Congress flags low debt recovery under Insolvency and Bankruptcy Code

The Congress on Friday attacked the government over the low debt recovery under the Insolvency and Bankruptcy Code and asked whether it was a mechanism to rescue stressed firms or another tool for “organised loot".

The Opposition party also asked whether the Insolvency and Bankruptcy Code (IBC) was aimed at helping cronies for creating monopolies by transferring businesses at throwaway prices.

Addressing a press conference at the AICC headquarters here, Congress spokesperson Gourav Vallabh said the IBC of 2016 was billed as a game changer and one of the “big-ticket economic reforms” by the Modi government but the reality is that it has turned out to be far worse than its predecessor – the Sick Industrial Companies Act (SICA) of 1985, and its Board for Industrial and Financial Reconstruction (BIFR).  He said that at a time when people are struggling to make ends meet, the total recovery of debt under IBC is at only 17.6 per cent of the “admitted claims,” resulting in a loss of 82.4 per cent for financial creditors of their credits or loans.  Vallabh claimed that 75 per cent of the firms under the IBC end up in scrap sales. 

"As per the Insolvency and Bankruptcy Board of India (IBBI), total recovery of debt under IBC is at only 17.6 per cent of 'admitted claims' by the end of FY 2023, inclusive of all previous recoveries. In other words, banks, mostly public banks, and other financial creditors have lost 82.4 per cent of their credits or loans through the IBC by the end of FY23," Vallabh said.

The debt recovery under IBC is far worse than its predecessor mechanism, which was 25 per cent under the SICA, he said.

The Congress leader said the IBC's primary goal is to rescue and revive firms facing financial stress for different reasons and protect the creditors but this has been defeated because 75 per cent of the firms undergoing the IBC proceedings have ended up with 'liquidation' – the rest 25 per cent in 'resolution', he said.

Besides, debt recovery from liquidation is a mere 5.6 per cent (Till FY 23) – that is, 94 per cent of money ploughed into 75 per cent of firms undergoing the IBC have been lost permanently, Vallabh claimed.  "Imagine the magnitude of economic loss – money for bankers, plant and machinery and jobs, etc. The parliamentary panel in 2021 had also expressed serious concerns and asked the government to take several steps, including fixing a benchmark for the quantum of haircuts," he said.

The remaining 25 per cent of firms that had gone for recovery through 'resolution' in which bankrupt firms are taken over and revived, recoveries were recorded at 31.8 per cent by FY23, he said, adding this is a net loss of 68 per cent of the capital.  During the IBC processes, asset stripping is prohibited and should be restored as fast as possible to ensure the firms don't lose their intrinsic value, Vallabh said.  "By FY23, the number of such transactions was 871, amounting to Rs 2.85 lakh crore and what was 'clawed back' was only 1.8 per cent, he claimed.

Vallabh alleged that the Adani Group has used the IBC to acquire stressed assets and consolidate its position in power and ports.  "Adani has made three significant acquisitions -- where the realisation for lenders has been more than Rs 1,000 crore -- through the corporate insolvency resolution process," he alleged.

Adani Ports and Special Economic Zone Ltd (APSEZ) completed the acquisition of Karaikal Port Private Limited (KPPL) and as per the resolution plan, Adani Ports paid Rs 1,583 crore for the Karaikal Port, he claimed.  The admitted claims for KPPL were Rs 2,997 crore, he said.

In the acquisition of Korba West Power plant, Adanis paid Rs 1,100 crore to financial creditors, who had together admitted claims of Rs 3,346 crore, he alleged.  In the case of Essar Power, the approved resolution plan provides for payment of Rs 2,500 crore as against the admitted claim of financial and operational creditors to the tune of Rs 12,000 crore, the Congress leader claimed.

"We have a very simple and straight question for Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman – Is IBC a mechanism to rescue and revive stressed firms or another tool for organised loot and helping cronies for creating monopolies by transferring businesses at throwaway prices," Vallabh asked.