Supreme Court's Decision on Bhushan Power and Steel Acquisition
The Supreme Court's declaration of the acquisition of Bhushan Power and Steel by JSW Steel as illegal highlights procedural lapses in India's insolvency resolution practices.
Challenges in the Insolvency and Bankruptcy Code (IBC)
- Timely Resolution: The IBC is not fulfilling its promise of timely insolvency resolution, indicating a need for increased capacity to handle a growing number of cases.
- Incidental Bottlenecks:
- Inadequate information-sharing between borrowers and lenders complicates the resolution process.
- Tactical legal challenges are employed to delay resolutions.
Approach to Resolution
- Creditor Control: Currently, creditors are in charge of the insolvency process, which benefits debtors in cases of delay.
- Balanced Approach: IBC should adopt a balanced approach serving both creditors and borrowers, leading to a speedy resolution.
- Debtor Control: A system where debtors manage the process might face fewer objections from creditors and avoid the need for debtors to relinquish control post-resolution.
Recommendations for Improvement
- Deterrence Value: Increasing the deterrence value of admission to insolvency resolution can expedite arbitration proceedings between creditors and borrowers.
- Moral Hazard: The IBC should address the moral hazard related to inadequate risk management by both lenders and borrowers.
- Cost of Legal Remedies: Legal solutions for design or implementation inadequacies are expected to be expensive.