneasy stressful scenarios. In such situation the panic level of the individual begin to rise.

In the scenario of receipt of negative reply the next step available with individuals for recovering their debts is taking the recourse and support of appropriate enacted legislations for recovering the pending dues. The individuals were always kept into purview while drafting the debt recovery laws. There have been numerous laws in protection of individuals.

The need of laws was of high importance as industrialist in India had started entering into all the possible domains to expand their business and thereafter to increase the risk taking capacity. The private and public institutions began competing to lend to lend these industrialists at very cheap rates. Companies started investing in long term projects on the support and backing of short term loans taken in floating interest rates. Soon the inflation rates and interest rates began to rise. Then the industrialist stared facing difficulty in repaying the loan back at high interest rates. Adding to the havoc the inflation began to soar high thereby raising the prices of the products leading to decline in income from ongoing projects. The corporates started to commit default in paying back the loans as a result of which the lenders had no other remedy apart from approaching the courts for way forward. The turmoil did not end here. Banks started reflecting NPAs in their balance sheets. A high percentage of bad debts in the form of NPAs were from corporates.

Keeping into purview the aforesaid chaos the need of the hour was to have appropriate legislation that would curb the situation from going out of control and thereafter pave the way forward to get rid of the pending debts. The enactment and drafting of suitable legislation was not an easy and rapid process but required time to come up with something that could tackle and solve the ongoing situation.

On this note the legislative framework that that was crafted to beat the ongoing situation which has delivered positive results and which will continue to deliver the same results will be discussed further in this article.

The legislative framework that has been and is an aid for the individuals to recover their debts can be bifurcated under two heads:

• Pre IBC or Prior to enactment of Insolvency and Bankruptcy Code
• Post IBC or After the enactment of Insolvency and Bankruptcy Code

Pre IBC/ Prior to Enactment of IBC

During the initial phase of debt recovery there were numerous debt recovery laws wherein each law had its own recovery mechanism and debt recovery time frame. The laws were crafted for both the corporates and individuals providing them respective mechanism to recover their respective pending debts. The few laws that were enacted are as follows:

1. Presidency Town Insolvency Act ,1909
2. The Provisional Town Insolvency Act,1920
3. Sick Industrial Companies (Special Provisions)Act (SICA),1985
4. Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI),1993
5. Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI),2002

Of the above-highlighted legislation only the first two i.e. Presidency Town Insolvency Act, 1908 and the Provisional Insolvency Act, 1920 were concerned with resolving debt recovery for individuals. The remaining three i.e. Sick Industrial Companies Act, 1985; Recovery of Debts due to Banks and Financial Institutions Act, 1993 and Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 were devised specifically for corporates.

In this article since our focus is on debt recovery by individuals and so we will discuss the first two legislations briefly.

1. Presidency Town Insolvency Act ,1908

The Presidency Town Insolvency Act 1908 came into force with effect from 1st January 1910.Under the Act the High Court of Madras, Calcutta and Bombay had the express jurisdiction to entertain the cases related to insolvency that came up for being resolved under this act. Prior to independence, India was divided into presidency towns by the Britishers for better and efficient administration and so the aforesaid act laid down provisions in relation to insolvency for presidency towns.

The matters that came for being resolved under the act were discharged by the single judge who was to be appointed by the Chief Justice of the High Court. The above highlighted high courts were given express authority to decide matters related to insolvency along with deciding question related to insolvency. Even the courts had the power to review, rescind or vary the order passed. The main aim of the act was settlement of debts to creditors pending with the debtors.

2. Provisional Insolvency Act,120

The Provisional Insolvency Act, 1920 came into effect from 25th February 1920.The act laid down laws in relation to insolvency for administration by courts having jurisdiction outside the presidency towns.

Under the Act the district courts were given the express authority and jurisdiction to entertain the matters. Also the government had the power to delegate to the same authority to any other court via a notification and in that case the court granted the power would act as Small Causes Court. Here it is important to note that the Small Cause Courts shall be subordinate to the District Court. The decision of the Court in relation to the Small Cases Court shall be final and binding. The appeals against the order of subordinate courts shall be filed to and would be appealable in the district code. The offences if any committed by the debtor would also be punishable as per the relevant provisions as enshrined in the code.

The main intent behind the enactment of the Provisional Insolvency Act 1920 was to have in place strict laws for debtors thereby preventing toss to creditors.

Both the Presidency Town Insolvency Act, 1909 and Provisional Insolvency Act, 1920 provide for the legal framework in relation to the insolvency process for individuals. The provisions of the acts are to some extent similar but they differ in the jurisdiction and the legislative authority.

Under these laws an insolvency petition can be filed for an amount exceeding Rs. 500. But while filling the petition it should be ensured that the act of insolvency on the basis of which the petition is filed should have occurred within a span of 3 months from the filling date.

Abhishek Jain at MUDS after deep review of the case laws is of the opinion that “At the time of filling the insolvency petition the crucial conditions as highlighted in the Acts based on which the petition has been filed against the individual need to be proved by the creditor. The court will not admit the petition unless the ground based on which the petition is filed are proved forth the court.”

After analysis and study of the filed petition if the conditions for filling the petition are met then in such scenario the court may accept or reject the filed petition.

The provisions for individual have yet not been notified under the IBC. Meanwhile the above described legislation will deal with the matters in relation to the individuals. Once the provisions are streamlined in IBC them these acts shall stand repealed. The efforts are being made to streamline and implement the provision as enshrined in the IBC but presently implementation will take some more time.

Post IBC/ After the enactment of IBC

The Insolvency and Bankruptcy Code was enacted and came into force with effect from December 2016. The code extends to the whole of India but the provisions related to insolvency of individuals are not applicable in Jammu & Kashmir.

In the three years since enactment, the entire ecosystem comprising has been in place. The provisions relating to corporate insolvency resolution have been operationalized with great success. Now that the corporate insolvency resolution processes have been streamlined its time to focus on individual insolvency.

Individual insolvency framework pursues the objectives enshrined in the code. It prevents the creditors from harming the debtors by racing to be the first to recover their dues and thereby facilitates the insolvency resolution. It facilitates an individual to get in and get out of business undeterred by honest business failure and thereby promotes entrepreneurship. It increases the creditors expected returns and thereby promotes availability of credit.

In the scenario of default by individual, a creditor had two remedies – against the person of the debtor or against the property. Historically the remedy was directed towards the person. Presently with the focus on revival of the debtor instead of adjudging him insolvent, the code provides:

• An objective trigger for initiation of insolvency resolution process instead of relying on the commission of an act of insolvency.
• Mandates a moratorium which provides relaxation to the debtor and creditor for negotiating repayment plan.
• Use of independent and qualified professionals to assist the stakeholders in conduct of the processes.
• Debt recovery Tribunal(DRT) as the adjudicating authority to administer the matters related to individual insolvency.

Prerequisites for debt recovery via IBC

• The minimum amount of default to be recovered should be atleast one thousand rupees.
• The debt to be recovered should a debt that was due for recovery after December 2016.
• There should be evidences of written communications made in relation to the debt due to be recovered.
• There should be proper copy of agreements and deeds that were entered as evidence in support to highlight the pending debt.

The recovery processes with the help of which the individual can recover their debts as enshrined under the IBC are as follows:

1. Fresh Start Process
2. Insolvency Resolution Process
3. Bankruptcy Process

Fresh Start Process

This is available only to those debtors who have annual income less than or equal to Rs. 60,000; assets less than or equal to Rs. 20,000; debts less than or equal to Rs. 35,000 and does not own a dwelling unit. A resolution professional examines the application and thereafter submits his report to the DRT suggesting the acceptance or rejection of the submitted application. The discharge order as passed by the DRT writes off the unsecured debts thereby allowing the debtor to start afresh.

The fresh start process an opportunity to a debtor who is unable to pay his debts to clear off his debts in a time bound manner on fulfilling the prescribed condition for fresh start of his qualifying debts. Since the essence of the code is to have time-bound process and so on this note the time lag for completion of entire process of fresh start is 180 days, to be counted from the date of admission of application for the fresh start process.

The intent of fresh start process to provide debtors with comparatively small debts a chance to discharge off their debts and restart afresh without any liability. The fresh start process is an alternative to the insolvency and bankruptcy processes. To prevent and curb the abuse of this debtor centric process, the code has aligned certain restrictions on the applicability and validity of fresh start process.

Insolvency Resolution Process

This provides a framework for debtors and creditors to collectively renegotiate a proper repayment plan under the supervision and guidance of a resolution professional. The debtor or the creditor may make an application for initiation of insolvency process.

On admission of application a public notice is issued by the resolution professional to all the creditors for inviting their claims. Thereafter a repayment plan is drafted by the debtor in close contact with the resolution professional. On execution of repayment plan a discharge order is passed by the DRT thereby releasing the debtor concerned from his liabilities. Through this process the debtor gets an earned start.

The insolvency resolution process is the initial step that can be taken against the defaulting individual & partnership firms. On successful completion of insolvency resolution process or during the course of the insolvency resolution process an application can be made for bankruptcy order. During the course of the insolvency resolution process all persons be it debtor or creditor shall cooperate with the appointed resolution professional so that he may efficient execute the process of insolvency resolution and thereby seek discharge order.

Bankruptcy Process

In the scenario where the resolution process fails or drafted resolution plan is not implemented properly then n such a state the debtor or creditor may make an application for initiating bankruptcy process. When the application for bankruptcy is admitted by the DRT a bankruptcy order is passed and thereafter a bankruptcy trustee is appointed.
The bankruptcy trustee conducts investigation of the affairs of the bankrupt, realizes the estate of the bankrupt and distributes the proceeds in the order of priority as highlighted in the code. After expiry of one year from the bankruptcy commencement date or within seven days of approval by the committee of creditors, the bankruptcy trustee applies for a discharge order. The discharge order releases the debtor from bankruptcy debt.

it is evident that bankruptcy gives a possible way to the bankrupt to cope and renovate himself. It depends on the decision of the bankrupt as to what he decides in such a situation. Bankruptcy is a situation which can be resolved by being calm and controlling the finances which will thereby act as the greatest stress reliever. It is a onetime situation which can be tapped if detected within due time. People wait until the last minute to approach the bankruptcy lawyer’s office because they don’t want to be in the bankruptcy lawyer’s office.

“We at MUDS hope that people recognize that bankruptcy is still an option for them and that the only requirement is that the bankrupt needs to be proactive and vigilant in resolving the bankruptcy as early it can be done.”

The provisions related to individual insolvency have not yet been notified. The Code covers insolvency resolution of three categories of individuals’ namely: personal guarantor to corporate debtor; partnership firms & proprietorship firms and other individuals. In the first phase of implementation personal guarantors would likely be brought within the purview of implementation. Then in the second phase it would be the partnership & proprietorship firms that would be bought into implementation.

Therefore after gaining insight of the proposed processes to be streamlined under IBC, it is crystal clear that that IBC is a more time bound and deadlines based processes which help in quicker resolution thereby giving the defaulting debtors an opportunity to rectify their debts along with rehabilitation opportunities.

Thus after extensive study of the above-discussed legislations it’s quite clear that laws on individual insolvency are and have been a spider’s web. There has been a rise and fall of insolvency regime where each law came to replicate thee other without bringing any significant change. The IBC came as one stop solution covering the bright side of every failed insolvency regime. All prior laws started with positive energy however failed to go long in the race of successful implementation thereby repealing them over time.

Hope this article was informative in providing an insight about the recovery of debts by the individuals.
Stay connected with MUDS for more updates.

The post Recovery of Debts by Individuals appeared first on MUDS.

In the current era of budding and thriving competitive business environment to upscale the business and to meet the need of working capital the business entity requires immediate funds to meet the business requirements. Inorder to meet the fund requirement the business entity resorts to various sources to obtain the funds like borrowing from banks& financial institutions; issuing capital market instruments like shares.

In the series and process of meeting the funding requirements the business entities often exceed or cross their desired fund requirement capacity which leads to starting of debt burden. The uncontrolled and unmonitored debt burden ultimately reaches a stage where the business entity reaches the verge of being insolvent.

Mounting unrecovered debts are alarming signal for businesses that require the business to focus on pending recovering. Due to the pending debt recovery the business gets stuck up in focusing on the recovery zone thereby leaving the currently running business in stagnant state. Due to the pilling burden of debts to be recovered the business owners have to face numerous sleepless nights inorder to plan for the recovery mechanism to be devised for getting rid of this situation. The pending debts become a hurdle for smooth running of the business. Inspite of the constructive efforts the business gets stuck up because of the pending debts to be recovered thereby affecting the profitability of the business.

Recovery of debt is and has always been a cumbersome process. The mechanisms for recovering debts are quite time consuming and elongated. Although there had been and there are laws enabling recovery of debts but still people feel burdened to recover their pending debts. There were numerous laws that aided in recovering the pending debts but all had some or the other shortcoming which hindered in the smooth recovery of the debts.

Each political party in its phase came with numerous measures in this regard to ease the debt recovery. The Congress left behind the legacy of traditional systems for resolving commercial insolvency. The Companies Act had within its scope winding-up provisions which entitled a company to wind it up in the scenario where it was unable to pay its debts. Thereafter keeping into consideration the need of the hour the congress government had enacted the Sick Industrial Companies Act (SICA) in the early 1980s for revival and rehabilitation of sick companies. The SICA was mainly for companies whose net worth had become negative. The law was well implemented yet it proved to be utter failure. Something noteworthy about SICA was that several companies successfully managed to obtain protective shield against its creditors.

After short term success of the SICA then was enacted the Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI) which created a special authority known as Debt Recovery Tribunal (DRT) which enabled banks and financial institutions to recovery their dues crisply. Once again the DRT did not prove to be an efficient mechanism for recovery of debt.

Next in this domain the NDA government enacted the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFAESI) .It is praise worthy to highlight that the SARFAESI act proved to be better off than the previous legislations in this domain.

As the economy began to enter into the 20th century the volume of non performing assets suddenly took a shoot up and entered into double digit figures. The banks and financial institutions began to lend recklessly which also added and contributed to non performing assets.

The NPA volume began to reach heights which required immediate monitoring. Focusing on the need of the hour an immediate action was required from the government. Keeping into purview the present scenario an expert committee was constituted to submit its recommendations on the Insolvency and Bankruptcy Code. Soon after the expert committee had submitted its recommendations the bill was introduced in the Lok Sabha and thereataer the same was referred to the joint committee of the Parliament. The joint committee of the parliament after reviewing the proposed bill highlighted few required amendments. Thereafter the Insolvency and the Bankruptcy Code was approved by both the houses of parliament in May 2016 and came into effect from December 2016. The IBC became among the quickest economic legislative change.

The Insolvency and Bankruptcy Code is about to complete its third anniversary in the domain of successfully enacted legislations. Since the implementation of the code we have witnessed the glaring results which are itself sufficient to explain that the code is a master piece and has managed to hit the bull’s eye in the right direction as was planned. The main intent with which the code was enacted were to align processes which seek to provide the requisite remedy in the time bound manner thereby maximizing the value of the assets of the persons convered under the code along with promoting entrepreneurship, credit availability and balancing the interest of the stakeholders falling under the ambit of the code.

The early harvests through the IBC were quite satisfactory. The Code since its implementation totally changed the relationship between the debtors and the creditors. After the implementation of the code the creditors no longer were mandated to chase the debtor for their pending payments. With the inception of the Code the NCLT was earmarked as the adjudicating authority for handing insolvency matters related to corporate persons. With this new role the NCLT began to pave way to deepen its roots and develop its own importance and identity in judicial hierarchy.

The NCLT soon started becoming trusted forum with high credibility. With the budding cases in the insolvency domain the NCLT began to become loaded with cases pilling up. The need of the hour was to curb the burden of pilling up cases before NCLT that demanded timely and speedy disposal. Diving into the alarming state of NCLT, the Supreme Court began pronouncing judgments expeditiously thereby providing hands of support to the newly enacted legislation. Now that the code has competed two years the current situation forth NCLT has improved and the cases are now being resolved within due time as are highlighted in the code.

The Insolvency and Bankruptcy Code holds very rich statistics when it comes to the actual execution of the code. The Code in a very short span of time became popular along with being widely applicable thereby emerging as a lucrative recovery legislation. The data as published by the Insolvency and Bankruptcy Board of India (IBBI) speaks loud and clear that the code indeed is rightly crated and capable of resolving the intent with which the code was drafted.

The recent statistics as published by the IBBI highlight that approx. 1858 corporate debtors have been admitted into the corporate insolvency resolution process till March 2019. Out of these 1858 around 152 have been closed on appeal or review or settled; 91 have been withdrawn; 378 have ended in liquidation and 94 have ended in approval of liquidation plan.

Under the Insolvency and Bankruptcy Code the cases were filed from all the sectors. The majority of the cases filed under Code were from the manufacturing sector. After the manufacturing sector was the real estate sector in the list of cases filed. The sector wise bifurcation of the cases filed under the Code speaks clearly that all the sectors have started resorting to the code for debt recovery.

Out of the total 1858 cases that have been filed till date under the Code 772 were from the manufacturing sector, 359 from the real estate, renting & business activities sector, 202 from the construction sector, 180 from wholesale& retail trade , 52 from hotels & restaurants, 47 from electricity & others , 50 from transport, storage & communications and approx.. 196 from other sectors.

Another significant fact to be highlighted is that the operational creditors are aware of the provisions enshrined in the code as a result of which out of the total 1858cases that have been filed under the code till date 920 have been filed by the operational creditors. The financial creditors occupy a significant position in the code and so out of the 1858 cases the numbers of cases filed by the financial creditors till date are 738. Apart from the creditors the total numbers of cases filed by the corporate debtors against themselves till date are 200.

Abhishek Jain at MUDS opinions that “There are no shortcuts of being debt free. The business entity needs to get out of debt the same way as one learned to walk – one step at a time.”

Initially when the Insolvency and Bankruptcy Code was implemented it was considered to be a revival law and not a recovery legislation. But later as the code came into execution domain it became clear that the code was used as a recovery mechanism for recovering pending dues. Through the Code the businesses are able to recover their pending dues successfully. Therefore “the Code is mainly a recovery law and not a revival law”.

The post Recovery of Debts via IBC appeared first on MUDS.