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Continuing his war of words against promoters of highly indebted firms that have been referred to the National Company Law Tribunal (NCLT) listed companies, JSW Group Chairman Sajjan Jindal on Tuesday said a strong monitoring mechanism with "right to recompense" for lenders should be put in place for promoters, other than dubious, wilful/non-cooperative defaulters, who wish to participate in the process.
"It will be a setback to the credible IBC (Insolvency and Bankruptcy Code) process if the existing promoter re-acquires the asset with a haircut without the right to recompense banks. The government must closely monitor the proceedings of NCLT," Jindal tweeted.
Right to recompense means that if the existing promoter takes over a stressed asset, he would have to pay back the loan if the performance of the company improves.
Meanwhile, experts said when the NCLT proceedings were initiated, the role of the insolvency resolution professional was only to study the resolution plan of the company, look for viability of the business plan and take a decision. However, the entire process has after going through several amendments over the past few months placed higher onus on the resolution professional who is also playing the role of an investigative body.
The regulator, the Insolvency and Bankruptcy Board of India (IBBI), in the latest press release (dated November 7) has stated a resolution plan should contain details of the resolution applicant and other connected persons to enable the committee to assess the credibility of such applicant and other connected persons to take a prudent decision while considering the resolution plan for its approval.
Diwakar Maheshwari, dispute resolution partner at Khaitan & Co, said: "With the additional responsibilities being placed on the resolution professional(s) by the recent amendment, it is not certain currently as to whether they would be able to undertake the entire resolution process within the already stipulated timeframe under the IBC. Therefore, the government may also want to consider to revisit on the timeline aspect of matter to ensure that the finalised resolution plan is meaningful and meets with the object and purpose of the IBC."
Of the 12 companies identified for insolvency by a Reserve Bank of India (RBI) directive, five belong to the steel sector.
This is not the first time Jindal has been vocal about the ongoing process at the National Company Law Tribunal (NCLT). Earlier this month, Jindal had urged authorities not to allow filing of company rehabilitation plans by dubious promoters, especially to prevent misuse of the IBC.
Abir Roy, a partner at Lakshmikumaran & Sridharan Attorneys, said: "To put a blanket ban on promoters may not be the right approach, as there may be certain promoters who may have genuinely defaulted. In such a case, promoter may be allowed to bid as such a blanket ban may be counterproductive and against entrepreneurial nature of taking risks. On the aspect of compensation, it would have to depend on each case. However, a monitoring mechanism coupled with a strong deterrent may be considered in the future to ensure that there is no misuse of the IBC process."
Of the five steel companies at NCLT, Sajjan Jindal-led JSW Steel has bid for two: Monnet Ispat and Bhushan Steel. Mumbai-based JSW Steel is looking to grow its capacity to 40 million tonnes per annum (mtpa) from 18 mtpa now. So far, it has largely grown its capacity inorganically. At present, Bhushan Steel has an annual capacity of around 5.6 million tonnes, while Monnet Ispat holds 1.5 mtpa.