Tuesday, April 20

Supreme Court seeks role for operational creditors in IBC proceedings

NEW DELHI: The Supreme Court on Monday suggested that operational creditors of bankrupt companies be given a voice in the resolution proceedings in proportion to their debt, including voting rights.

In some cases, even the operational creditors’ debt is huge but at present they don’t have a say in the resolution process, a two-judge bench led by Justice RF Nariman said. The bench is expected to resume hearing of the case next month, when the court will reconvene after the winter recess.

Such creditors have to be given some voice in proportion to their debt and also be given voting rights, Justice Nariman suggested. Think about this and get back, he told attorney general KK Venugopal, who defended the Insolvency and Bankruptcy Code (IBC) in its current form vehemently and urged the court not to dilute it in any way.

Currently, operational creditors such as suppliers of products and services to bankrupt companies are not included on the committees of creditors (CoCs), which comprise financial creditors like banks. They have no voting rights when a CoC decides on what to do with an asset. The bench is hearing a slew of petitions challenging several provisions of the IBC as arbitrary and discriminatory.

While some have argued on the need to keep all promoter creditors of defaulted companies out of the resolution process, others stressed that without their involvement, creditors would fail to recover the true value of assets. Some have also sought a provision for debtors to be heard even when an insolvency proceeding has been initiated by the financial creditor.

Among those who have argued in the case was senior advocate KV Vishwanathan on behalf of Sanjay Singhal of Bhushan Power & Steel. He was assisted by lawyer Vrinda Bhandari. In his opening arguments for the government, the AG defended the IBC as a key piece of economic legislation which has aided recovery of loans for banks. He cited several figures to claim that the IBC process was robust.

“There have been signs of recovery after the introduction of the IBC over previous years. Credit realised by banks have risen. Bank growth has accelerated to touch double digits,” he said.

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