7 is the new 13!

Amongst the various policy guidelines from the RBI and the modifications to various Acts by Government in recent years , the Insolvency and Bankruptcy Code (IBC: made into law in 2016), is creating ripples in Corporate India. The preamble stresses on the objective of speedy resolution of disputes on bad loans keeping in mind the interests of both the Borrower and the Lender, minimizing loss of asset value which otherwise occurs due to prolonged litigation.

The Code has laid out a procedure to resolve all disputes on bad loans between Borrower and Lender  ( or Debtor and Creditor) within a 180 day time frame.

Clause 7 in the Code provides for any Financial creditor ( as contrasted to an Operational creditor-one who is due for goods delivered or services rendered) to file an application before the National Company Law Tribunal(NCLT) with all facts. If the documentation is in order and the Authority is convinced , he/she just needs to "admit" the application and the process commences... within 14 days of the application . The first blow to the debtor is, that without the opportunity of being heard   an advertisement in a prominent newspaper of the Insolvency process is released again within 14 days. Pretty hard!

The harder bit  is, even if a settlement is reached with the applicant creditor, the process MUST still go on and the debtor has to settle with all creditors, irrespective of whether they raised the matter in the first instance!

Fortunately in the latter case, the Supreme Court have stayed proceedings in two cases. Hopefully that should set a precedent. But the damage to the debtors reputation is done.    

And as far as the first one of admitting the application without a hearing from the debtor, the Authority themselves seem to have realized the unfairness of it, and in recent applications an opportunity has been given to the debtor.

Else 7 is the new unlucky number !