The Insolvency and Bankruptcy Code has come with extra ordinary developments to the laws related to insolvency and bankruptcy. As a result of that, India has recovered vast amount of debt from the default corporate debtors. Regardless of this success, these recovered proceedings of liquidation are not distributed the way the way that they should be. Why? It is because regardless of how “creditor friendly” this code is, a section of creditors are not given their due, and it is the operational creditors.
The Current Situation
According to the current way that the committee of creditors have been created, the operational creditors are not given a seat at the table. Therefore, such creditors don’t have much say as the resolution plan of the insolvency that requires the voting from the Committee to reach an effective decision. Not to say that they are complete excluded from the meetings of the committee, for if the collective dues of the operational creditors exceed 10%, they are allowed to attend the meetings.
However, being present does not mean that they are allowed to exercise their powers, for they have to go through what the committee decides anyway. That means that considering that operational creditors want their money back fast, due to the long term commitments of financial creditors, they are not able to get their due.
The Reason behind the Exclusion
The reason behind the exclusion of operational creditors is this: Operational Creditors need to get repaid fast. To that end, they are not willing to postpone their payments. However, speed does not bode well for an insolvency resolution process that is supposed to fair, expedited and proper. To that end, committee of creditors is only filled with creditor groups that say yes to this efficiency. Furthermore, without sustaining some amount of operational debt, no company shall be able to sustain the long run. Back in 2015, the Bankruptcy Law review committee pushed upon this very fact and pointed towards the allegations that operational creditors can harass the debtors to get their dues.
The Counter Point
Regardless of how logical the rationale is, the truth of the matter is Operational Creditor’s exclusion is a bad idea. Especially when one considers that the salary-men, the wage workers and others might also come within this particular category of creditors. Furthermore, there have been cases where the total operational debt is about 75 percent of the defaulted debts. In this case too, the operational creditor’s rights are often ignored to favour the financial creditors.
This does not seem fair in any way.
The Solution
There are two solutions present for this matter,
1. The IBC should include some criteria so that the operational creditors can get to be the part of the COC.
2. The NCLT should come with a plan to grant Operational Creditors a position where they can have more impact on the result of the insolvency resolution process.
Fortunately, it is 2019 and now the IBBI is proposing that the operational creditors should infect be granted more power than before. However, it is being still frowned upon by the financial creditors.
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18-Oct-2019The Supreme Court on 16th October 2019 had finally agreed to hear the case of PMC scam on an urgent basis on 18th October of a petition looking for directions in order to provide interim protective measures for protecting near about 15 lakh people whose money were blocked in the Punjab and Maharashtra Cooperative Bank.
A PIL has been filed in the Supreme Court, a day after the reported death of a PMC bank account holder over indecision of their savings. The PIL filed was looking for a direction to provide 100% security as well as protection to the savings of a large number of clients.
The bench had stated that on oral mentioning prepared by the petitioner-in-person looking for urgent listing of the case, the registry is directed towards list this matter on Friday, 18th October 2019, before an appropriate bench, subjected to curing of defects.
The petitioner had alleged that the monetary disaster of the PMC bank had resulted in mass erosion of the public confidence in the banking system of our nation.
The Enforcement Directorate is seeing into claims that the bank didn’t report all non-performing assets, or bad loans, after giving funds towards a number of corporations. The scam is estimated to be worth nearly Rs 4,355 crore.
The Reserve Bank of India earlier this month had levied restrictions on the amount of money that could be withdrawn from the bank. Deposit withdrawals were capped at Rs 40,000 for six months.
On 16th October 2019, Wednesday, the matter has been stated for urgent hearing before a bench of Justices NV Ramana, R Subhash Reddy and BR Gavai.
The petition has been filed by Delhi based Bejon Kumar Misra, who stated that the Centre, as well as the RBI, must be ordered to make certain complete insulation as well as insurance of the money deposited by individuals in cooperative banks, which includes nationalized banks also. The petitioner also stated that the Centre and RBI should give 100% insurance coverage for the sum deposited.
The petition added that the government must be directed to set up a high powered committee towards looking into the affairs of every cooperative bank. The petition also sought after quashing of the notifications of the RBI relating to restricting withdrawals from PMC Bank.
The plea stated that being aggrieved by monetary sufferings of thousands of innocent accountholders of PMC Co-operative bank, the query of accountability and propriety should be addressed to encourage the confidence of the people in the banking systems.
Furthermore, the plea claimed that the hard-earned money of the common people was looted and plundered by means of few influential as well as corrupt individuals making them financially orphan and resourceless.
The Reserve Bank of India (RBI) last month had levied regulatory restrictions on PMC Bank as per Section 35A of the Banking Regulation Act. Pursuant towards these restrictions, a limit has been put on the amount that can be withdrawn through the ban | estartindia