With IBC, non-repayment of loan no more an option: CAG Murmu

The insolvency law has led to a significant behavioural shift among borrowers as non-repayment of loan is no more an option and ownership of a firm is no more a divine right, CAG G C Murmu said

The insolvency law has led to a significant behavioural shift among borrowers as non-repayment of loan is no more an option and ownership of a firm is no more a divine right, Comptroller & Auditor General of India G C Murmu said on Thursday.

According to him, this behavioural shift has resulted in substantial recoveries for creditors outside the Insolvency and Bankruptcy Code (IBC) and improved the performance of firms.

Delivering 'IBC: Adaptability is the key to Sustaining Reforms in the Times of a Pandemic' lecture on the occasion of the fourth annual day of the Insolvency & Bankruptcy Board of India (IBBI), Murmu said one of the most remarkable achievements of the Code was that it has led to a significant behavioural change among the debtors and creditors alike.

"It is further motivating them to make the best efforts to avoid default. Further, it encourages the debtor to settle default with the creditors at the earliest, preferably outside the Code. With the Code in place, non-repayment of loan is no more an option and ownership of the firm is no more a divine right and equity is no more the only route to own a firm," he said.

Further, he noted that the Code has had an impact on the credit market as the provision of resolution and liquidation reduces the incidence of default and enables the creditors to recover their dues through revival of the firm or by the sale of liquidated assets.

It incentivises both secured and unsecured creditors, bank and non-bank, financial and operational, financial and domestic to extend credit at a lower cost of projects and thus enhances the availability of credit, he added.

"The Code is also helping in resolving the NPA (Non-Performing Assets) problem of the banking system," Murmu said.

The Code has also created a cohesive and comprehensive ecosystem. This has created markets for services of insolvency professionals, insolvency professional agencies, registered valuers, registered valuers organisations, insolvency professional entities and information utilities, he added.

Till June 2020, Murmu said that about 3,900 corporates, including some with very large NPAs, have been admitted into CIRP (Corporate Insolvency Resolution Process). About 1,205 CIRPs have completed the process, either yielding resolution plans or ending up with orders for liquidation.

As many as 380 processes have been closed on appeal/ review or settled while 218 processes have been withdrawn. Also, 692 firms have commenced voluntary liquidation, he noted.

"As the government prepares the insolvency landscape of the country for the post-COVID-19 phase in the longer term, one is hopeful that the measures taken in the short and medium-term will be successful in preserving the life of companies and livelihood of persons in distress.

"Rescuing lives of firms being the prime objective of the Code, it must not be used to take away their lives prematurely," Murmu said.

Going forward, he said that once the pandemic is behind us, a few issues that need to be handled through the Code would be making provisions for group insolvency and cross-border insolvency, and implementing various provisions related to individual insolvency.

Speaking on the occasion, Union minister Anurag Singh Thakur said the Code has undergone prompt course corrections to address deficiencies arising from its implementation and sync with emerging market realities to further its objectives.

The Code has been amended five times.

"We have seen a behavioural change, better recovery and better debtor-creditor relationship after IBC," Thakur, who is the Minister of State for Corporate Affairs as well as Finance, said.

Regarding suspension of fresh insolvency proceedings, the minister said it was done to prevent viable companies from being pushed into insolvency proceedings for their failure to service debt obligations on account of the pandemic-induced stress.

"The government realises that it may be difficult to find adequate number of resolution applicants to rescue a corporate debtor during this period of crisis... Extending the suspension of the Code by another three months. This will give companies breathing time to recover from the financial stress and also avoid job losses which would have happened otherwise," he said.

Provisions under the Code for initiating fresh insolvency proceedings were suspended for six months starting from March 25 and has been further extended by three months.

The minister also exuded confidence that the country will sustain growth and equitable development.

Further, Thakur noted that India has responded quickly and has implemented a judicious mix of fiscal and monetary policies to mitigate the negative impact of COVID-19 on the economy.