Undoing IBC

Only the other day, I did a post on the recovery of non-performing assets in India. I wondered or hoped if IBC would help drive a bigger recovery than we have seen in recent years. But, came this op.-ed., in BusinessLine that threw some cold water on my optimism. The reactions to this from friends (they shall remain anonymous) were interesting.

One wrote: This confirms the Gunnar Myrdal thesis: India is a soft state.

Another wrote:

I think it failed purpose in its conditional clauses. It tries to avenge and recover – both cannot sustain. Its dharma  should have been to extract the best price for the assets — from whosoever. This was not to be because the political objective of optics of punishment found place in the rules. The process of criminality or malfeasance cannot be pre-judged by barring original promotersits a mess from day one.

I asked him:

I see your point. Jayanth Varma has made the same point in one of his blog posts too that “dharma  should have been to extract the best price for the assets — from whosoever.”
However, I have this question:
if the borrower was able to bring  70 to 80 paise on the Rupee he owed, clearly, there was a very high probability that the default and the refusal to keep the loan current were mala fide?
How should that be dealt with? Should the asset be sold first back to him and then pursue him separately for fraud? That won’t work and might not be legally tenable.

His response:

I agree it’s complex. But case has to be proved not presumed. So question source of funding, create escrow and process investigation on the side.

Appears reasonable.

Another friend wrote:

But this is typical of the judiciary. India’s courts always act as they please. The law as written does not apply to them; they consider the written text as a suggestion to be considered as far as  possible. Because of the contempt law, the intelligentsia is reluctant to lay blame at their door. Much easier to blame the executive, the politicians etc.

The fourth friend sort of echoed the above:

This is the problem when you allow the judiciary and retired judges to decide such cases. They play to old instincts where worker interest ia paramount. Also NCLAT tends to take long judicial vacations

While two have blamed the judiciary and the retired judges who man the NCLAT for these interpretations, the truth might be more nuanced. The morality aspect may be given more weightage than is due or necessary while the recovery aspect should have been accorded primacy.

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