Promoters need to give up, be more flexible in their approach: Viswanathan

Former Union law secretary,T K Viswanathan says society will benefit if an enterprise runs in a healthy manner, who ever be the promoter does not matter

T K Viswanathan, former Union law secretary, has been a key architect of the Insolvency and Bankruptcy Code as chairman of the Bankruptcy Law Reforms Committee and member of the Insolvency Law Committee that recently reviewed its implementation. In an interaction with Sudipto Dey, he shared his take on some of the implementation challenges facing the Code. Edited excerpts:

On the need for review of the Code:

The IBC is the result of a lot of discussions and deliberations with stakeholders, and based on global practices. We succeeded in enacting a law and getting it implemented in a record time. However, the idea of the Code is not to liquidate businesses. The focus of the Code is on revival and rehabilitation of the enterprises. It is meant to keep a healthy credit market.

When you bring in a Code of this nature it is difficult to envision what types of problems one will encounter in its implementation. Initially, we did not account for issues like who will bid or who will not. We expected the committee of creditors to take note of these issues. They are sovereign and know what is best for revival of the company. We expected their judgement to be final and that should not be questioned in the court of law. But the problem is bankers are not able to take decisions, they lack confidence. We had to bring in provisions under Section 29A (that puts restrictions on bidders) that is leading to some litigation. We wanted to avoid all that by leaving everything to the committee of creditors. 

However, the review of the Code was needed to address public perception. 

On addressing the concerns of  flat owners:

The flat owners’ issue is a transient problem. This will not persist. We could not anticipate what all problems will knock on the doors. This came up because of the peculiar state of real estate market in India. We have given home owners a voice in the committee of creditors and a say in the rehabilitation scheme. Going forward we expect the Real Estate Regulatory Authority (RERA) to be in a better position to effectively deal with these issues. 

On how promoters’ emotional attachment to their business is causing stress in the Code:

Control over a business is not divine providence. Promoters are emotional and attached to their businesses. They should now learn to give up and be more flexible. Vitality of the enterprise is more important. Society will benefit if an enterprise runs in a healthy manner, who ever be the promoter does not matter. This is one of the main messages that we have tried to give through the Code.

On how presence of cross-border insolvency provisions would have helped in the Nirav Modi case:

I strongly believe we should adopt the UNICITRAL Model Law on cross-border insolvency. That would give India a platform to interact with other foreign courts. In the Nirav Modi case, a US court has issued an injunction against all foreign courts, including those in India, that they should not allow sale of his properties. Had we been part of the UNICITRAL Model Law, they would not have been able to pass that order. In fact, Indian courts would have taken precedence as centre of main incidence in cross- border insolvency would be in India given his business interests in the country. 

We would also then be part of a judicial cooperation agreement. The bankruptcy courts of countries that are part of the agreement would jointly deal with cross-border issues. If the law is in position we can make use of the law even in the present cases as these are procedural matter.