However, choosing not to impose a blanket ban on promoters from drawing up a resolution plan is also welcome. In certain cases, where businesses are complex, existing promoters are often best suited to step in as the white knight — provided of course their intentions are sound and the state of the business was more to do with external constraints than mismanagement. This brings us to the larger issue of separating the wheat from the chaff. While the wilful defaulter criteria will help filter mala fide promoters right away, it is not an exhaustive list. Data put out by CIBIL shows that wilful defaulters with outstanding loan balances of over ₹25 lakh (where suits have been filed) owed banks a little over ₹1 lakh crore as on March 2017; bad loans in the banking system are currently over ₹9 lakh crore. Hence the onus of digging deeper and ensuring the credibility of the resolution applicant will lie on the insolvency professional (IP) who takes over the reins of the business. The Insolvency and Bankruptcy Board of India only recently amended regulations, tightening the due diligence process, requiring the resolution plan to disclose details of the applicant and other connected persons.
The question is can an IP, being a chartered accountant or a lawyer, tackle multiple roles — from driving a credible resolution plan to managing the day-to-day operations of the company and running a forensic check on the prospective buyer? Meeting the 270-day timeline to arrive at a resolution plan could prove a stretch. That said, the many tweaks in the code and recent rulings seeking to thwart promoters’ efforts to delay the recovery process are steps in the right direction. The recent amendment streamlining the process of selecting buyers also follows concerns emerging after a resolution plan made by a company related to the corporate debtor. With the IBC still evolving, it needs to be seen if it can indeed deliver where earlier resolution structures failed.