POLITY AND GOVERNANCE

1. TUSSLE IN KERALA: CAN GOVERNOR DISMISS A STATE MINISTER?

THE CONTEXT: Kerala’s Governor recently threatened to sack ministers who “lowered the dignity” of his office.

THE EXPLANATION:
According to the Governor, the CM and Council of Ministers have every right to advise Governor but statements of individual ministers that lower the dignity of the office of the Governor, can invite action including withdrawal of pleasure”.

What role does the Governor play in the parliamentary system?

• The position, role, powers, and conditions of office of the Governor are described in Articles 153-161 of the Constitution. The position of Governor is similar to that of the President at the Union. He is at the head of the state’s executive power, and barring some matters, acts on the advice of the council of ministers, which is responsible, in accordance with the parliamentary system, to the state legislature.
• The Governor is appointed by the President (on the advice of the central government) and, therefore, acts as the vital link between the Union and the state governments. The post was envisaged as being apolitical; however, the role of Governors has been a contentious issue in Centre-state relations for decades.
• The Governor enjoys certain powers such as giving or withholding assent to a Bill passed by the state legislature or determining the time needed for a party to prove its majority — or which party must be called first to do so, generally after in a hung Assembly — which have been weaponised by successive central governments against the political opposition.

Does a Governor have the power to remove a Minister?

• Article 164(1) says state “Ministers shall hold office during the pleasure of the Governor”.
• However, Constitutional experts say the Governor cannot remove a minister in their own capacity without obtaining the sanction of the Chief Minister or consulting with the latter.
• If a Governor removes a minister in their own capacity, that will result in ‘parallel governance’.
• Only when the Chief Minister allows it, then the Governor is empowered to remove the minister.

VALUE ADDITION:
Sarkaria Commission (1983) –

• The Commission was set-up to look into Centre-state relations. It has proposed various additional criteria for appointing someone to the Governorship.
• It proposed that the Governors be appointed after effective consultations with the State Chief Minister and Vice President and Speaker of the Lok Sabha should be consulted by the PM before his/her selection.
• National Commission to Review the Working of the Constitution (2000) –
• The Commission recommended significant changes in the selection of Governors.
• The Commission suggested that the “Governor of a State should be appointed by the President, after consultation with the Chief Minister of that State”.

Punchhi Commission (2007) –

• The Commission proposed that a committee comprising the Prime Minister, Home Minister, Vice President, Speaker, and the concerned Chief Minister should choose the Governor.
• It further recommended deleting the “Doctrine of Pleasure” from the Constitution, but backed the right of the Governor to sanction the prosecution of ministers against the advice of the state government.
• It also argued for a provision for impeachment of the Governor by the state legislature.

INTERNATIONAL RELATIONS

2. CHINA AGAIN BLOCKS 2 PROPOSALS ON PAK. TERRORISTS AT UNSC

THE CONTEXT: Recently, China has blocked a proposal by India and the US at the United Nations to list Lashkar-e-Taiba (LeT) leader Shahid Mahmood as a global terrorist.

THE EXPLANATION:

• This is the fourth time in as many months that Beijing has blocked bids to blacklist Pakistan-based terrorists at the UN. India and the US had proposed that Mahmood, be designated as a global terrorist under the 1267 Al Qaeda Sanctions Committee of the UN Security Council.

Who is Shahid Mahmood?

• According to the US Department of Treasury, which designated Mahmood as a Specially Designated Global Terrorist (SDGT) in 2016, he is a senior LeT member based in Karachi, and has been affiliated with the group since at least 2007.
•  “As early as June 2015 through at least June 2016, Mahmood served as the vice chairman of Falah-i-Insaniat Foundation (FIF), a humanitarian and fundraising arm of LeT. In 2014, Mahmood was the leader of FIF in Karachi. In August 2013, Mahmood was identified as a LeT publications wing member”. Mahmood has also travelled to other countries on behalf of LeT.

China blocking terrorist designations in the past

• In June this year, China put on hold a proposal by India and the US to blacklist Pakistan-based terrorist Abdul Rehman Makki under the 1267 Al-Qaeda Sanctions Committee.
• Then in August, China blocked a proposal by the US and India to blacklist the senior Jaish-e-Mohammed (JEM) leader Abdul Rauf Azhar.
• In September, China again blocked a proposal moved by the US and co-supported by India to designate Lashkar-e-Taiba terrorist Sajid Mir as a global terrorist. Mir is one of India’s most wanted terrorists and has a bounty of USD 5 million on his head by the US for his role in the 26/11 Mumbai terror attacks.

What is the 1267 Al Qaeda Sanctions Committee?

• The committee is part of the UN Security Council and its job is to implement international sanctions against terrorists. The other two committees with similar roles are the Counter-Terrorism Committee and the Security Council Committee
• The Al Qaeda committee was established as the Al-Qaida and Taliban Sanctions Committee on October 15, 1999, after Security Council Resolution 1267 designated al-Qaeda and the Taliban as terrorist bodies. In 2011, a separate committee was formed for the Taliban.

ENVIRONMENT, ECOLOGY AND CLIMATE CHANGE

3. TAMIL NADU LAUNCHES MISSION TO SAVE CRITICALLY ENDANGERED VULTURES

THE CONTEXT: Recently, Tamil Nadu Government formed a State-level Committee to set up an institutional framework for the effective conservation of vultures, which almost went extinct in the country at the beginning of the 21st century.

THE EXPLANATION:

• In Tamil Nadu, four species of vultures are found — the Oriental white-backed vulture, the long-billed vulture, the red-headed vulture, and the Egyptian vulture. “The first three are residents and can be found in the landscapes of the Nilgiris and Sathyamangalam”.
• According to sources, 96% decline in India’s vulture population between 1993 and 2003, the Central government put into place two action plans to protect the species at the national level — the first in 2006 and the second, ongoing plan for 2020-2025.
• One of the important action points in this nationwide plan is the formation of State-level committees to save the critically endangered population of vultures.

About Vultures:

• It is one of the 22 species of large carrion-eating birds that live predominantly in the tropics and subtropics.
• They act an important function as nature’s garbage collectors and help to keep the environment clean of waste.
• Vultures also play a valuable role in keeping wildlife diseases in check.

Why is the vulture population so significant?

• Vultures clear the carcasses of dead animals (nature’s cleanup crew) playing a crucial role in maintaining the health of the ecosystem
• Vultures have a highly acidic stomach that helps them kill disease-causing bacteria
• Reduces the health hazards associated with feral dogs that consume carcasses

Conservation Status:
Bearded, Long-billed, Slender-billed, Oriental white-backed are protected in Schedule-1of the Wildlife Protection Act 1972. Rest is protected under ‘Schedule IV’.

National Efforts

• India banned diclofenac for veterinary use in 2006.
• Action Plan for Vulture Conservation 2020-25 was released by MoEFCC.
• The vulture Conservation Breeding Programme (CBP) was established by Central Zoo Authority and Bombay Natural History Society (BNHS) for captive breeding.
• Vulture Safe Zones are declared when no toxic drugs are found in undercover pharmacies and cattle carcass surveys for two consecutive years.
• A vulture restaurant has been established at Phansad wildlife sanctuary near Murud in Maharashtra.

International Efforts

• Saving Asia’s Vultures from Extinction (SAVE) – A consortium of like-minded, regional and international organizations for the conservation of south Asia’s vultures.

GOVERNMENT SCHEMES AND INITIATIVES IN NEWS

4. DRAFT OF NATIONAL CREDIT FRAMEWORK (NCRF)

THE CONTEXT: Recently, Union Minister of Education and Minister of Skill Development & Entrepreneurship launched the National Credit Framework (NCrF) draft for public consultation.

THE EXPLANATION:

• The National Credit Framework (NCrF) to facilitate the integration of academic and vocational domains in order to promote flexibility and mobility between the two.
• The NCrF would change the game by providing students with a wide range of opportunities for future development and integrating formal education with experiential learning and vocational education, mainstreaming skill development and vocational education.
• The NCrF will also provide an opportunity for students who have left the system of traditional education to re-join.

Objectives:

• Integration of academic and vocational domains to ensure flexibility and mobility between the two.
• Mainstreaming of skilling and vocational education by inter-mingling school and higher education with vocational education and experiential learning.
• National Credit Framework NCrF will also enable students who have dropped out of the mainstream education to re-enter the education ecosystem.

Operationalization:

• The NCrF will be operationalized through the Academic Bank of Credits (ABC) which was launched in 2021 by the University Grants Commission for higher education.
• The ABC works as a digital repository of credits earned by students. So far, it is limited to higher education.

Components: The National Credit Framework NCrF encompasses the following three components.

• National Higher Education Qualification Framework (NHEQF
• National Skills Qualification Framework (NSQF)
• National School Education Qualification Framework (NSEQF)

5. SWADESH DARSHAN 2 SCHEME

THE CONTEXT: The government recently revamped the scheme as Swadesh Darshan 2.0 (SD2.0) to develop sustainable and responsible destinations with tourist and destination centric approach.

THE EXPLANATION:

• The initiative is being taken as part of the first phase of the ‘Swadesh Darshan 2’ which will be kicked off from January 2023.
• Prayagraj, Chitrakoot, and Gwalior are among the cities identified in 15 States across the country to be promoted as part of India’s new domestic tourism policy which moves away from theme-based tourist circuits and focuses on revving up destination tourism.
• Fifteen States are part of the first phase which include Madhya Pradesh, Karnataka, Tamil Nadu, Uttar Pradesh, and Maharashtra. Two destinations from each State have been identified, sources in the Ministry of Tourism.
• ‘Vocal for local’: According to the sources, the scheme has been revamped with the mantra of “vocal for local”, adding that the scheme was essentially aimed at targeting domestic tourists.
•  Significance: According to the third Tourism Satellite Account for 2017-18, 2018-19, and 2019-20, the contribution of tourism to the employment of the country is 14.78%, 14.87 % and 15.34 % respectively.
• The total jobs generated by the by tourism are 72.69 million (2017-18), 75.85 million (2018-19) and 79.86 million (2019-20).

VALUE ADDITION:
About Swadesh Darshan Scheme:

• The Swadesh Darshan Scheme was launched by the Centre in 2014-15 for the integrated development of theme-based tourist circuits. Under the scheme, the Ministry of Tourism provides financial assistance to State governments, Union Territory Administrations or Central Agencies for development of tourism infrastructure in the country.
• The scheme was envisioned to synergise with other government schemes such as Swachh Bharat Abhiyan, Skill India, and Make in India with the idea of positioning the tourism sector as a major engine for job creation, driving force for economic growth, building synergy with various sectors to enable tourism to realise its potential.
• Some of the prominent circuits launched under this were the Buddhist tourist circle, Ambedkar Tourist Circle and the North-East Tourist Circle.

PRELIMS PERSPECTIVE

6. SIR SYED EXCELLENCE INTERNATIONAL AWARD FOR 2022

THE CONTEXT: Recently, American historian and internationally acclaimed scholar of South Asian history and Islam, Barbara D Metcalf, received the Sir Syed Excellence International Award for 2022.

THE EXPLANATION:
The annual award is given by the Aligarh Muslim University (AMU) on its founder Sir Syed Ahmad Khan’s birth anniversary. This year, AMU is marking the 205th anniversary of Sir Syed.

Who is Barbara Metcalf?
Professor Emerita of History at the University of California, Davis, Metcalf completed her PhD at the University of California, Berkeley, in 1974. It was during her postgraduate studies that she developed an interest in the modern history of the South Asia ulema (religious scholars of Islam).

Her scholarship on Islam
Her classic book, A Concise History of Indian (2002), which is widely used as a textbook for students of South Asian history, her other writings include: Islamic Revival in British India: Deoband, 1860–1900 (1982), Making Muslim Space in North America and Europe (1996), Islamic Contestations: Essays on Muslims in India and Pakistan (2004), Husain Ahmad Madani: The Jihad for Islam and India’s Freedom (2008).

Who is the award named after?
The Aligarh Muslim University (AMU) bestows a yearly International and National Sir Syed Excellence Award to noted scholars or organisations that produce seminal work in the areas of Sir Syed Studies, South Asian Studies, Muslim Issues, Literature, Medieval History, Social Reform, Communal Harmony, Journalism, and Inter-Faith Dialogue.

THE PRELIMS PRACTICE QUESTION

QUESTION OF THE DAY

Q1. With reference to Constitution of India, consider the following statements:
1. Governor of the state is appointed by the President of India.
2. Ministers shall be appointed by the Governor on the Chief Minister’s advice.
3. Ministers shall hold office during the pleasure of the Chief Minister.
Which of the statements given above is/are correct?
a) 1 and 2 only
b) 2 only
c) 2 and 3 only
d) 1 and 3 only

Answer: A

Explanation:

• Statement 1 is correct: Article 155 says that the Governor of a State shall be appointed by the President by warrant under his hand and seal.
• Statement 2 is correct and 3 is incorrect: Article 164 of the Constitution, says the Chief Minister shall be appointed by the Governor and other Ministers shall be appointed by the Governor on the Chief Minister’s advice, adds that “the Ministers shall hold office during the pleasure of the Governor”.

1. Everyday tapasya READ MORE
2. Faithline: Where do we begin to learn from READ MORE

1. In Thar desert, indigenous systems that help preserve water are fast vanishing READ MORE
2. A new lease of LIFE for climate action: The Lifestyle for Environment (LIFE) mission resonates with the global climate justice India has rightfully called for READ MORE

1. Reforming arts, crafts and culture education READ MORE
2. Tread cautiously on MBBS in mother tongue READ MORE

1. Why the Election Commission’s strategy to name and shame voters won’t help READ MORE
2. Pricing pressure: Sebi should avoid over-regulation READ MORE
3. Urbanisation without chaos: How to plan and govern our cities READ MORE
4. Fact check: Is the government right to criticise India’s low ranking on the Global Hunger Index? READ MORE

(Newspapers, PIB and other important sources)

Prelim and Main

1. Tamil Nadu’s mission to save the critically endangered vultures READ MORE
2. Indigenous UAV Rustom-2 to complete user trials by August 2023 READ MORE
3. ‘India fast emerging as a sizeable Web3 ecosystem’ READ MORE
4. Lothal, ‘oldest dock in the world’, to get heritage complex: Features, significance of the project READ MORE
5. PM Modi unveils Make in India new list: Frigates to SAMs READ MORE
6. Major wildfires in western US can increase severe storms in central states: Study READ MORE
7. Climate effect in space: Expect more satellite collisions READ MORE
8. Who is Shehan Karunatilaka, the winner of Booker Prize 2022 for Fiction? READ MORE
9. The next CJI will have the longest tenure in the last decade READ MORE

Main Exam

GS Paper- 1

1. Reforming arts, crafts and culture education READ MORE
2. In Thar desert, indigenous systems that help preserve water are fast vanishing READ MORE

GS Paper- 2

POLITY AND GOVERNANCE

1. Why the Election Commission’s strategy to name and shame voters won’t help READ MORE
2. Pricing pressure: Sebi should avoid over-regulation READ MORE
3. Urbanisation without chaos: How to plan and govern our cities READ MORE
4. Fact check: Is the government right to criticise India’s low ranking on the Global Hunger Index? READ MORE

SOCIAL ISSUES

1. Tread cautiously on MBBS in mother tongue READ MORE

INTERNATIONAL ISSUES AND RELATIONS

1. Many hurt in US tech war against China: America’s determination will deeply affect China but also companies around the world READ MORE
2. All major powers face two-front challenges READ MORE
3. The myth and reality of ASEAN unity READ MORE

 GS Paper- 3

ECONOMIC DEVELOPMENT

1. Digital Journey Roadmap to digital rupee isn’t too clear READ MORE
2. In the inflation fight, a liquidity conundrum READ MORE

ENVIRONMENT AND ECOLOGY

1. A new lease of LIFE for climate action: The Lifestyle for Environment (LIFE) mission resonates with the global climate justice India has rightfully called for READ MORE

GS Paper- 4

ETHICS EXAMPLES AND CASE STUDY

1. Everyday tapasya READ MORE
2. Faithline: Where do we begin to learn from READ MORE

Questions for the MAIN exam

1. Political parties are just representatives of the Indian people, but this is the Indian people, who are sovereign in India schemes like Electoral Bonds are making Indian democracy fragile. Discuss.
2. ‘Overcoming poverty is not a gesture of charity but an act of justice’. Analyse how philanthropy can be the catalyst for making make India a poverty-free country?

QUOTATIONS AND CAPTIONS

• You can’t go back and change the beginning, but you can start where you are and change the ending.
• Political parties are vehicles of representation for the Indian people –the Indian Constitution makes the Indian people sovereign and not political parties of Government –and the Electoral Bonds Scheme takes away the right of people to know about the information related to political parties.
• Governors seem to have an exaggerated notion of their own roles under the Constitution.
• Governor are expected to defend the Constitution and may use their powers to caution elected regimes against violating the Constitution, but this does not mean that they can use the absence of a time-frame for decision-making and the discretionary space given to them to function as a parallel power centre.
• An enabling policy regime, proactive government initiatives and supportive regulatory administration allowed the private and public sector entities in the financial sector to overcome longstanding challenges of exclusion of a large part of the population.
• Philanthropy can be the catalyst for innovation and action, while markets and governments can bring the much-needed scale to on-ground efforts.
• The US doesn’t have the people to help industry grow. That’s where India can step in, with its high-quality innovators and researchers.
• While there may be reasons to quibble over terms such as ‘hunger’ or ‘nutrition’, the upshot of the reports is that India still has the world’s largest number of poor and the highest number of malnourished children.
• Gene-editing has been a major scientific advancement, but the limits of such endeavours must be known as there are inherent dangers in doing so.
• Trust deficit mars Sino-India relations, as the tense Line of Actual Control poses a big challenge for the leadership.

ESSAY TOPIC

• Education is the kindling of a flame, not the filling of a vessel.
• Overcoming poverty is not a gesture of charity but an act of justice.

50-WORD TALK

• The government can very well dismiss the findings on poverty and hunger made by international agencies, but its rejections lack credibility. The only way to convincingly counter such studies is by releasing official data. Endless delays in the publication of official data mean researchers are forced to use other sources.
• Gujarat’s affidavit detailing paroles and furloughs for the Bilkis Bano convicts is supremely scandalous. Worse is the Centre’s approval for remission despite objections by trial court judge and the prosecuting organisation, CBI. A Modi government minister is defending the shocking decision. SC can’t let this drag like another routine case.

Things to Remember:

• For prelims-related news try to understand the context of the news and relate with its concepts so that it will be easier for you to answer (or eliminate) from given options.
• Whenever any international place will be in news, you should do map work (marking those areas in maps and exploring other geographical locations nearby including mountains, rivers, etc. same applies to the national places.)
• For economy-related news (banking, agriculture, etc.) you should focus on terms and how these are related to various economic aspects, for example, if inflation has been mentioned, try to relate with prevailing price rises, shortage of essential supplies, banking rates, etc.
• For main exam-related topics, you should focus on the various dimensions of the given topic, the most important topics which occur frequently and are important from the mains point of view will be covered in ED.
• Try to use the given content in your answer. Regular use of this content will bring more enrichment to your writing.

[WpProQuiz 357]

THE CONTEXT: The Insolvency and Bankruptcy Code 2016 has been a path breaking reform in the corporate governance in India. According to the 32nd report of the Parliamentary standing committee on Finance, August 2021 its potential to address the problems of Non performing assets and release of capital to productive areas has not been realised. In this backdrop, this article examines the various aspects of the IBC ecosystem so that students develop the right perspective about IBC and related issues.

NEED FOR INSOLVENCY AND BANKRUPTCY CODE

• Pre IBC insolvency and bankruptcy legal framework in India was fragmented and ineffective
• For corporates, bankruptcy proceedings in India were governed by multiple laws — the Companies Act, SARFAESI Act, Sick Industrial Companies Act, and so on.
• For individuals, The Presidential Towns Insolvency Act 1909 and Provincial Insolvency Act 1920 existed which were rarely used.
• The entire process of winding up was also very long-winded, with courts, debt recovery tribunals and the Board for Industrial and Financial Reconstruction all having a say in the process
• In actual practice, this system worked for the advantages of the Debtors, willful defaulters and resulted in mounting NPA.
• In view of the above. a new legislation was required for the development of credit markets, encourage entrepreneurship and promote ease of doing business.
• The code consolidates around 11 laws relating to insolvency and bankruptcy and creates dedicated institutions for various actions under the code.
• The Code also stipulates the role, responsibilities and the timeline that must be adhered to by all stakeholders.
• Thus IBC replaces the erstwhile “debtors’ regime” with “creditors’ regime” so as to bring financial integrity in corporate management.

KEY PILLARS OF THE IBC ECOSYSTEM.

CLARIFYING CONCEPTS

• INSOLVENCY A situation where the debtor is unable to pay back the creditor. It depicts a condition of financial distress of an individual or an entity.
• BANKRUPTCY A situation when a competent court declares that an individual or entity is insolvent. It is a legal declaration of insolvency.
• LIQUIDATION When the assets of an individual/entity are sold to pay off the debt, it is known as liquidation.
• RESOLUTION It is a plan of rehabilitation or liquidation of a corporate debtor. The approved plan may lead to restructuring the debt or acquisition by another entity or eventual liquidation of assets.

ADJUDICATING AUTHORITY

• National Company Law Tribunal (NCLT) and Debt Recovery Tribunal are statutory bodies responsible for adjudicating resolution of matters related to insolvency and bankruptcy.
• NCLT is for companies and limited liability partnerships and DRT is for unlimited liability partnerships and sole proprietors

COMMITTEE OF CREDITORS(COC)

• COC consists only of financial creditors. The role of the COC is to approve and disapprove the resolution plan proposed by the resolution professional
• The minimum vote required to approve the resolution plan is 75% in a meeting of COC.

INSOLVENCY PROFESSIONALS

• The entire insolvency resolution process is managed by an Insolvency Professional who is appointed by the Insolvency and Bankruptcy Board of India

INSOLVENCY AND BANKRUPTCY BOARD OF INDIA

• Most important institutional arrangement for the new insolvency and bankruptcy regime is IBBI.
• It was created as the Umpiring institution with multiple tasks including creation of regulations and control of agencies and professionals involved in the insolvency and bankruptcy business.

FINANCIAL CREDITOR

• Financial Creditors (FC) are the creditors who give money to the promoters. Banks, home buyers, etc. are considered as financial creditors.
• In the Committee of Creditors of Essar Steel Ltd. v. Satish Kumar Gupta, 2019, the supreme court has upheld the primacy of financial creditors over operational creditors in the resolution process.

OPERATIONAL CREDITOR

• Operational Creditors (OC) are those creditors who do not give money or cash to the promoters but they provide goods and services to the promoters. Both FC and OC can initiate the insolvency resolution although there are substantial and procedural variations.

CORPORATE DEBTOR

• Corporate debtors are the promoters who take loans or money from financial creditors or take goods or services from operational creditors as a debt.

LIQUIDATION

• If the Resolution Process fails to find a resolution for the corporate debtor within the stipulated timeline or if the COC does not approve the resolution plan by a vote of not less than 66% of the voting share, the corporate debtor is liquidated.

FIGURE 1: INSOLVENCY AND BANKRUPTCY CODE PROCESS

UNIQUE FEATURES AND BENEFITS OF THE CODE

1. Comprehensiveness: A comprehensive regime dealing with all aspects of insolvency and bankruptcy of all kinds.
2. Division of Responsibilities: Separating commercial aspects of insolvency and bankruptcy proceedings from judicial aspects and empowered stakeholders and adjudicating authorities to decide the matters expeditiously.
3. Changes in Orientation: Moving away from the ‘debtor-in-possession’ regime toa ‘creditors-in-control regime where creditors decide matters with the assistance of insolvency professionals.
4. Collective Action: Providing collective mechanism to resolve insolvency rather than recovery of loan by a creditor.
5. Timeliness: Achieving insolvency resolution in a time bound manner and empowers the stakeholders to complete transactions in time.
6. Reducing Business Failure: The code reduces incidence of failure as the inevitable consequence of default in terms of insolvency proceedings prompts behavioral changes on the part of debtor to try hard to prevent business failures.
7. Focus on Viability: It reduces failure by setting in motion a process that rehabilitates failing businesses that are viable.
8. Safe to Fail approach: By allowing closure of non-viable firms, the code enables an entrepreneur to get in and get out of business with ease, undeterred by failure (honest failure for business reasons).

ACHIEVEMENT OF INSOLVENCY AND BANKRUPTCY CODE

EASE OF DOING BUSINESS RANKING

• The legislation enabled India to leapfrog in World Bank’s Doing Business rankings from a lowly 142 in 2014 to 63 in 2020 due to the faster insolvency resolution process and others.

QUANTUM OF RECOVERY

• IBC resulted in mean recoveries of 44% for financial creditors in comparison to 24% from Debt Recovery Tribunals (DRT), SARFAESI Act and Lok Adalats combined, for financial years 2018-2020.

GROSS NON-PERFORMING ASSETS (GNPA)

• The banking sector’s GNPA ratio is estimated to have declined to 10 per cent in the end-March 2019 from 11.5 per cent the year before on the same date, as recoveries through IBC helped banks recovery bad loans, as per rating agency Crisil.

REDUCTION IN AVERAGE TIME

• The Standing Committee noted that the average time to resolve insolvency reduced from 4.3 years to 1.6 years between 2017 and 2020, since the implementation of the IBC

REVIVAL OF COMPANIES

• Several good debt-laden companies like Essar Steel, Bhushan Steel, Electro Steel, Amtek Steel, Bhushan Power and Steel, Alok Industries, and Reliance Communications have been revived with minimal loss of employment, loss of assets or loss in production.

PRACTICING NUDGE THEORY

• More than half of the CIRPs initiated by the OCs have been closed on appeal, review or withdrawal.
• This indicates that for fear of losing control and ownership of the company, debtors have preferred to pay the OCs and resolve amicably.

SUCCESS STORY OF THE IBC: THE ESSAR STEEL RESOLUTION CASE STUDY

• The Essar Steel Ltd (ESL for short) had financial debts of Rs 49,000 crore. The money was owed to a group of banks led by SBI, which included PSU and private sector banks.
• The NCLT admitted the insolvency proceedings in August 2017 and it was followed by the submission of bids by five metal giants, including ArcelorMittal.
• The NCLT handed over the interim management of ESL to another company which resulted into its turnaround.
• Meanwhile, government introduced Section 29A in the Code, which barred the promoters of companies that defaulted on loans for 12 months from submitting bids.
• These factors encouraged Arcelor Mittal to not only pay back 7500 crores of its due payment but also to increase its bid for ESL to Rs 42,000 crore from its initial bid of Rs. 29,000 crores, amounting to 92% of the credit liability.
• Various benefits accrued from these developments are outlined below.

BENEFITS TO THE BANKING SECTOR(FCs)

• Rs 42,000 crores (92%) were realised and introduced in the economy as against a debt of Rs. 49,000 crores within three years.
• In the earlier system, the resolution would have involved a protracted legal battle for a decade or so, while the debtor company would have closed down operations, and assets, plants and machinery would have been put to disuse and decay.
• Finally, only a pittance would have been recovered from whatever asset could be salvaged.

BENEFIT TO OPERATIONAL CREDITORS

• Since the company continued to be run by the turnaround specialists, the OCs were willing to extend credits.
• The company achieved operational turnaround and so the operational creditors got to continue their business with the company and also realise their dues. This was a win-win for both the OCs and the company.

BENEFIT TO EMPLOYEES

• The resolution proceedings ensured that not only did the company continue its operations but also achieved an operational turnaround. This was great news for employees who feared retrenchment.
• After the resolution, ArcelorMittal took over the company and continued its operations. Hence, most of the employees except the top management echelons would get to keep their jobs. This could never happen in resolution proceedings prior to the Code.

IBC PITFALLS AND SOLUTIONS: STANDING COMMITTEE OBSERVATIONS

ITEMS

CRITICISM

WAY FORWARD

EXCESSIVE AMENDMENTS

• The IBC has deviated from its original intent due to as many as six amendments in the last 5 years. The IBC now have a different orientation from its basic design
• There is a need for an evaluation of the extent of fulfilment of the original aims during the implementation of the Code over the years and a thorough overhauling based on the findings.

VERY LOW RECOVERY

• 95% haircut and delay in the resolution process with more than 71% cases pending for more than 180 days meant deviation from the objective of the Code.
• Provide greater clarity to strengthen creditor rights and have a benchmark for haircuts comparable to global standards.

DELAY AND VACANCIES IN NCLT

• 13,170 IBC cases involving nine lakh core rupees are pending before the NCLT
• More than 50% of the sanctioned strength of the NCLT is vacant including that of the President (32 out of 64)
• To address this delay, it recommended creating dedicated benches of the NCLT for matters related to IBC.
• Analyzing required capacity based on projected number of cases and planning recruitment in advance among others can reduce vacancies.

CRISIS IN MSMEs

• MSMEs were negatively impacted by the COVID-19 pandemic and under the current mechanism, they are considered as operational creditors, whose claims are addressed only after secured creditors
• Instituting additional protections for MSMEs, considering the current economic situation by suitable changes in the code is necessary

POST HOC BIDS

• Bidders wait for the highest bidder(H1) to become public and then try to exceed this bid through an unsolicited offer that is submitted after the specified deadline.
• This creates tremendous procedural uncertainty; delay and genuine bidders are discouraged from bidding at the right time.
• IBC needs to be amended so that no post hoc bids are allowed during the resolution process.
• There should be sanctity in deadlines so that value is protected and the prices move smoothly.

INSOLVENCY RESOLUTION PROFESSIONALS (IRPS)

• Fresh graduates are being appointed as IRPs whose competence is highly doubtful in handling the complex cases.
• Also there are issues of professional misconduct and disciplinary action has been taken against 123 IRPs.
• Professional self-regulator for insolvency resolution professionals (IRPs) that functions like the Institute of Chartered Accountants of India (ICAI) should be put in place.
• An Institute of Resolution Professionals may be established to oversee and regulate the functioning of IRPs so that there are appropriate standards and fair self-regulation

CONCLUSION: The IBC system provides a reformed resolution regime that balances the interests of all stakeholders. However, its potential to be the game changer in Indian financial landscape has not been fully successful. Now that, the one-year pause in IBC process due to Covid 19 has been lifted, fast tracking reforms cannot wait. Thus a comprehensive rejig of the Code by incorporating the recommendations of the Standing Committee and findings of a post legislative impact study is imperative. The success of IBC also depends on reforms in banking governance, working of tribunals and judicial interventions or its lack thereof, which must also be addressed immediately.