by engineer, advocate & ip anil chawlaindialegalhelp.com/files/insolvencycodebusiness.pdfb3....

Presentation at

SeminarSeminar

Organized by

Insolvency & Bankruptcy Board of India

On 17th August 2019

At National Law Institute University, Bhopal

By Engineer, Advocate & IP Anil ChawlaSenior Partner,

Anil Chawla Law Associates LLP

www.indialegalhelp.com

This Presentation gives the presenter’s views on the subject. It gives no legal advice. It is not intended to be either complete or exhaustive narration of the subject.

� Presenter is an entrepreneur. (Only one out of 20 speakers at the Seminar)

� We represent and advise only entrepreneurs and businesses.

� We never work for any bank or government company / department.

� We believe that entrepreneurs are nation-builders.

� Entrepreneurship is as much about failure as it is about success.

� We respect and empathize with the ones who have failed.

� We go out of the way to protect the nation-builders.

� Our motto – We add value to business.

August 2019 Copyright - Anil Chawla Law Associates LLP 2

A. Big Picture

A1. Productive vs. Unproductive

B. Critical Areas – IBC

B1. Insolvency ProfessionalA1. Productive vs. Unproductive

A2. Need for Balance

A3. Attitude Towards Productive

A4. Entrepreneur’s Response

Copyright - Anil Chawla Law Associates LLP 3August 2019

B1. Insolvency Professional

B2. Operational Creditor

B3. Bounced Cheques

Social, Historical, Economic PerspectiveSocial, Historical, Economic Perspective

A1. Productive vs. Unproductive

5Copyright - Anil Chawla Law Associates LLPAugust 2019

� Islam bans interest. Hinduism permits it but looks down upon it. Our model of

development has glorified it.

� Interest is seen almost a fundamental right.

� Free of risk while the productive bears all risks.

� True nature of interest – parasitical, unproductive live off the labour of productive.

� Emphasizes importance of capital against all other inputs – technology, labour,

innovation, management, government policies, the eco-system.

A2. Need for Balance


� Usurious Loans Act was defanged by bringing banks and NBFCs out of it.

� No definition of fair amount of interest. RBI also does not restrict interest charged.

� Banks and NBFC often charge interest (including penal interest) >24% p.a.

� If a bank / NBFC violates RBI norms or laws, the victim is mostly helpless.

� Bullying, shaming, strong-arm tactics are not uncommon.

� Killing a business by seizing all inflows is the norm. To hell with the law!

� For a banker (even public sector) – no ethics, no emotions, no national interest.

A3. Attitude towards Productive

� He is a criminal.

� Authority (non-productive) is always right.

� Productive must grovel before authority (lender). (Told to learn to be humble)


� Law should punish the promoter but never anyone else.

� Bank officer is entitled to kill 1000 jobs to protect his pension.

� Despite all wrongs of bank and others, if the enterprise fails hang the

promoter. (LIC refused Ajay Piramal’s offer of IL&FS shares at Rs. 740-750 / share demanding Rs. 1200.

Today the share is junk. Decision – Hang someone from IL&FS. LIC could do no wrong.)

� If you hang the entrepreneur upside down and roast him on fire, money

will fall from his throat. (That is why we are trying to get Vijay Mallya back. The bankers who

refused his one-time-settlement were obviously right.)

A4. Entrepreneur’s Response

� Go debt-free (Mukesh Ambani)

� Stop expansion

� Do not take any risks

Result

o Negative Industrial Growth

o Economic Slowdown

o Increasing unemployment


� Do not supply to anyone that seems risky

� Sell whole or part stake to foreigners

� Move out of India (Set up business abroad)

� Move out of industry to money-lending

� Move to trading Chinese goods

� Next gen takes up a job

� Suicide / Death by stress (Café Coffee Day /

MyCar)

o Increasing unemployment

o Collapse of law and order

o Excess liquidity with banks (No

takers for bank loans)

o Falling interest rates (Could even

turn negative)

o Dependence on foreigners

increases

o Risk to long-term national

security

Three Critical AreasThree Critical Areas

B0. IB Code - Objectives


� Maximization of Value of Assets

� Promote entrepreneurship

� Promote availability of credit

� Balance the interests of all stakeholders

Need to evaluate IB Code on each of the above four objectives.

B1. Insolvency Professionals

Most Insolvency

Professionals

working as RP’s

behave like a

vulture aiming to


� No interest in running the enterprise.

� Keen interest in liquidation to maximize fees. (Will recommend liquidation even without CoC doing so)

� Hardly any value added. More interested in legal formalities than contributing value.

� Stories of corruption are too often heard (and experienced) to be ignored.

vulture aiming to

profit from death of the enterprise.

B1 (Contd.). IPs - Problems

� Incompetence (Most persons who qualify as IPs have no experience or knowledge of running

a company or enterprise).

� Biased (Retired officers of banks are biased against entrepreneurs and biased in favour of

banks. They come with mentality of loan recovery and not of running an ongoing concern).

� Future Prospects (Banks can and do penalize any IP who takes a pro-business approach.


� Future Prospects (Banks can and do penalize any IP who takes a pro-business approach.

No IP can afford to lose regular business).

� Expensive Being an IP (Annual cost of being an IP is higher than the lifetime cost of being

an advocate).

� Bribes to Get Assignments (Rumors – some IPs pay 80% of fees as bribes).

� Corruption at Work (Rejecting claims unless under-the-table payments are received is

common. Demanding money from promoters, would-be-resolution-applicant and also others).

� Liquidation is more rewarding than resolution

B1(Contd.). IPs – Suggestions

� Only IPs with experience of running an industry should be allowed to be IRPs / RPs

for companies having industrial units.

� Ex-bankers should NOT be allowed to function as IRP or RP if the financial creditors

include banks / financial institutions.

� Persons with background of loan syndication or acting as middlemen for banks

should not be allowed to functions as IPs.


should not be allowed to functions as IPs.

� Cost of being an IP should be reduced to bring it in line with other professions.

� NCLT’s should be given powers to take action if an IP makes an application in

violation of his authority under law.

� IBBI should be faster in taking disciplinary action against corrupt IPs.

� Relief should be given to the suffering Corporate Debtor if its IRP / RP is found to

have indulged in wrong practice.

� Give role to promoters and Board of Directors instead of treating them as criminals.

B2. Operational Creditors

� Suppliers, sub-contractors, workers, staff and officers (Operational

Creditors) are the backbone of any company.

� OCs have with them essential skills, knowhow, technology, expertise,

experience which define a company.

� With the backbone broken, no company can revive.

� By denying rightful dues to OCs and by forcing sacrifices, IBC (a) activates


� By denying rightful dues to OCs and by forcing sacrifices, IBC (a) activates

a chain of sickness (b) kills chances of revival of a company.

� FCs lend based on detailed financial information, while OCs give credit

based on trust. IBC’s unfair treatment of OCs is destroying trust in the

economy.

� Unfair treatment of OCs will destroy small-scale industry of the country.

� General rule of law is that the weak ought to be protected. IBC does the

opposite.

� Equity, justice and fair play demand that OCs get higher ranking than FCs.

B3. Cheque Bouncing Sec. 138 NI Act

� IBC is silent about cheque bouncing cases under NI Act against Corporate

Debtor and its Directors & officers.

� Courts have taken the view that cheque bouncing cases are criminal

cases and are not covered under sec. 14 moratorium.

� Sec. 138 cases continue against the company even after resolution order

by NCLT.


by NCLT.

� No investor wants to touch a company with ongoing litigation.

� Banks and NBFCs are now taking signed cheques to secure all advances

and facilities.

� Cheque-holders are emerging higher than even secured creditors.

� Sec. 138 was introduced to secure trade transactions and not for banks

and NBFCs. The way it is being used, every entrepreneur who fails will

surely land up in jail. This is a big discouragement for risk-taking by

entrepreneurs.

B3. Cheque Bouncing Suggestions

� IBC should be amended to clarify that sec. 138 cases against the

Corporate Debtor as well as against all related persons are covered under

sec. 14 IBC.


� Cheque-holders may be put on par with secured creditors, under IBC.

� NI Act should be amended to stop Banks and NBFCs (all those holding

powers under SARFAESI Act) from filing complaints under NI Act. (Presently,

more than one third of all criminal cases across the country are cheque bouncing cases filed by

banks and NBFCs. High time that the courts get time to devote to more serious crimes. The

criminalization of all risk-takers (borrowers) must be stopped to save and revive Indian

economy).

Copyright - Anil Chawla Law Associates LLP 17

www.indialegalhelp.com

[email protected]

August 2019

Anil Chawla Law Associates LLP is registered with limited liability and bears LLPIN AAA-8450.

This Presentation is an academic exercise. It does not offer any advice or suggestion to any individual or firm or company. While all efforts have been made to ensure accuracy and correctness of information provided, no warranties / assurances are provided or implied. Readers are advised to consult a Legal Professional / Company Secretary / Chartered Accountant before taking any business decisions. Anil Chawla Law Associates LLP does not accept any liability, either direct or indirect, with regard to any damages / consequences / results arising due to use of the information contained in this Presentation.

by engineer, advocate & ip anil chawlaindialegalhelp.com/files/insolvencycodebusiness.pdfb3....

Documents