An ordinance was issued in November to make sure wilful defaulters weren’t able to regain control of their businesses after banks had taken big hits, and promoters and management of the defaulting company were barred from bidding. These defaulters can, however, bid if they regularise the accounts by paying back their dues. The Essar Steel episode, in which the bids of both Arcelor Mittal and Numetal were discarded after round one, shows the law is being treated with respect. The National Company Law Tribunal (NCLT) must ensure Arcelor Mittal clears the dues of Uttam Galva in which it was a promoter-shareholder. Similarly, Numetal cannot have any ties with the Ruia family, which owned Essar Steel. Else, the process would be reduced to a farce. The reason the rules should be refined is to ensure bankers don’t need to take big haircuts. In a move that will speed up decision-making, the government plans to lower the share of lenders needed to decide whether a company should be turned around or liquidated to 66% or thereabouts from the current 77%. Also, lenders holding equity from an earlier debt recast will not be treated as a related party and can vote on the rescue plan.
This newspaper has argued against homebuyers being given the status of financial creditors, which would put them on a par with banks and allow them to take builders to the bankruptcy court, because it could prompt other creditors to ask for a similar status, upsetting the hierarchy prescribed in the IBC and also disrupting the resolution process.
Homebuyers do deserve justice, but the best way out is to hand over a half-finished project to a builder who would complete it; liquidating the asset would fetch a much smaller sum.