5 of 12 large NPAs complete transfer of management control

Central bank mandated the companies for resolution; BPSL, Jaypee Infratech and Amtek Auto in last leg of that process

With lenders agreeing to a plan for Bhushan Power & Steel (BPSL), the spotlight is back on the first list of non-performing assets (NPAs) mandated for resolution by the Reserve Bank of India (RBI) under the Insolvency and Bankruptcy Code (IBC).

Most of the 12 large NPAs on the list were admitted by the National Company Law Tribunal (NCLT) in 2017, except Era Infra Engineering (it was admitted in 2018). Five companies have had transfer of management control since 2017: Electrosteel Steels, Bhushan Steel, Monnet Ispat & Energy, Essar Steel India and Alok Industries. Jyoti Structures is set for takeover after the process of was delayed in the Covid-19 pandemic.

BPSL, Jaypee Infratech and Amtek Auto are in the last leg. In BPSL, applications against the resolution plan are pending before the Supreme Court. But majority lenders have agreed to accept payment in accordance with JSW Steel’s resolution plan, with an undertaking to refund the amount in case the Supreme Court gives an adverse order. The effort is to complete it by March 31.

In Jaypee Infratech, arguments before the Supreme Court have concluded and judgement is reserved, a stock exchange notice said. Amtek Auto is also progressing.

Sources said that the Supreme Court has sent it back to the NCLT to resolve within a month.

In most cases, the maximum timeline of 270 days was breached. Abhishek Dafria, vice president, ICRA, said, “The process is well defined, it’s the implementation that’s getting impacted.”

He pointed out that delays impact asset value, but it’s a fairly young law. “The big-ticket NPAs are setting new laws and benchmarks for future cases. Going forward, one can expect that the learnings will be applied, which will help speed up the process,” Dafria said.

Some of these large cases have helped clear many aspects of the law and its amendments.

As Manish Jain, managing partner, JLJ Law Offices, pointed out, the larger NPA resolutions have helped bring clarity to different aspects of the law like Section 29A and the debate around value maximisation and sanctity of insolvency process.

Section 29A bars those who have contributed to the default of the corporate debtor or a “related party.”

Among the ones pending on the list, Era Infra Engineering could also set a precedence. Resolution applicants for Era Infra submitted resolution plans where all its BOT (build-operate-transfer) projects were proposed to be a part of their proposed resolution plans.

This has been placed before the NCLT so that the committee of creditors (CoC) can consider a consolidated resolution that includes Era Infra Engineering and the BOT projects. The CoC otherwise is not empowered to consider a resolution plan, as the BOT projects are separate legal entities and only Era Infra was admitted under IBC. The application is pending before the NCLT.

But even as cases exceeded timeline, recoveries in some cases made the wait worthwhile for lenders.

Realisations in the ones completed have ranged between 17 per cent and 83 per cent for financial creditors; in Essar Steel, financial creditors realized 82.91 per cent of claims admitted while secured financial creditors realized 91.99 per cent.

“Where there is strategic interest and the asset is good, the experience with IBC has been good,” said a lender with an exposure in half of the assets on the RBI’s first list.

Two assets--Lanco Infratech and ABG Shipyard--on the list are facing liquidation. In the case of ABG Shipyard, the NCLT in December allowed the liquidator to sell/dispose of assets by way of a private sale after failure of four e-auctions.