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OPINION: With Insolvency & Bankruptcy Code, Air India Privatisation, Modi Govt Bites the Reform Bullet

The long-awaited Air India divestment is one of the biggest reforms by the Narendra Modi government.

The long-awaited Air India divestment is one of the biggest reforms by the Narendra Modi government.

Unlocking value through quick resolution, monetisation or via sale, as in the case of Air India deal, the Modi government has exhibited sound business sense.

The steps taken by the Modi government over the last few years from enacting Insolvency & Bankruptcy Code (IBC) to sharpening other laws have helped banks recover over Rs 5.5 lakh crore of bad debt, including close to Rs 1 lakh crore from accounts that had been technically written off. Besides IBC, strengthening prudential norms and increasing the provision coverage ratio (PCR) requirement for banks including public sector banks (PSBs) have protected banks from any potential hits. Overall, despite the Covid-19 pandemic, the turnaround in PSBs has been remarkable. The recent reforms and proposed national asset reconstruction company (NARCL) will help clean up balance sheets of banks and make fresh capital available from the sale of bad assets, which will in turn, push credit growth. While there have been allegations of write off by an incompetent opposition, this is done in accordance with the provisioning norms fixed by RBI. Even if a loan has been written off, banks make every attempt to recover it. A write-off is completely different from a waiver. Write-off is only a technical adjustment, whereas a waiver means banks have given up their right to recover bad debts from the debtors. And under the Modi government, banks may have written off but not waived bad loans.

In fact, thanks to IBC, even loans that had been written off have been recouped in large measure. For instance, an amount of Rs 99,996 crore has been recovered from such written off loan accounts, which included some major recoveries through the IBC process in case of Bhushan Steel, Bhushan Power & Steel, Essar Steel, among others. Separately, banks have managed to recover money from other write-off cases such as Kingfisher. Since March 2018, the government-owned lenders have recovered over Rs 5 lakh crore.

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 was promulgated on April 4, 2021 as an amendment to Insolvency and Bankruptcy Code, 2016, introducing Pre-packaged Insolvency Resolution Process (PIRP). PIRP as a method will effectively serve as an alternative to the Corporate Insolvency Resolution Process (CIRP). Under CIRP, apart from the corporate debtor itself, it was primarily the creditors of a company that could initiate the insolvency process, but under the PIRP, application of initiation of resolution can only be done by the Corporate Debtor (CD). The new measure has been introduced to particularly aid distressed MSMEs and will help cover 99% of the MSMEs and businesses registered with the GST.

A major argument in favour of the new PIRP versus the earlier CIRP is the requirement of a base plan even prior to the insolvency resolution commencement date. The corporate debtor while filing an application before the NCLT for initiation of PIRP is obligated to have a base resolution plan.


The concept of pre-packaged resolution was an informal one previously and had no legislative backing, but given the legal sanctity it will now enjoy, will make the entire insolvency resolution process under the IBC, quicker, cost-effective and least disruptive to businesses, ensuring, among other objectives, job preservation.

As opposed to the CIRP where the obligation of handling the management and affairs of the corporate debtor was vested in the Resolution Professional (RP) in the case of PIRP, Section 54H stipulates that the management of the corporate debtor’s affairs shall continue to vest in the Board of Directors (BoD) or the partners, who shall make their utmost effort to preserve and protect the value of the CD’s property as a going concern. However, as per Section 67A, if after initiation of PIRP, the NCLT finds that an officer of the CD manages its affairs with an intent to defraud creditors, it may penalise the officer anywhere between Rs 1 lakh and Rs 1 crore. Basically, the Modi government via the new amendments to the IBC, is ensuring that not only the large stakeholders but even the interests of small creditors are protected.

At any point in time during PIRP, if the Committee of Creditors (CoC) vote with at least a 66% majority of the voting shares, they may opt to vest the management of the corporate debtor with the RP and the CD shall make an application in that regard to the NCLT. The RP is duty-bound both before and during the PIRP.

According to Section 54B, the resolution professional is to prepare a report on whether the CD fulfils the eligibility criteria under Section 54A and whether the base plan is statutorily sound. This and other specified duties arise after the date from which the CoC approves the plan. The RP’s second set of responsibilities arising are listed in Section 54F. These include verification of claims, monitoring the CD’s management, constituting the CoC and other specified duties. The provision further lays down the RP’s powers to ensure a smooth process.

To initiate the process, the debtor requires its financial creditors’ consent representing 66% of financial debt, to file an application with the NCLT under section 54C. Section 54A further mandates the debtor to supply a base resolution plan to the CoC prior to approval.

As per Section 54C, the application to the Tribunal must have the written consent of a proposed resolution professional and his report on the corporate debtors’ eligibility to pursue this alternative. Once lodged with the NCLT, the Tribunal shall within 14 days pass an order of admission or rejection depending on whether the application is complete or not. Prior to passing an order of rejection, the NCLT is duty bound to notify and permit the applicant to rectify the application’s defects within 7 days. The entire process has to conclude within 120 days of commencement. The Code stipulates a total of 330 days for the successful completion of CIRP. The CIRP has been observed to be a time-consuming process, with often a significant burden of costs. In contrast, the far lesser duration of 120 days makes PIRP a viable alternative.

On approval of a resolution plan by the CoC, the resolution professional shall submit the same to the NCLT within a period of 90 days from the insolvency commencement date. However, if within this stipulated 90 days, the committee fails to approve a resolution plan, the resolution professional shall on the expiry of such period, file for the termination of PIRP. In the event the committee approves a resolution plan within 90 days and the RP submits the same to the NCLT, the tribunal is to approve the plan within 30 days of receipt. The order of approval shall have an effect as given under sub-sections (1), (3) and (4) of Section 31. If the Tribunal is not satisfied with the plan, it may terminate the same under Section 54N of the IBC.

Another crucial provision included in the new IBC amendment is that relating to management of the corporate debtor. Unlike the CIRP where the creditor assumed complete control, the management of small businesses will continue to have control over the affairs of their business under the PIRP model thereby preventing business disruption. The Modi government has adopted a number of economic reforms in the recent past to make insolvency resolution simpler and sounder, blending informality with the statutory process so as to preclude a “one size fits all” approach. To sum up, the statutorily mandated period of 120 days in the new PIRP process will ensure that the corporate debtor’s value is not eroded and the debtor will continue with its own management thereby averting any disruption in business. As the RP does not run the business as a going concern, it will also prevent spiralling of any direct or indirect costs. A stressed asset has a limited life cycle and with an increased duration, the quality only worsens. Thus, the PIRP maintains the asset value to a large extent by speeding the resolution process and reducing costs. The beneficial impact will be felt more in the case of MSMEs. Given the largely time-bound and consensual nature of the PIRP process, there is far lesser time spent in litigation, which will thereby reduce the caseload faced by the NCLTs.

In the final analysis it must be said that unlocking value through either quick resolution, monetization or via sale as in the case of the loss-making Air India deal, which went to the Tatas, the Modi government has exhibited sound business sense. The Tatas will pay Rs 18,000 crore to acquire Air India from the government. Of the total money, 15% would go to the government and the rest will go in clearing debt. This follows the group of ministers (GoM) known as the Air India Specific Alternative Mechanism (AISAM), approving the bid winner. The long-awaited Air India divestment is one of the biggest reforms by the Narendra Modi government.

The reserve price was fixed at Rs 12,906 crore and the winning bidder will take Rs 15,300 crore debt. It will also retain all Air India employees for one year, and can offer VRS in the second year. The deal includes a 100% stake in Air India and low-fare unit Air India Express as well as a 50% holding in ground-handling company AISATS.

Air India’s total debt stands at over Rs 61,562 crore, with over Rs 1.1 lakh crore having been spent on the airline since 2009. Air India, which has accumulated losses of over Rs 70,000 crore, with a loss of Rs 20 crore per day, is one of the worst legacies of the corrupt Congress regime, which is singularly responsible for sinking this airline with a series of damning economic policies. It has taken a tall leader of Prime Minister Narendra Modi to undo the damage done by Nehru’s decrepit socialism 68 years ago. Under the Air Corporations Act, 1953, Nehru nationalised nine airlines, namely, Air India, Air Services of India, Airways (India), Bharat Airways, Deccan Airways, Himalayan Aviation, Indian National Airways, Kalinga Airlines, and Air India International. These were thereafter brought under the ambit of two PSEs, Indian Airlines and Air India International. The unpalatable but hard truth is not merely the fact that airlines were brought under government control but more importantly, running of airlines by private businesses was made illegal and a criminal offence, with punishments ranging from a fine of Rs 1,000 to an imprisonment for three months under Section 18(2). Nationalisation was the “fevicol” Nehru used to fix even all that was rock solid and did not need a glue to start with. However, Nehru’s Mahalanobis model of socialism, including the Industrial Policy Resolution of 1956 ruined one sector after another. For example, via the Life Insurance Corporation Act, 1956, Nehru nationalised 154 Indian insurers, 16 non-Indian insurers and 75 provident societies into a single entity, Life Insurance Corporation of India (LIC). But again, it is the bold Modi government which has decided to bite the bullet and go ahead with divestment of LIC, which over the years has become a clumsy behemoth.

Indira Gandhi followed Nehru’s wrong footsteps. With effect from July 1969, she nationalised 14 banks through the Banking Companies (Acquisition and Transfer of Undertakings) Act. The law to that effect was enacted in March 1970. The so-called reasons for this nationalisation were to provide accelerated credit to agriculture, encourage small industry and boost exports. Unfortunately, none of these objectives were realised. Despite this policy disaster, Indira followed it up with another round of bank nationalisation in 1980, leading to the nationalisation of six more banks. Indira Gandhi also nationalised general insurance in 1972 via the General Insurance Business (Nationalisation) Act, 1972. She also nationalised coal mines and Coal India Limited (CIL) in 1973. Again, it is the Modi government which denationalised CIL to incentivise productivity and disincentive inefficiency.

Air India has come full circle, back into the arms of its founders, the Tatas. A bold and brave move by the Modi government and if done, right, the deal could in the long run, prove to be bountiful for the new owners too. Air India is one of the most extensive flight service providers in India flying to 98 destinations (56 domestic destinations with around 2,712 departures per week and 42 international destinations with around 450 departures per week) as of November 1, 2019. Air India was founded in 1932. In 1953, when then government of Jawaharlal Nehru nationalised Air India, JRD fought valiantly against it. However, Nehru went ahead and decided to nationalise 11 airlines, all of which except Air India, were making heavy losses and merge them into a single state corporation.

Over 68 years after it was nationalised, Air India is now going back to the Tatas, that showcases why PM Modi is both a welfarist and a straight talking reformist, blending the two roles, seamlessly.

Sanju Verma is an Economist, National Spokesperson of the BJP and the Bestselling Author of ‘Truth & Dare-The Modi Dynamic’. The views expressed in this article are those of the author and do not represent the stand of this publication.

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