If General Motors can continue selling its Chevrolet brand of cars even after filing for the biggest industrial bankruptcy in the world in 2008, why is that Kingfisher Airlines is not flying, nor are its bankers able to recover dues from it despite promoter Vijay Mallya's and group companies' loan guarantees? The difference may lie in how courts look at bankrupt companies, attitude of the borrowers and the lethargy of bankers.
All that is set to change, thanks to the proposed bankruptcy law under the recommendations of the TK Viswanathan Committee which is poised to end decades of gaming the banking system by unscrupulous promoters and the endless obstacles imposed by the courts in the name of providing discretionary relief. Also, banks will have little to offer as excuse if they don't go after the ones who missed payments.
While the basis of any transaction in the world of business is the underlying contract between two parties and the failure to honour l leads to compensation to those who are owed, the Indian financial system was on the other end of the spectrum. The state-bank dominated system and a benign as well as a corrupt legal system distorted the banking atmosphere making it profitable for companies to default.
"Currently, banks are at the mercy of large corporate borrowers in case of a default because borrowers can delay the proceedings," says Saurabh Tripathi, partner and director at BCG, a consultant. "Privately, bankers say that they are helpless in large loan cases. This (bankruptcy) law will provide certainty to investors and lenders and will be useful for banks after the lessons learnt from the rise in NPAs in the last few years."
After half-a-century of efforts and nine committees, insolvency in India may become easier with the TK Viswanathan Committee proposing a timeline of 180 days — extendable by 90 days — to deal with applications for resolving cases of insolvency. During this period, the management of the distressed firm or debtor could be placed in the hands of a resolution professional — a new class of professionals equipped to deal with such cases, who would be supervised by a proposed new regulator
The average duration for unwinding a failed business in India takes some 4.3 years compared to the South Asian region's average of 2.6 years. In India, recovery value is limited merely to 25 per cent whereas in more efficient bankruptcy jurisdictions the recovery value is greater than 60 per cent in 1.8 years.
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