Mumbai: The government is planning a separate legislation for registered valuers who can help arrive at a better valuation of bankrupt companies under the insolvency process, a senior government official said.
Of the 40 largest NPA accounts sent to various NCLTs since last July, which together constitute around 40 per cent of the over Rs 11-trillion of bad loans, only seven have been resolved so far, wherein the banks have taken an average haircut of over 60 per cent only as some accounts like Alok Industries have been bid out for a paltry 17 per cent of the money the bankrupt company owed to the lenders.
Noting that the nascent insolvency and bankruptcy code (IBC) is stabilising, corporate affairs secretary Injeti Srinivas said proper valuers are the critical missing link in the process now as most of the insolvency professionals are poorly equipped being it a new area for them.
“You have registered valuers now. But you don’t have a separate law for them. We are looking at the possibility of a separate law say for chartered accountants, or company secretaries. We are assessing whether we can have a full-fledged law to regulate them as they are most critical in the success of the insolvency process,” Srinivas told an event organised by the industry lobby CII here.
He further said IBC has a robust legal framework, but the weak area is the lack of experience of the insolvency professionals (IPs).
“The insolvency professionals are very poor now. Unlike chartered accountants, company secretaries, cost accounts, who have been there for decades together, the IPs are new,” he said.
Noting that valuation is at the core of bankruptcy proceedings, he said, “valuation is a very serious area as this is lying at the heart of the entire process. If valuations are faulty, the outcomes will be undesirable.”
He also said other weak points are information utilities, which are still to take off. Similarly, the IPs have to be strengthened a lot more, maybe under the insolvency professional entity.
Ruling out auction of bankrupt assets as an unviable option, Srinivas said the “bankruptcy process is complicated as there are so many stakeholders, so many contractual obligations and so many jobs are at stake. It is not very easy to monetise everything and get a price.”
“Maybe at a future date we can think of a two-stage process wherein at the first stage you will have financial and non-financial templates and evaluate, short-list their quotes and then go in for auctions. In which case the highest bidder will be able to get the asset,” he said.
Underlining the need to stick to the law-mandated timelines in resolving the crippled assets, Srinivas said, “we need to find ways and means to stick to the timelines. When you will have timely intervention, timely reference, the asset value would have been largely preserved.”
Dispelling the criticism that IBC is anti-promoter, he said the first amendment to the code in November 2017 was influenced by a Supreme Court order which had said deeply trenched promoters must realise that for them to continue in management they have to pay back.
“This amendment has actually given a window of opportunity to the promoters-yet another chance for them to clear the dues. The law is not anti-promoter as the restriction is not on promoters but on resolution applicants. Promoters can also be a resolution applicant and have to pass the basic test like everybody else.”
Addressing the event, MS Sahoo, chairman of the Insolvency and Bankruptcy Board of India, said there is a critical role of the registered valuers in the IBC and the board has already registered eight registered valuers organizations.