‘IBC laws will prevail if banks refer case to insolvency’

New Delhi, April 3 (IANS) The sanctity of insolvency laws will be upheld if the banks decide on taking a stressed asset to the NCLT where the prevailing rules bar promoters' participation, government sources said.

However, promoters would get a chance to work out a different loan repayment mechanism in line with the arrangement worked out with the banks, if the lenders decide on resolving an asset outside the Insolvency and Bankruptcy Code (IBC).

"Things will become clear as we delve into the judgement. But the apex court has not struck down the validity of the IBC, so where is the question of promoters' entry in NCLT bidding of a stressed asset?

"But if the banks decide to strike a resolution outside the IBC with the promoters, then they, of course, stay in the scene and both creditors and debtors work out a loan repayment schedule," said a source saying there is no weakening of any structure, neither the IBC nor the resolve to recover loans by banks.

Former Banking Secretary R Gopalan also echoes this.

"If the stressed asset is referred to the IBC, then insolvency process will take place. As far as promoters are concerned, then the bar on them will apply if the case is admitted there in the NCLT. But if the case is not referred to IBC and lenders decide to take it out themselves with the owners of the defaulting company, then there will be the promoters' money coming in for the restructuring or repayment," Gopalan told IANS.

Banks are the best judge to take a call on referring cases to National Company Law Tribunal (NCLT) on case by case basis, or if any outside redressal, said officials.

On cases which have been referred under the IBC but not admitted yet, they said if the lenders opt for other mechanisms which were earlier in practice and the government decides to reactivate them into applications, then both sides can agree to use these mechanisms.

All these will not be now directed by the Reserve Bank of India as was earlier, that is the only difference. The order does not take away the seriousness of the bankers to resolve the loan repayment process but not within 180 days anymore. The time limit is gone but not the processes, sources added.

According to the RBI's last year circular, lenders had to classify a loan account as stressed if there was even a day of default. It was mandatory for bankers torefer all accounts with over Rs 2,000 crore loans to the NCLT or the bankruptcy court if they failed to resolve the problem within 180 days of default.

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