Modi’s Government Bites The Reform Bullet: Insolvency And Bankruptcy Code, Privatisation Of Air India
Reforms enacted recently and the emergence of a national asset reconstruction agency (NARCL) will help clean up balance sheets of banks and make fresh capital available from the sale of bad assets, fostering credit growth. A supposedly incompetent opposition has accused the government of writing off loans, however, as outlined in the RBI’s provisioning guidelines.
Unlocking Value Through Quick Resolution
The banks try to recover loans even if they have been written off. However, a waiver is not the same thing as a write-off. The difference between write-off and waiver is that the former involves a technical adjustment, while the latter means the banks have given up their right to collect their bad debts from debtors. While banks have written off bad loans under the Modi government, they have not been waived. The IBC has recovered large sums even on written-off loans.
Corporate Insolvency Resolution Process (CIRP) is a method that can be considered an alternative to PIRP. The CIRP stipulated that it was primarily the creditors of a company that could initiate an insolvency proceeding. However, the PIRP stipulates that only the corporate debtor is allowed to initiate a resolution. Its purpose is to provide special assistance to distressed SMEs and to help cover 99% of businesses and SMEs registered with the GST. The requirement for a base plan even before the commencement date of insolvency resolution is one of the main benefits of the new PIRP over the earlier CIRP. To initiate PIRP, a corporate debtor must have a base resolution plan when applying with the NCLT.
In Section 67A, the NCLT may sanction an officer between Rs 1 lakh and Rs 1 crore, if after commencing PIRP, it discovers that the CD is being managed to defraud creditors. The Modi government has amended the Insolvency and Bankruptcy Code to protect not only the interests of large stakeholders but also those of small creditors.
Section 54B mandates that the resolution professional prepare a report on whether the CD meets the eligibility criteria under Section 54A as well as determining whether the base plan is legally sound. A smooth process is further ensured by the provision that outlines the powers of the RP. Under section 54C, the debtor requires the approval of at least 66% of its financial creditors before filing with the NCLT. According to section 54A of the law, a debtor must provide a base resolution plan to the CoC before the plan will be approved.
Upon beginning, a 120-day timeline must be followed. CIRP must be completed within 330 days according to the Code. Many industry experts have reported that the CIRP is a cumbersome, time-consuming process that can be quite costly as well. PIRP is competitive due to its 120-day duration, which is a lot shorter than PIRP. Within 90 days of the date of insolvency commencement, the resolution professional must submit the approved plan to the NCLT. The resolution professional must initiate PIRP termination on the expiry of such period if the committee has not approved a resolution plan within the stipulated 90-day deadline.
Assuming the resolution plan was approved by the committee within 90 days and submitted by the RP to the NCLT, the NCLT must approve the plan within 30 days of receipt. Under Section 31, subsections (1), (3), and (4), the order of approval shall take effect. The Tribunal may revoke the plan under Section 54N of the IBC if it is not satisfied with it. In addition to the new amendment to the IBC, one separate provision relates to the management of corporate debtors. PIRP prevents business disruption by providing control to small businesses, unlike the CIRP where the creditor assumes all control.
Modi Government Has Exhibited Sound Business Sense
Several economic reforms have been adopted by the Modi government to make insolvency resolution simpler and more efficient. These reforms complement informalities with statutory processes to ensure that there is no “one size fits all” treatment. Furthermore, the 120-day statutory period in the new PIRP process will ensure that corporate debtors are not eroded in value and the organization can continue business as usual.
In addition, the RP will prevent any costs from spiraling since it will not run the business as a going concern. Neither the quality nor the lifespan of a stressed asset can be lengthened, and a prolonged life cycle only worsens it. By speeding up and reducing the resolution process, the PIRP greatly contributes to preserving asset value. Smaller companies are expected to experience the greatest benefit. With the PIRP process being largely time-bound and consensual, the NCLTs will sorely need to reduce their caseload because litigation time is significantly reduced.
There are around Rs 61,562 crores in Air India’s total debt, with the airline spending over Rs 1.1 lakh crore in the past five years. It is a legacy of the corrupt Congress regime that has sunk Air India with a series of damaging economic policies that have brought in losses of over Rs 70,000 crore, at a loss of Rs 20 crore per day. In 68 years, Nehru’s socialism causes a great deal of damage. Prime Minister Narendra Modi has emerged as a leader capable of reversing the damage.
The Air Corporations Act of 1953 nationalized nine airlines: Air India, Air Services of India, Airways (India), Bharat Airways, Deccan Airways, Himalayan Aviation, Indian National Airways, Kalinga Airlines, and Air India International. Indian Airlines and Air India International then became responsible for these services. Bringing airlines under government control has not been the unpalatable truth.
The wrong path was taken by Indira Gandhi. The Banking Companies (Acquisition and Transfer of Undertakings) Act of 1969 entailed the nationalization of 14 banks with effect from July 1969. Legislation enacting that effect was passed in March 1970. In theory, this nationalization was to help agricultural productivity, encourage small businesses, and boost exports. This goal, however, was not realized. However, Indira continued nationalizing banks in 1980, resulting in the nationalization of six more banks. General Insurance Business (Nationalization) Act, 1972 by Indira Gandhi also ensured the nationalization of general insurance.
Coal India Limited (CIL) and coal mines were also nationalized by her in 1973. Denationalization of CIL is another move by the Modi government designed to promote productivity and discourage inefficiency. The Tata family, an Air India’s founding family, has turned around and returned to the fold. In the long run, this could prove to be a bountiful deal in the hands of the new owners if it is approached properly by the Modi government.
Since November 1, 2019, Air India has been operating flights to 98 destinations (56 domestic departures per week and 42 international) across 98 countries. Since its founding in 1932, Air India has been a leading passenger airline. JRD fought valiantly against Air India’s nationalization in 1953 under Jawaharlal Nehru’s then government. Despite these losses, Nehru decided to nationalize 11 airlines and merge them into one state corporation. Aside from Air India, all of the other states’ airlines were making heavy losses. The fact that Air India is going back to the Tatas, over 68 years after it had been nationalized, demonstrates how PM Modi blends his roles as a reformer and a welfare state provider seamlessly.
