The Supreme Court verdict upholding the Insolvency and Bankruptcy Code (IBC) in its present form is welcome. While it is not unnatural for new legislation to be challenged in court, it was imperative for uncertainty over the legal validity of IBC to be set aside at the earliest and get on with the job of resolving bad loans under the Code and to put paid to the conceit Indian promoters have long entertained that if they owe money to the banks, it is the banks’ problem. One particular dispute that the SC ruling will settle is whether the Essar Steel resolution should go through as per the IBC process or the Ruias should be allowed to buy their company back, as suggested by the Ruias with the backing of another steel magnate Sajjan Jindal, paying the banks almost Rs 12,500 crore more than the highest bid of Rs 42,000 crore put in by Arcelor Mittal under IBC resolution.
At stake are principles governing property rights, auctions and the bank-industry relationship. IBC was cheered for aiming to complete auctions and transfer assets within 270 days. Alas, judicial challenges have made cases drag on. India has long been castigated for its poor bankruptcy laws, allowing defaulting promoters to hang on by hook or crook. India needs a quick creditor seizure of defaulting companies followed by a quick resolution, or, failing that, quick and conclusive auction of assets. Realising bank dues converges with holding promoters accountable for running a company to the ground through crookery, bad luck or incompetence.
India badly needs an exit policy for promoters, not just workers. Market players have long complained that many companies suffer because their promoters milk money out of a company in dubious ways, or because promoters can find ways to repay dues but choose not to.
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