IP Bhaskar Gopal Shetty

  December 21, 2021

The recovery v/s resolution issue under IBC is serious, and something has to be done to incentivise secured creditors to opt for resolution over liquidation.

(Mr. Shetty is a Mumbai-based IP)

  • Can you tell us a little bit about yourself and your professional background? What led you to choose to become an Insolvency Professional?

I am a practising Chartered Accountant. When IBC came out I considered it as something that would allow me to contribute something to the society. It would allow me to work pro-actively to bring about meaningful developmental changes in the society and economy at large. And I believed my personality and disposition aligned well with this kind of work. Therefore, I decided to become an Insolvency Professional. 

  • Based on your experience as an IP, can you talk a little about some major challenges that you face, and how you deal with them?


      • On convincing the stakeholders about IBC

Today, the main challenge is to make everyone understand the IBC — promoters, bankers, and other stakeholders. We have a hard time convincing them about IBC, how it functions, etc., and this is true even for representatives from big banks like the HDFC Bank that has its full-fledged legal team. Even more challenging is that these things have to be done within strict timelines. Once they are convinced, then the processes under IBC become simpler. 

      • On delays before the NCLTs

Another significant, rather the most significant issue is that the NCLTs are now becoming huge hurdles in the process, due to excessive delays. I had moved a liquidation application, which is pending for some two years now without a single hearing. In such situations, it is really difficult to comply with the strict timelines, let alone maximising the value of the assets of the corporate debtor. In this case, I have hired security guards just to protect the assets and am paying them three lakhs a month, so undue delay in the process leads to further value depletion.

I have written to the IBBI that there should be dedicated NCLT benches just for insolvency cases. Currently, they handle various other corporate matters as well.

      • On Section 19(2) applications

Due to the delays before NCLTs, Section 19(2) applications also become worthless. Under IBC, you would get many cases where the promoters and directors would have committed one fraud or the other, and they would try to cover them by not providing you sufficient information. In response, if you file a Section 19(2) application, you face delays before the NCLTs. In one case I had filed a 19(2) application, and the hearing came after a long time. The NCLT member then reprimanded that why did you not do anything else other than filing this application, like file a police complaint. I knew that a police complaint can be filed, but I say that first the direction has to come from the NCLT on the 19(2) application to that effect. Anyway, I did not argue with the member on this further and later filed a police complaint, which has been lying in the police station for a long time now. Interestingly, the NCLT’s order on Section 19(2) application did not even mention the word ‘police complaint’, it just mentioned that the RP is directed to take steps to obtain possession of the assets. So, it appears that there is haziness in the law as far as police complaint is concerned in a Section 19(2) application.

      • On the tasks of an IP

Once you are appointed as an IRP, many a times, there will be no information available regarding the corporate debtor to proceed with. But then you have to do your work like an investigator, and dig up the matters. It is not easy, as people will not be willing to share the information, and multiple other challenges will come. In such situations, mere academic knowledge of the law will not do anything. This is where you have to apply your experience, knowledge, intelligence, and all. You have to be invested in your assignments whole-heartedly. So, I feel this huge commitment and investment that an IP makes in the process is not adequately acknowledged enough by the IBC. 

  • Coming to some recent developments, a report on Cross-Border Insolvency has been released recently. You mentioned that in one of your assignments a Canadian company was involved and getting anything done in that was very challenging. So, do you think that the proposed cross-border insolvency framework may do some good in that regard? Report accessible here.

See, it will solve the problem. But it will take its own time. Firstly, it will be a time-taking process. Since regular insolvency cases take over a year, cross-border cases will take more time than that. Secondly, multiple agencies will then come into picture from across the borders. So, cooperation among the agencies will be a big challenge in practical terms. However the law is structured academically, these will be the practical challenges.

  • Post-COVID, different legal regimes have undergone one or the other changes. Do you think that there has been any significant change in the IBC regime post-COVID?

Absolutely nothing has changed except for the increase in default threshold and further delays in the functioning of the NCLTs.

  • Going a bit back in time, considering the pre-IBC era and the post-IBC era, apart from the legal changes that we have, do you also see any behavioural changes in the lending and the borrowing community due to the IBC?

Yes. Definitely, there have been behavioural changes. The debtor community shows more credit discipline than before. They know that on their default, the creditors would immediately go the NCLT and the promoters would lose hold of their company. So, they are taking their debt obligations very seriously and do their financial plannings accordingly.

One more thing I would mention that, in my assignments, I deal with the promoters in a very friendly manner. I tell them that they have nurtured their company over the years that has somehow become distressed, and that we have to come out of it together. The cause of distress may be a genuine business failure for which the promoters are not responsible, and I tend to acknowledge this fact because without their cooperation, IBC process cannot run smoothly. No one knows a business better than its promoters. When I talk about the promoters I do not refer to those big fraudulent businesses that we hear about, those are few. I am talking about genuine businessmen whose companies happen to come under insolvency. 

  • I see that you are the RP in the cases where you were also the IRP. I hope some of them would have reached the resolution plan stage. What do you think are some major roadblocks in successful resolutions, apart from some obvious reasons like delays, value depletion, etc.?

The primary interest of a secured creditor is the recovery of his money and not the survival of the company. In one of my assignments, there were two financial creditors – a bank and a personal financial creditor having voting shares of 44% and 56%, respectively. A resolution plan offered a very good deal for all the stakeholders (including operational creditors) on which the personal financial creditor agreed (56% vote), but the bank did not agree. Reason being that the plan offered him only 50% and he being the first charge holder could recover 100% on liquidation. So, despite the major financial creditor (56%) agreeing to the plan, the plan could not be passed because the law requires 66% votes in its favour. 

Here, sadly a good plan could not get passed, because the first charge holder (secured creditor) saw more recovery in liquidation. So, this recovery v/s resolution issue is serious, and something has to be done to incentivise secured creditors to opt for resolution over liquidation. Currently, they opt for resolution only when there is absolutely no chance of better recovery in liquidation, and not otherwise.

  • Similar to the case you mentioned, I am sure there would be many similar cases with only 2-3 financial creditors, where getting 66% would practically mean getting 100% approval from the financial creditors. So, considering such instances, do you think that IBC should have some accommodations to slightly deviate from the 66% mark and accept a figure, say, above 50% to approve a plan?

Certainly. Something has to be done. I think the RP should be asked to give a report expressing his opinion on whether the corporate debtor is fit for resolution or not. In such situations, if the chances of resolution is high, the RP should allow for some relaxation in the 66% mark.

  • Any advice you would like to give to young professionals willing to become an IP…

This is a very challenging profession as every assignment is a whole new experience with new people and new issues. The success mantra is understanding how to tackle and negotiate with the stakeholders at every stage in this process, which is a tough task.

Further, you should have a balanced mind. You are like a judge, you have to listen to all the stakeholders, and have a balanced attitude. It is challenging, but at the same time rewarding.

(This interview was conducted by Kumari Saloni and has been edited and condensed for clarity.)

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