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Acquisition of Bhushan Steel under IBC is a milestone in bankruptcy proceedings.

Tata Steel last week announced that it had completed the acquisition of Bhushan Steel, a company which had the dubious record of being one of the largest defaulters to the Indian banking system. This acquisition is significant as it marks the first successful case of resolution of a large defaulter under the Insolvency and Bankruptcy Code (IBC). Bhushan Steel was one of the 12 companies identified last year by Reserve Bank of India for bankruptcy proceedings. The highlight of this resolution was that 53 lenders recovered 76% of outstanding debt, which will see some money flowing back to banks.

IBC is the most important economic reform the Narendra Modi government initiated and saw through. The essence of this reform is that it aims to bring about a timely resolution of a stressed debtor. The legislation prioritises resolution over liquidation. The most important indicator of its success will be its ability to bring about behavioural change among borrowers. The resolution of Bhushan Steel’s case, among others, will help that change. This in turn will bolster public trust in the system and enhance competitiveness of the Indian economy.

The experience of the last 18 months shows that IBC and its related ecosystem need some changes. The legislation needs to be calibrated to make finer distinctions between different kinds of financial creditors. However, it is important to avoid making significant changes, particularly in response to populist pressure which may want the law to go beyond what it can realistically achieve. Government has promised to increase bench strength of National Company Law Tribunal to deal with the case load under the IBC process. This aspect needs attention as timely resolution is the key to containing the problem in the case of a default.