Insolvency law: 'Gradually then suddenly'

Anant Merathia's book offers a human perspective on the Insolvency and Bankruptcy Code

Defaulter’s Paradise Lost: Demystifying the Insolvency and Bankruptcy Code, 2016

Author: Anant Merathia

Publisher: Thomson Reuters

Pages: 298

Price: Rs 1,150

First-time author Anant Merathia, a corporate litigation and disputes resolution lawyer, has explained the nuances of the Insolvency and Bankruptcy Code (IBC) through cases and examples in Defaulter’s Paradise Lost. Although the style and the approach of the book could be interpreted as academic, it helps demystify many complex issues for businesses and other stakeholders through its 15 chapters spanning some 300 pages. The book has an unusually long testimonials section with as many as 15 entries from lawyers, professors, promoters and consultants. Most suggest that Defaulter’s Paradise Lost is not just a technical explanation of the IBC law but also a reference work for day-to-day use and that the book is an essential reading to any insolvency practitioner.

Before getting into the book, Mr Merathia has introduced the subject of insolvency and dispute resolution through a detailed interview with the man who’s been closely associated with the matter right from the beginning—

M S Sahoo, former chairperson of the Insolvency and Bankruptcy Board of India (IBBI). Mr Sahoo has pertinently explained modern insolvency by referring to Ernest Hemingway’s novel The Sun Also Rises. A dialogue in the Hemingway book goes something like this: “How did you go bankrupt?

Gradually and then suddenly.”

Mr Sahoo says most bankruptcies happen that way, adding that India’s insolvency reforms followed that path.  That sets the pace for the narration that follows.

Chapter 4 of this volume — “Key Stakeholders and Issues” — is striking in the way the stakeholders have been defined or perhaps labelled by the author. Operational creditors have been called “the epitome of austerity”, while secured financial creditors are termed “lords of the fortress”.  Unsecured financial creditors have been referred to as “deputy beneficiaries”, employees as “nerve centres of the corporate debtor’’, the committee of creditors “the power centre”, insolvency professionals “anchors”, homebuyers “unintended creditors”,  and so on. The writer has tellingly put a question mark after describing resolution applicants as “saviours”. Among others, well-known cases such as Essar Steel have been mentioned several times as examples to illustrate many points, including the power of financial creditors, especially secured financial creditors.

The book, which reiterates some points over and over, including the purpose of the IBC law, the challenges in its implementation and the tug of war between various stakeholders, could have done with a less academic narration. However, it scores in highlighting the human elements related to insolvency. For instance, the author explains how “employees and workmen are among the strongest pillars of the economy.... Thus, concentrating on the need to recuperate jobs of employees, the human and social capital, from an unviable to a viable enterprise, becomes indispensable”.

He goes on to say that promoters, (insolvency professionals) and CoCs (committees of creditors) should handle employees in a sensitive manner, even as there’s no legal mandate to do so. “It needs to be understood that it is the employees who run the company at the ground level, and hence, taking care of their concerns would be in the larger interest of all other stakeholders,” the book points out.

Similarly, there’s plenty here on the importance of taking care of home buyers, highlighting the human element in an otherwise textbook-like format. The writer cites the example of Jaypee. “In the matter pertaining to the approval of Resolution Plan of Jaypee Infratech Ltd, a unique scenario had occurred wherein about 20,000 homebuyers were given an opportunity to receive their completed housing projects instead of the usual monetary claim after a huge haircut. This is a welcome move by the Hon’ble NCLT...,’’ he says, while elaborating on the case.

A law, which was passed in 2016, is still evolving, the author stresses through the book. From that perspective, the due diligence and dexterity that have gone into the making of this book are notable. The many charts and the tables, including those on the history of cases, are like ready reckoners. The table on the current position on the revival and restructuring of the 12 large accounts right at the middle of the book, for instance, is likely to draw many readers. A few pages later, there’s another interesting chart on the key decisions of the National Company Law Tribunal and National Company Law Appellate Tribunal, and then yet another on the average time taken for completion of various processes.

Mr Merathia has taken three years to put together this compendium of sorts, tracking the journey of the IBC law with its positives and drawbacks. His underlying message seems to be that the IBC, 2016, cannot be overlooked or ignored by businesses as it has a far-reaching impact despite the hurdles.